Free To Play

Been very busy on the consulting front lately… apologies for the lack of content. But I promised Nicolo I would post this job for him, so here goes:

At this year’s GDC, I met Michael Ivvora and Nicolo Laurent from GOA, the videogame subsidiary of France Telecom/Orange. Besides handling the European side of US online games – launch, localization, QA, support etc – for games like Warhammer Online and Dark Age of Camelot, Orange also runs a free to play portal at goa.com. They’ve recently launched localized free to play games in Europe like Gunbound and Pangya, and they’ve got plans to expand their game selection.

Right now they’re looking for an Operational Manager for their free to play business, which is based out of Dublin, Ireland. This is a lead managerial position, which means leading the vision for their free to play business, managing project managers and organizing work flow between game teams. It also means working closely with the marketing team to develop strategies for customer acquisition, conversion, retention and monetization, along with managing the alignment of development and marketing goals.

If this sounds like your dream job, send an email to nicolas.laurent@goa.com.

A full job description after the jump.

(more…)

A few hundred people watched my Red Bull-fueled version of this presentation on Monday, February 18th at GDC. The narration included in this slidecast was done this weekend and is not nearly as energetic.

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In the interest of playing devil’s advocate, I thought I’d throw out 10 reasons why free to play might be slower to succeed in the Western world as it has been in Asia.

While I don’t necessarily believe all of these will inhibit F2P’s growth, one of the slides in my GDC presentation this year is to do with the challenges F2P faces - so this should help fulfill that requirement.

1. Virtual Property “Ownership”

The term ‘virtual’ may not have a strict legal interpretation, but if anything it means that the thing being described is NOT whatever comes after the word ‘virtual.

- Ginsu Yoong, Second Life’s legal counsel, Linden v Bragg

Despite virtual property’s ill-defined legal status, developers have had no qualms about starting byzantine in-game economies driven by the exchange of real money for virtual land, clothing, furniture and much more.

Some developers, like GoPets CEO Eric Bethke, have attempted to get out in front of the virtual property legal issue by defining their own “Avatar Bill of Rights.” But most of us have not been as proactive and instead seem content to leave it up to the courts to decide how to define and deal with our users’ virtual property.

As precedents regarding virtual ownership are set, the growth of some F2P products may be curtailed as the legal burden of dispensing virtual property increases.

2. Slow Broadband
On the issue of net speed, there remains a huge disparity between North America’s broadband ISPs and Korea’s military-grade internet provision.

The net effect is that free to play games like Maple Story can take 1-3 hours or more to download in North America, while Korea’s 45mbps network cuts the same download to a paltry 10 minutes or less.

It’s fair to say that we won’t soon be getting such high download speeds - but the North American market might have already found a way around the issue. With the launch of streaming game services like InstantAction and the proliferation of Flash as a full-blown development platform, downloading entire game clients become less and less the norm.

3. Poor Advertising Strategies
Some products in the F2P sector have come to rely heavily on advertiser support in order to keep their offerings free for the majority of players.

A recent OMMA article that claims advertisers are taking the wrong approach when handling virtual worlds. And as the populations of virtual worlds appear to be prematurely plateauing, advertisers may be starting to sweat.

But there is hope if advertisers change their strategies to suit the unique challenges virtual worlds present. As Worlds In Motion put it:

…themed events, branded avatar clothing, and representative personality appearances are finding success and opportunity in worlds like There, Habbo and vSide.

4. MMO Overload
From Maple Story to Silkroad Online, there is no shortage of MMOs in the free to play space. In the same vein, there is an abundance of virtual worlds such as Second Life or Kaneva. It seems as though the vast majority of new free to play game since 2005 have been virtual worlds or MMOs.

Perhaps it’s the very reason that these games have proliferated in the free to play market; MMOs and virtual worlds are inherently more inclusive than an FPS. Still, it would be a shame to see the free to play space flounder due to constant reiteration of the same genres and themes, turning away players seeking a different experience.

