Harvard Business School recently brought together six influential industry members in the field of massively multiplayer online virtual worlds to conduct a panel on the present and future of a burgeoning market space.
"I'm far from exhausted in the online opportunity," said Mark Kern, who left his tenure as team lead of Blizzard's World of Warcraft to found a new company, Red 5 Studios, dedicated to expanding the genre and market reach. He envisions a future of virtual worlds composed of 'synthesized content', produced by artificially intelligent game design systems which would take an hour of a player's free time and provide them "the ultimate experience catered toward that hour."
Who's Actually Playing?
In the meantime, numbers that he has seen indicate that only about 15 percent of core gamers engage in MMO games and worlds. Philip Rosedale -- founder of Linden Labs, the company behind Second Life -- added that his numbers indicate perhaps only a one percent market penetration in general. In a marketplace that could sustain hundreds of millions of players, current endeavors have only millions.
Philip went on to say that there is "a lot of growth yet to happen. Probably a lot of change, consolidation -- all the companies that you're seeing will probably go through a lot of evolution." Lacking clearly defined guides or genres, it is "not a mature market," and the space is like a vacuum.
The ROI Situation
Regarding the barriers of entry that new MMO developers face, Curt Schilling -- founder of the recently established 38 Studios -- said: "There are a few barriers here, and at the top of the list is going to be, and always will be, money." Few developers are internally funded, and, "when you're sitting in a meeting with venture capitalists, they are... Most of them are about ROI."
The focus on return on investment poses a challenge to new developers in the MMO space, because there is not yet a common-knowledge business model to calculate risk from.
Curt's company, fortunately, is similar to Blizzard in that it is entirely internally funded. "You have to meet deadlines, milestones, you have a budget -- all those things -- but when you can set those on your own, and you are creative, and you have responsibility to your team and to the product. It's different."
Mike Hirshland, of Polaris Venture Partners -- which works closely with Turbine Inc., producers of online renditions of Dungeons & Dragons and Lord of the Rings -- said that Curt's view of VCs is exactly right. "Three letters: R O I." He then shed light on the sort of capital needed for these projects: Large-scale MMO projects to date require three to five years of development time, at a cost of thirty to sixty million dollars to get the title launched, with substantial investments over time in order to regularly introduce fresh content.
To further complicate matters, the primary distribution channel is still in the form of boxed retail. "From a VC perspective," said Hirshland, "thinking about it is tough, challenging."
Where's It All Going?
Mark Kern, whose studios are supported by seventy million dollars in venture capital, noted that these projects are steering closer to Hollywood every day. "There is no possible way that we can do what it is that we want to do cheaper and quicker. VCs have asked us, 'Could you do something that costs a little less and comes out a little quicker?' Yeah we could, but it wouldn't be what we're going to make."
The fluid nature of these games and worlds provides developers -- and investors -- new opportunities to monetize user experiences: Cable internet and television provider, Comcast, likens the amount of time and money players spend in MMO virtual worlds to the amount of time and money spent on premium television channels, or Video On Demand services. In the Asian market, developers of MMO projects in South Korea have honed a system similar to America's highly lucrative ringtone market.
Philip Rosedale expounded on the Korean system: "Anybody know Kart Rider? Kart Rider was really an interesting thing. Korean game, very successful, about 100,000 online at a time. Lightweight -- very lightweight. The company made money by selling stuff that you would attach to your car; what's fascinating is that a lot of the stuff they sold was just cosmetic."
"They actually found that they could drive a hundred million dollar a year business," he noted.
Making Players Count
On the topic of monetizing Second Life, Philip explained that Linden Labs sells virtual land to its users for a standard monthly rate. The cost varies only by virtual acreage, and what players do with the land has no effect on the rate that Linden Labs will charge them. "You've got to use flat fees, you've got to use simple treatments on things."
Second Life's greatest draw for users, however, is the ability to produce and even sell their own content: "The interesting thing about user-generated content is that if there is any impediment to people creating it, they won't." Philip related the unsolved challenges of interface and infrastructure of MMO virtual worlds today to that of web browsers and the state of the internet in years past.
Chris Carella -- CCO of Electric Sheep Company, an advertising firm which focuses on virtual worlds, and has worked with clients ranging from the NBA to MTV -- agreed with this view. Employees of Electric Sheep Company have even gone to the lengths of developing a more browser-like prototype interface for Second Life, to ease ergonomics.
Corey Bridges -- co-founder of Multiverse, with a background in marketing for corporations such as Netscape and NetFlix -- agrees with these sentiments as well, and thinks that "the notion is enabling this entire medium to be opened up. Not by 'somebody made a werewolf suit', but by somebody saying 'oh, here's a new use for virtual worlds', along the lines of wikis, as-such, didn't exist ten years ago."
"The technology could've supported wikis ten years ago," he continued, "but it took some evolution of somebody saying, 'Hey, let's try this.' And then blogs, and podcasting -- these sort of things have come up organically."
A number of of panelists hope to blur the lines between virtual worlds like Multiverse, and the web browser as we know it. Corey's view is that once a platform can be developed which makes experimentation attractive and economically feasible, people will experiment. "And that's where you get real innovation."
Less a matter of 'if', and more a matter of 'when', MMO virtual worlds, the panel concluded, will become the context and interface for hundreds of millions of users, facilitating billions of dollars in transactions.
[Thank you to Dan Weis for organizing this panel, Harvard Business School for hosting it, and Dr. Joshua Green for serving as moderator.]