[Editor's Note: Contributing writer Simon Newstead is CEO & Co-Founder of girl avatar game Frenzoo, a 3D fashion startup. He can be contacted at: simon at frenzoo dot com.]
Billing itself as one of a new breed of pure play web publisher, True Games Interactive opened shop at the beginning of 2008 is expanding its team and title list. We invited CEO & Co-Founder Bob Drobish to reflect on their first year and where free-to-play social games are heading.
How did you start True Games and how has the first year been?
We began True Games by stepping back and doing our home work. We looked at player interests, trends in the industry, and the gaps between the two. From that we built a business model and a plan that was compelling enough to attract the best professionals and business partners in the industry.
We were fortunate enough to attract people like Peter Jarvis formerly of NC Soft and Peter Cesario formerly of Namco Bandai. We were also fortunate enough to attract business partners like Petroglyph, GOA, and Possibility Space. Of course, one of the highlights of the year was connecting with global media giant UTV as both an investor and strategic partner. It has been a great year.
Your first game announcement was Warrior Epic. Are you focusing on any particular type or genre of games?
We have exclusively focused on micro-transaction based online games. Our immediate titles are exclusively designed for PC. The two titles that we have announced so far, Warrior Epic (Developed by Possibility Space) and Mytheon (developed by Petroglyph) will be downloadable clients, but with a twist...
From a gamer point of view, are there any synergies between games on your platforms?
Yes, there will be synergies in terms of billing and currency, but we feel that this isn't the most compelling aspect to gamers. We believe that it is the overall quality of the player experience throughout the full lifecycle of a game that gamers want and need. That being said, our platform will offer user-friendly, mechanical conveniences that will add to the quality of the overall player experience.
How do you view the economic climate and how that will affect the F2P market either good or bad?
The economic climate is of course challenging for us as it is for all business. As an industry however, I think that online, micro-transaction based games offer a uniquely compelling entertainment value proposition. In these economic times, we'd expect that the most cost-effective entertainment options would have an advantage and we think our business model fits into that category. Gamers do not have to spend $60 up front on our games. They can download it at no cost, play as much as wanted with no subscription charges; while having options for micro-transaction purchases.
Is True Games targeting a global audience or focusing on US and English speaking markets?
All the IP's that we establish are designed with a global audience in mind. Some western markets we will serve directly. Others we will serve through syndication partners with local expertise; but always designed for and distributed to a global audience. Player interest in games is global. The internet is global. So yes, we have developed games from the ground up to cater to players all over the world.
Many believe that old subscription models will give way to pure micro-transaction models, what's your take?
There is an undeniable trend toward micro-transaction based models. Our research shows that this will continue in the years to come. However, I think the market will continue (at least for the foreseeable future) to offer subscription and micro-transaction based models; in some cases both for the same title. We believe there will be a rise in various hybrids of the two forms. Ultimately, the most successful model will be the one to serve the player best. This will require extensive testing and research.
What is the most exciting development you anticipate in 2009 for the industry?
The most exciting development we anticipate in 2009 (and what our business is built upon) is the launch of AAA games with a free-to-play model. Clearly, there are a lot of free-to-play games and AAA games. However, there is no successful AAA game with a micro-transaction based model in the western market. To develop this will be our most exciting endeavor in 2009-not just for our company but for the industry as well.
[Editor's Note: Contributing writer Simon Newstead is CEO and Co-Founder of Frenzoo, a 3D Fashion startup and the writer of the VR Fashion blog. He can be contacted at: simon at frenzoo dot com.]
The consensus, as Google themselves explained, was a need to "focus more on our core search, ads and apps business".
Most observers viewed the cancellation as a tough but correct decision during a major slowdown in its core online advertising market. Many questioned the launch of the service in the first place. A search company moving into 3D cartoon chat and online gaming without a clear business model seemed a bit of a stretch.
Even Lively engineering manager Niniane Wang admitted at Virtual Worlds London last month there was still no internal decision on Lively's virtual economy model - not a great sign for a public service several months after launch.
However there were other factors that also helped contribute to the demise of the Lively service. These may not have grabbed as many headlines, but they had an impact, and not in a good way:
1. Rarity (or lack thereof)
Why do World of Warcraft players grind for hours and hours on end to level up or gain a new weapon or skill? Why do millions of Stardoll fans log in every day just to get their daily StarDollar allowance? Why do Gaia Online users save for months (or plead total strangers) to buy that one special item at the top of their wishlist?
The cardinal rule: make items rare. I.e. require effort and/or money to acquire items, and those items become highly sought after. Desire breeds addiction, addiction plus good, fun gameplay = many repeat visitors.