Of course, games like Kwari are looking to change that, but it’s too early to tell just how well they will catch on.

5. Rising Development Costs
With more prominent developers announcing plans to take advantage of the free to play model, the days of games fueled by ramen noodles and nights in the basement could, once again, be history. EA’s upcoming Battlefield Heroes is the latest big budget free to play game, signaling that the big publishers aren’t content to sit back and let Far East imports eat their lunch.

If the consumer makes the jump from 2D to more advanced 3D graphics, it could mean the end of the visually rudimentary worlds and Flash-based free to play games as market leaders, making way for the mainstream big budget games.

6. Second Life Slowdown
Second Life is the Apple Newton of virtual worlds. It was here first, but isn’t the best representation of the potential of virtual worlds. However, it still occupies a place in investors’ minds - akin to a coal mine canary, warning of impending danger.

And while investors took note as Second Life soared to the top, they’re noticing its decline as well (active user hours were down 5% in November). There is concern among some that Second Life’s time might be up, and that’s not a good sign for potential investors in the free to play space.

7. Watered Down AdverWorlds
With their lower barrier to entry and great potential to spin money, an slew of less innovative products are beginning to hit the market. Hardest to ignore are adverworlds like Build-A-Bear, Rush Zone, BeBratz, BarbieGirls and their ilk - marketing spend thinly disguised as entertainment.

The consumer’s willingness to pay money for virtual items in a world where their avatar is little more than a target for advertising will be tested by products like these.

8. Unsanctioned Secondary Markets
Then there’s the issue of gold farming. With websites like IGE operating independently of game developers and establishing secondary markets for game currency and items, it’s not just traditional MMOs that are being subjected to this kind of treatment anymore.

What’s worse, while gold farming might fuddle with World of Warcraft’s player-driven economy, some developers believe a secondary market allows players to skip the middleman altogether - a potentially fatal issue for free to play games who survive on item-based revenue streams.

The recent launch of publisher-sanctioned Live Gamer is a step in the right direction for devs and pubs looking to reclaim lost revenue.

9. Limited Payment Methods

We have hanging on our wall a user who sent a $5 bill in a $15 fedEx package.

- Craig Sherman, Gaia Online

While other territories enjoy a plethora of tailored-to-the-consumer payment methods, North America has embraced relatively few.

SMS would surely be nearly as popular a payment method here as it is in Europe if our carrier surcharges weren’t in the range of 50% a transaction. Landlines - an expensive but very secure payment option in China - might also be popular with some services.

GoPets has 90 different payment systems worldwide, catering excellently to foreign payment preferences. Nonetheless, consumers still have trouble getting money into their favorite North American games.

10. Kids Only Games
The current offering of free to play games caters nearly exclusively to the under-25 set. An NPD study released last year showed that while 91% of online gaming among kids aged 2-17 is free to play, by the time those kids graduated high school, the boys had moved to sixty-dollar console games and the girls dropped out of gaming entirely.

In the core gaming arena, Nintendo has found a way to appeal to young and old alike. Free to play’s appeal among adults relies on the proliferation of products that do a Nintendo-quality job of bridging the age gap or target older demographics only.

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OnNet USA is the American subsidiary of OnNet Korea a developer of multiple free to play online games. The American branch of the company acts solely as a publisher through their portal site Games Campus.

Today, OnNet releases their newest game, a free to play third person shooter titled Manga Fighter. We spoke to YJ, Manga Fighter’s Producer, about the project and the free to play model in general.

What is the relationship between OnNet Korea and OnNet USA?

OnNet Korea is an software developer creating search engines and other similar products. OnNet USA is an online publisher of free to play games. They’re two different ideas with two distinct identities.

OnNet USA opened it’s doors three years ago with the launch of our golf game Shot Online.

What did you learn from that experience and what has been carried over to Manga Fighter?

We weren’t very well organized which was a big challenge so this time out we made sure to have the proper management in place. That’s the real risk area with a project like this you need excellent management.

