It may be a few months old but this note by Bill Gurley of Benchmark Capital is worth reading:
There are many reasons why MMOGs make enviable businesses:
1. Recurring Revenues. Anyone who has ever sold software covets the
predictability of recurring revenues, particularly subscription revenues
that are basically “good until cancel.” Most of the leading MMOG businesses
employ some form of subscription pricing.2. Competitive Moats. Warren Buffet is fond of saying he likes businesses
with castle-like moats (i.e., ones with high barriers to entry). As users
invest more and more time into a persistent character, into an avatar, into
accomplishments, into online relationships, and into the resulting
reputation, the higher the costs to switch to an alternate platform.3. Network Effects / Increasing Returns. There is no better online barrier
to entry than a strong community. Witness how Amazon and Yahoo both failed
to distract eBay users even when offering a free product. For most MMOGs,
the more users a particular game has, the more compelling the experience is
for incremental users. This self-reinforcing form of Metcalfe’s Law is
alive and well in many MMOGs.4. Real Competition. In the future, traditional software-based games will
merely be practice vehicles for the much more interesting endeavor of
multiplayer competition. MMOGs allow for a sense of competitive
accomplishment and provide vehicles for the human ego to be rewarded, all of
which drives extremely obsessive behavior.5. Time Engaged. According to the previously mentioned Forbes article, “a
good PC-based game has a lifespan of 30 hours of play; a good multiplayer
game gets 20 hours in just a week.” This puts MMOGs, from the perspective
of today’s users, on par with television in terms of time engaged.6. Unlimited Complexity. In a world where other players are part of the
user experience, the number of permutations of experiences is quite
realistically limitless. From the relatively simple rule-sets and economies
present in most MMOGs, astonishingly complex emergent behaviors arise. This
offers a stark contrast to previous interactive entertainment where the game
can eventually be “beaten” by the user.7. High Risk, But High Reward. The number one criticism of MMOGs is that
they are “hit” businesses like Hollywood businesses. A closer look will
reveal that the average successful MMOG has had a useful life of over five
years. What’s more, sequels are amazingly popular. As such, it is not
unrealistic for a title to last ten years. That said, there are many, many
MMOG efforts that fail to reach the break-even number of subscribers
necessary to have a positive return on investment. As with the entire
history of finance, risk and reward remain correlated.
