Online Gaming writes:

Unlike previous editions of the E3 game trade show, this year’s event had few launches of high-profile online games for the PC, a market dominated by fantasy games such as “EverQuest” and “Star Wars Galaxies.”

On the console side, publishers say they’re happy with consumer acceptance of new online gaming services but need to find a business model somewhere between the current extremes of free online play and games that require monthly subscriptions.

The answer for most is minitransactions, small purchases that would allow game players to pay a few cents to download a slick new piece of armor for a role-playing game or a new map for a shooting title.

Andrew House, executive vice president at Sony Computer Entertainment America, said market expectations have already been set by the first wave of online console games, and consumers will have to be eased into the idea of paying extra for online assets.

“Our belief is that consumers expect basic head-to-head multiplayer online play to be included in the game they buy,” he said.

“The subscription-based model is inherently self-limiting,” he said. “The preferable model, we think, is based on downloadable content and minitransactions. You’ll see the fruits of that emphasis from us over the next year.”

Microsoft is already working the online angles, though, with the Xbox Live online gaming service for its Xbox console. The software giant has more than 800,000 subscribers paying $50 a year for the service, which allows access to online portions of more than 100 games.

On the PC side of online gaming, publishers appear to have given up on the idea of dethroning “EverQuest” and building a user base in the millions. McMillan said the comparatively tepid response to “The Sims Online,” the online version of the smash PC game, was a tough lesson for EA.

“The thing I think we learned is that expecting packaged good sales to be an indicator of subscription sales isn’t realistic,” he said. “They’re very different things. For a person to actually put down their credit card and say–‘I’m going to pay so many dollars a month to play this’–that’s a big decision.”

Start-up Linden Labs, however, is confident it has sidestepped the financial pitfalls of online PC gaming.

The company has been running the game “Second Life” for a little more than a year with a business model that combines a number of novel approaches. Aside from an initial fee of $10 to set up a user account, the company makes most of its money by selling real estate in the game’s virtual world. Players buy lots at an average of $100 an acre and pay monthly property taxes, neatly covering the costs of installing and maintaining game servers, one of the biggest ongoing expenses in running an online game.

Ongoing development costs are minimal, because every bit of content in the game–from virtual nose rings to futuristic vehicles–is created by players, using online tools or graphics programs such as Photoshop. The game currently has more than a million user-created items, and players are free to resell their creations for the game scrip, “Linden dollars,” which can be exchanged for real U.S. dollars on any of several trading sites. Sales average $100,000 a month.

The key, said Linden Lab founder and former Real Networks executive Philip Rosedale, is delivering the game as a streaming service, which means the game world can be constantly updated without requiring the user to install lengthy downloads or CD-based content.

China is seeing a lot of action on the online gaming front. One of the leading companies, Shanda Interactive Entertainment, recently did an IPO on Nasdaq and raised $165 million. WSJ wrote:

Shanda specializes in what is known in the gaming world as “MMORPGs,” or massively multiplayer online role-playing games. Users pay Shanda a fee (usually between three cents and seven cents an hour) to play one of the games. At its peak, Shanda had 1.4 million people playing games simultaneously, according to offering documents filed with the Securities and Exchange Commission.

Shanda is profitable. Last year, it reported net income of $33 million, on $76.5 million in revenue, according to SEC filings. Much of its revenue is derived from just one game, “The Legend of Mir II,” which accounted for 57% of its $29 million in sales in the first quarter. Combined, “Legend of Mir” and a second game, “The World of Legend,” accounted for 88% of revenue.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.