The other important lesson concerning constant content updating. With a free to play game and a virtual goods revenue model you have to make sure that there is always new content for the players. We found that to be the key to player retention.

It’s hard to discuss MMOs without mentioning secondary markets for virtual goods and currency. What are your thoughts?

We’re very aware of the secondary markets and the emerging issues associated with them. At this point we’re taking a neutral stance and kind of waiting to see what the industry trend as a whole is.

Why have the global launch of a manga style game with the virtual goods model in America. Why not use the Korean market where both of those things are more mainstream?

Well in a lot of ways this is a new game for any market. It’s a fast-paced third person shooter aimed at a younger audience and there’s not much out there like that. We believe the US is a great testing ground for our new content.

Just three years ago, some declared the free to play model wouldn’t work. Today it’s beginning to get big. It’s not quite mainstream yet but we’re heading in that direction and America is a huge potential market. There are a lot of gamers in America.

What about the release cycle. OnNet ran two beta tests and a boot camp? What was that?

The Boot Camp was just a term for our third beta. In fact even now that we’ve opened the game up we still haven’t implemented all the commerce aspects of the game. This is more like an open beta and then we’ll see how the market responds before launching the money aspect.

What kind of marketing has gone into the launch of the game?

We haven’t done any big budget marketing campaigns but viral marketing has worked well for us. We’re also mailing collectible cards to players with a code on them. The code unlocks premium content in Manga Fighter and down the road we’re looking at getting these cards into retail outlets.

The other thing we’re excited about is the possibility of getting some famous faces from the rest of the manga universe in game. I can’t release any details yet but we’re in discussion with some major publishers.

Thanks for your time YJ and good luck with the launch of Manga Fighter.

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From a Fortune article, EA CEO John Riccitiello had this to say about the free to play business model and how it will affect traditional retail games.

Riccitiello says the $31 billion gaming industry will suffer if it doesn’t start to reevaluate its business model. Game executives at Sony (SNE), Microsoft (MSFT) and Activision (ATVI) must answer some tough questions in the coming years, like how long they can expect consumers to pay $59 for a video game. Riccitiello predicts the model will be obsolete in the next decade. [Ed: emphasis mine]

“In the next five years, we’re all going to have to deal with this. In China, they’re giving games away for free,” he says. “People who benefit from the current model will need to embrace a new revenue model, or wait for others to disrupt.” As more publishers transition to making games for online distribution, Riccitiello says he expects EA will experiment with different pricing models.

As a colleague just said to me in an email, “It’s encouraging to see they (EA and big publishers as a whole) recognize the issue”.

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Game developers the world over continue to explore the free to play model, whether it’s a large-scale MMO or an ad-supported casual game. But one of the more interesting free to play experiments of late comes from Facebook application developer David Gentzel, a 24 year old originally from Roanoke, VA. Mr. Gentzel now calls San Francisco home where he is a developer at SocialMedia, marketing guru Seth Goldstein’s rapidly growing “Social Advertising Network.”

David’s free to play experiment is the incredibly popular Food Fight application.

When the game first launched on Facebook, Food Fight players could sign up to receive a daily allowance of virtual cash that could be spent at the Food Fight cafeteria to purchase one of dozens of available food items. Players would then virtually “throw” said item at one of their Facebook friends. If the recipient had the food fight application, a small image of the item would appear on their page.

But recently, Food Fight’s the resourcing model changed, which is when it became interesting from the perspective of free to play revenue models.

As of mid-September of this year, a player’s lunch money account isn’t cleared at the end of every day - it’s persistent - like a real bank account. Additionally, the daily stipend given to each player was removed, replaced by a model where players earn virtual cash by answering short marketing surveys about a wide range of products. Each multiple choice question takes just a couple seconds to fill out with a reward of one dollar of lunch money per question answered. Interestingly, players earn a higher payout when they answer the same question the same way down the road, an attempt to value accurate answers more highly than one-offs.