Yet the day Lively opened its doors, all items in their catalog were free. With that precedent set, nothing "felt" valuable. With that, there was no "desire" factor or goal to strive for - and far less motivation to keep coming back.
This design decision made Lively feel like a "throw away" environment, and users responded in turn.
2. Too powerful and complex an interface
As Ars Technica observed in its launch review, the user interface was difficult.
Unlike Second Life, Lively was designed to be a casual "pick up and go" experience for the mainstream - yet the UI wasn't designed that way.
For example, many users (myself included) didn't know how to make our avatars walk around a room.
Frustrated right clicking, left clicking, and hitting arrow keys yielded nothing. It turned out that the way to walk was to hover the mouse over your avatar, then drag and move the mouse to cause your avatar to walk around. Not intuitive.
You might think that the way to solve that was to use a more standard control, for example left click on a place and avatar walks towards it. However this brings up a higher order question: Why was walking even allowed in the first place?
Walking didn't add anything to the social chat experience except complexity and confusion.
Lively's competitor and 3D chat leader IMVU recognized this fact and even years after their launch, IMVU doesn't support avatar walking.
It doesn't need to.
3. Too rough, too early
Unlike an unknown startup, anything Google launches to the public is going to attract a day one audience of millions.
That's what happens when you are the most visited web company in the world. You had better make sure that it's ready. In Lively's case, it wasn't just the lack of Mac support that caused fits among its early user base (although that didn't help).
It was other issues such as lack of an open content program, leading to a dearth of selections in the store on the first day. A few months would have made all the difference as Google had truly promising and unique content ecosystem in development which could have been a game changer.
It was also many little things:
Anger and confusion greeted a friend who had spent an hour decorating her room, yet returned a few hours later to find strangers had put sofas on the ceiling, tipped over chairs and rearranged plants into a jumbled mess.
All because at launch it was too easy to unknowingly allow others to edit your public room. This and many other small, yet very frustrating user experience issues surely would have been cleaned up with more time in a closed beta.
First impressions count even more in a spotlight.
4. Audience and art
Lively tried to be everything to everyone right from day 1.
Unlike other games based around a theme - be it anime lifestyle in Gaia Online, music in vSide or 3D Avatar Fashion in Frenzoo (disclosure: this is my product) - Google went for an audience of everyone. Or, as Google put it themselves, "Be who you want to be on the web pages you visit."
This was always going to be an ambitious goal, but it was very difficult to create a cohesive experience with a mix of radically different art styles for the avatars.
In successful services such with Nintendo Mii or Habbo Hotel, there can be plenty of diversity in look but yet a single unmistakable avatar style glues the whole experience together.
However in Lively, you had tiny bears hugging tall skinny cartoon girls, while pigs walked around in circles.
The goal - total freedom of art style - may have been worthy, but put them all together in a chaotic 3D chat environment and the net effect was chaotic and off-putting for users.
5. No profile to call home
It's an irony that a service that pushed the outer limits of web technology, the most basic social web features such as a profile page, were conspicuously absent.
Nearly every successful online game or web community has a profile page or home screen, as the center of the social experience and to build your own virtual identity - be it for role playing or just making friends.
IMVU's profile pages are buzzing with user expression and customization, MySpace and Facebook have built their social businesses entirely around profile pages. Yet surprisingly, Lively, which billed itself as the next step in the "social web," didn't support web profile pages at launch.
Does the demise of Lively spell the deathknell for virtual worlds?
I don't believe so. Whilst there has been some excess in hype in parts of the industry, for many players abundant opportunity is still there. The rapid growth of other virtual worlds from IMVU through to Buddypoke and Stardoll and growing revenues seem to bear that out. Not to mention the massive growth in MMO revenues in the past three years.
However in Lively's case, Google made several big and small mistakes. Combined with a confused business model and no long-term commitment from the Google mothership, this ultimately doomed the otherwise promising service to brief and inglorious lifespan.
The problems could have been fixed and focus found for Lively. IMVU's first year was plagued with bugs and issues; but as Silicon Alley Insider put it succinctly, in Google's case they didn't even try.
- Jesse Mulligan, moderator
- Robert Ferrari, Turbine
- Hilmar Veigar Petursson, CCP (Eve Online)
- Nicolay Nickelsen, Funcom
- Min Kim, Nexon
Is it possible to have one business model for a game for both sides of the Pacific?
- Min: It's possible, but you need to tailor it for each market. You can do microtransactions in each market. But Korea has a PC cafe market which generates a lot of revenue and we don't have that in the West, so that's one big difference.