Marketers pay for player responses to their surveys, creating a nifty free to play revenue stream and making Food Fight the definitive social networking application for SocialMedia. Seth Goldstein is understandably thrilled about the “craplet” (his words), saying in a recent Business 2.0 article:

People really like to throw piles of poop… So you price the poop high and people have to answer a bunch of questions to pay for it. That’s the future of Internet advertising: throwing shit at people. Literally.

That is it. No scoring, no winners, and no end. Nonetheless, a very successful idea.

How successful?

It takes a bit of conjecture to figure out, but here’s our back-of-the-napkin revenue estimate:

• There are 36,257 active daily Food Fight users (among 2M registered FF players)
• Assuming each daily user answered just two surveys (reality is likely higher, as the lowest priced item is $2 - requiring two surveys to be completed)
• Assuming each survey response cost a marketer 25 cents (reality is likely lower, but Facebook polls already charge clients 25 cents/response)
• This would result in $18,128 of revenue per day
• Or ~$6.6M of annual revenue for SocialMedia, from one app

That is no small potatoes for an application that likely cost less than $100k to develop.

Since Food Fight introduced surveys, food prices have increased significantly as the game gets balanced. Prices for food items range from $2 to $11 virtual lunch money dollars. For instance, at $10 lobster is significantly more expensive than most items with only Bubble Tea having a higher price tag.

Consider the following price comparison from June 25th of this year till October 26th, a four month time period.

• Haggis = $1.75 / $3.40 (194% increase)
• Orange = $.50 / $2.30 (460%)
• Banana = $.50 /$3.25 (650%)
• Sucker = $.25 / $2.30 (920%)
• Shrimp cocktail = $1.75 / $3.40 (194%)

So according to these numbers Food Fight items have increased in value by an average of 484%. However, in less than a minute a player can answer enough survey questions to buy even the most expensive item - keeping the game easy and fast to play, while deriving more and more potential revenue from the same virtual items.

Going Forward
Given the fad-ish, viral-flocking nature of social networking apps, it will be interesting to see if Food Fight can maintain and grow their numbers long enough to start capitalizing on this potential revenue stream. In the meantime, SocialMedia is using Food Fight as a beta test for their social advertising network as a whole (and a host of similar apps) - electing not to charge for most, if not all, of the marketing surveys they host. (F2P.biz’s request to SocialMedia for clarification on the “revenue stream, on or off?” point was not answered before this article was published).

Regardless of when SocialMedia turns on the money tap, it’s clear they’re onto a high-ROI free to play revenue model that traditional game developers could do well to emulate.

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Tech Digest has a writeup from a panel discussion at Virtual Worlds Forum Europe. In it, Jessica Mulligan, Executive Director of Player Relations at Cyber Sports, provides several interesting-but-unattributed stats and a couple quotes that support what F2P.biz is about.

Stats

• Just 10% crossover between online games and social spaces (e.g. World of Warcraft vs Second Life)
• 60 million active players of virtual world games (people who are paying money on a monthly basis).
• Virtual worlds generated $4.5 billion in revenues last year. WoW, Westward Journey and Runescape are in this group.
• Social spaces (Habbo, Webkinz, Club Penguin, etc) generated $400M last year.
• Asia accounts for 50% of all virtual world revenues.

Quotes

We’re going to see more games under that business model [f2p, vis] than under the premium model.

In social spaces, web-based worlds are growing, while those that rely on you downloading a client are “stagnating”.

Interesting stuff, but without any sources to back up the stats or quotes, it’s tough to view this as anything more than cheerleading for the sector. For instance, I believe browser-based is a smarter choice than downloadable client, but I’ve heard little evidence to support Jessica’s notion that downloadable client games are stagnating.

Virtual Worlds Forum Europe is on now in London, England until tomorrow.

Editors Note: Since this article was posted, Jessica has been kind enough to reply (in the comments of this post) with the source for her stats and observations. Thanks, Jessica!

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For those of you who read F2P.biz regularly, you might recall an article I wrote about Asia’s virtual goods lead. In it, I talked about Brad and Kyle, my cousins aged 7 and 13 years old from the Southern Ontario city of London.

During a visit, I chatted them up about their gaming habits and watched them play for a while. It was clear that free to play PC games had almost entirely usurped retail, pay-to-play products in their personal gaming library. Their favourite games were titles like Puzzle Pirates, Habbo Hotel and Runescape.

Well check out the latest NPD study, “Kids and Gaming,” as reported over at Worlds in Motion. The most relevant stats for me were:

• 91% of online gaming among kids ages 2 to 17 is free
• 9% pay to play - these are primarily kids from higher income households
• The likelihood of a child paying increases with their age and time spent gaming
• Half of all kid gamers are “light users,” clocking five hours a week or less
• The other half were medium, heavy or “super” users, at 6-16 or more hours/week
• The average time spent playing online was statistically higher among females

Look at that first stat.

That is so incredible that it has to be wrong or misinterpreted by me. If that’s true, where is the retail, pay-to-play gaming industry headed as the next generation of kids comes of age? The study does say that eventually kids (males, mostly) graduate to consoles in their late teens, but as new free to play games start catering to a “new adult” demographic, fewer and fewer teenagers will make the jump from free to $59.95.

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NCSoft the MMO giant has credits that include the massively popular Lineage, Lineage II, Guild Wars, City of Villains/Heroes and the upcoming Tabula Rasa. But Dungeon Runners, one of only two free-to-play games from NCsoft, is unlike most of their other products. DR is based on a tiered subscription model, where users can play for free, or opt to pay a monthly subscription ($4.95) to access upper level content.

Free To Play spent an hour with Dallas Snell, NCsoft’s Director of Business Development, discussing Dungeon Runners, the free to play model and the future of NCsoft. Dallas has been a prominent figure in the games industry since 1983 having to contributed to over 20 titles during his time at Origin and EA. After a short sabbatical from gaming, Dallas returned to the industry in his current role based in Austin, Texas.

The earliest version of Dungeon Runners began as a different project entirely back in 2001, before being put on the back burner, where it remained until 2002 when it was dusted off to be a game titled Exarch. That too was eventually put to rest until Dungeon Runners was resurrected in its current incarnation about 18 months ago. Today the team consists of over a dozen internal employees with a heavy contingent of art outsourcing.

The decision to resurrect Dungeon Runners and make it a free to play game (versus a full retail MMO) came from NCsoft CEO Robert Garriott and Chris Chung, the former ArenaNet General Manager, who operated out of Korea at the time and therefore had early exposure to the free to play model. Chris is back in Austin now and looking to push NCSoft further into casual MMO development, replicating the success of Korean companies like Nexon.

There’s been speculation that NCsoft chose subscriptions as the primary revenue model in Dungeon Runners due to a belief that North American players preferred that model to microtransactions. However, that was not the rationale for the subscription decision. Instead, Dungeon Runners’ optional subscription fee was chosen simply because a microtransactional model wasn’t yet set up in the Dungeon Runners code base. To remedy that, the team is currently working on getting microtransactions running within Dungeon Runners before the game is launched in Korea.

Dallas made frequent mention of NCSoft’s embrace of “Web 2.0” development philosophies. In particular, NCsoft’s use of the free to play model, Dungeon Runners as a testing ground for future products and the company’s strong commitment to reducing barriers to entry for all NCsoft products were all offered as proof of the company’s Web 2.0-ness.

Dallas often referred to Dungeon Runners as an experiment, saying that although Dungeon Runners currently utilizes subscriptions, within a couple of months in-game advertising will become a part of DR. In fact, the ads are already in the world, but visible only to testers, NCsoft and Double Fusion (the in-game ad provider). F2P.biz was asked not to reveal how the ads will be implemented, but expect an announcement from NCsoft soon. If all goes well with the ad experiment, Dallas says NCSoft will consider the possibility of scrapping Dungeon Runners’ subscription fee all together.

On the other hand, by their own account NCSoft is seeing higher than normal conversion rates with their current subscription set up, so perhaps Dallas won’t be so quick to abandon it.

What are those great numbers?

Among active users (online within the last month), Dungeon Runners has a high free:paid ratio - i.e. there’s a larger proportion of paid to free users than among most f2p games. Dallas cites Runescape with a 5:1 ratio (free to paid, online at any given time), and says that DR is hitting 3:1, or after content updates, as high as 2:1.

Additionally, NCsoft expected a monetization rate of 1-3%, but their numbers are reportedly “significantly higher” [Dallas declined to give a specific number]. Dallas claimed not to know the cause of the higher monetization rate, but one contributing factor may be that the large majority of in-game activities or items are available only to paid users. Dallas acknowledged this and went on to say that the dev team is strongly considering raising the ceiling for free users as currently only 1-2 hours of free play will result in players hitting the ceiling with respect to what they can get for free.

Further to NCSoft’s recently announced plans to release free to play content on the Sony network, Dallas talked about his company’s goal of becoming “device agnostic” in order to break down the segregation of gamers between platforms. NCsoft plans to build their own cross-platform community service, with friends lists, inter-game messaging, and other features similar to Xbox Live. NCsoft also intends to release desktop, facebook and mobile widgets to extend gamers’ experience.

According to Dallas, NCSoft thinks of Dungeon Runners as a “MMO light” or a game that straddles the gap between casual and core gamers. In Dallas’ opinion, the success of products like Runescape makes it likely NCSoft will develop even more accessible games - perhaps even browser-based - to further minimize the barriers to entry.

With 40+ data probes plugged into Dungeon Runners, NCsoft approaches the product as a testing ground for ideas to be built into other games. The probes measure everything from time played, rewards frequency, item usage, leveling curves and dozens of other useful metrics. Outside of the game, account-level metrics are tracked in a publisher module that will allow NCsoft to track and analyze a single player’s activities across all their products.

In Dallas’ eyes, retail may soon become “extinct” with digitally delivered gaming ruling the day. He spoke candidly about the struggles facing music and film and how games are uniquely structured to develop their own delivery solutions. To that end, products like Guild Wars and Dungeon Runners are blazing trails for NCsoft.

Finally, as already mentioned, a recurring theme from Dallas was his commitment to lowering the barrier to entry in all NCsoft products. As evidenced by their free to play experiment, NCSoft strategy is to grow their customer base as widely as possible, then monetize the largest possible proportion. Most flatteringly, Dallas said his officemates all had printouts of F2P’s article, Top 10 Ways to Reduce Barriers to Entry, and were treating it as a white paper of sorts.

Thanks to Dallas Snell for his time and to Opal Lertutai, NCsoft PR, for setting us up.

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Start your engines!

Finally, the game that captivated Korea - where a third of the populace have played it, allegedly - comes to North America.

From Pimp My Wii:

KartRider’s open beta will be open to anyone with an internet connection and the need for speed. With several distinct characters to choose from, open beta racers will compete on a multitude of elaborate race courses ranging from the smooth asphalt of Zoomtown to the scorching sands of Desert Drift. The open beta will additionally provide testers with two different karts, numerous paint and license plate modifications, a scenario/story mode, and a useful ‘My Garage’ feature. The ‘My Garage’ feature included in open beta allows users to hang out with friends, modify and show off karts, and try out new items if racers are in need of a pit stop.

Open beta testers can also enjoy different single and team race modes including item mode, an anything-goes mode featuring the use of creative items used to gain an edge, and speed mode, a test of driving skill focusing solely on speed and drift. While item mode racing often results in humorous exchanges and unpredictable outcomes, speed mode rewards drivers for their drift technique. By combining the elements and weapons of a fantasy racer with the precision of drift, KartRider blends an optimal balance between racers who prefer either the spontaneity of item use or the driving skill required by drifting.

Head over to Kart.Nexon.net to see what the hype is about.

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