- Hilmar: Eve Online is centrally hosted, so our busines model needs to be adaptable within the same server. We need to build a vast array of options within game so people can choose what they are comfortable with.
What changes have you had to make to attract customers?
- Hilmar: We put in place a system of in-game codes that can be bought from us and sold player to player. Customers buy the codes with in-game money.
Is Nexon in China?
- Min: We have made some changes in terms of accounts. When we took Mabinogi from S Korea to China, we had to add more PVP for that market.
- Robert: We had to build in stuff to account for that market's anti-addiction rules.
- Hilmar: We need to take more of a lead on this when governments start messing with our games. Governments have very narrow view of market.
F2P vs Subscriptions: is F2P going to take over? Will subs go away?
- Robert: F2P has a huge influence. But we have been based on subscriptions for years, with some games being around for 10+ years. Subscripitions hit a hardcore audience that is really embedded in those games. But as you expand your audience, they aren't as hardcore anymore and F2P becomes more enticing as subs only wouldn't appeal.
- Nicolay: Both models work. Hardcore gamers are comfortable with sub model and most of the games with microtransactions have been casual games. But it is possible to have more than one biz model in a game.
- Min: There is room in the market for both biz models. F2P in North America will make a large push as teenagers can't commit to $15/month, so F2P will work well with them. Nexon saw lots of success when the market went beyond core to mass market.
- Hilmar: Consumers are changing the business model of games - consumers making decisions. You can play Eve online through our trial program as a F2P program - users are able to "game" our trial system to play it as a F2P game. It's a challenge for companies to adopt the needs of the market rather than keeping their head in sand. People will play the game how they want.
- Min: We're seeing in S Korea a lot of players have a subscription-based game that is their favourite, but have a secondary game that they play f2p with microtransactions.
Which model will win?
- Robert: The demographics in LOTRO etc are a lot older: 20-35, male. F2P games tend to be younger, more females, casual, less hardcore. 30 year old males are not playing a lot of F2P and have no problem paying monthly subscription. Younger people and kids are playing lots of games and want F2P for that flexibility. However, F2P microtransaction games can pull in more ARPU than subscriptions.
- Nicolay: People used to subs have not been in a microtrans environment because those games aren't geared to them.
- Min: Demographic and psychographics drive the business model choice
- Hilmar: In China, it is illegal to have an automatic debit for sub based game - user always has to choose. For game operators, it's important to realize that most biz models will be implemented by users. Better to implement them yourself and tune appropriately.
- Min: It's also based on genre - not many ppl shell out $15/month to play FPS. There are some F2P FPSs now in Asia. Biz model based on genre as well.
- Hilmar to Min: Would you add subscription to your games?
- Min: We aim to have a sub without adding a sub - i.e. adding items to mimic a subscription model.
Is there a disconnect between designing for subscriptions versus F2P? Do you need simultaneous development tracks for each?
- Hilmar: All subscription-based MMOs are merit economies - those with most time, win. But the only thing you can't buy is social merit. To be a purely subscription-based game, you should aim for social merit as it's the only merit economy defensible against outside influences.
- Robert: There is an opportunity for subscription games to add premium services, but it is critical to look at the business model up front. You can't just switch models halfway through. You can't just migrate to F2P. Sometimes that up front thought doesn't happen though as business and development teams are often separated.
- Nicolay: Going the subscription route makes it hard to go to China. So if you go subscription route, you need to be able to change later to go to China. You need to find your market and go for that.
- Hilmar: You can't have a puritan outlook on your business model. People will use whatever business model they see fit, so design the game around that. If you are only subscription, people will use secondary markets to make your game microtransaction-based. Look at telephone services: you can choose how you pay (prepaid, subscription, etc) - we don't have this in games as the industry is not mature enough. We need to design for that mix.
Based on your experience, is an economy based on subscriptions more or less susceptible to grey market (i.e. player to player) transactions?
- Min: It depends on the game, but in the MMO market it is all about supply and demand. Most companies keep items split - so dropped items are not same thing as bought items. Those item economies are split the same way in F2P - I don't think a lot of ppl understand that.
- Hilmar: I've seen F2P games with o market challenges as well. Don't see how it is any different in F2P vs subs. If you're leaving a game, you sell your stuff for an 80% discount.
- Min: We introduced the Maple Trading System to Maple Story so players can sell items to other players for Nexon cash. For players that have time, they can sell the results of their time for money. Can't get money out though.
- Hilmar: Dual currency systems are a good inhibitor to prevent people from getting money out of the system. Players trading items within the game is not a negative, provided you keep the value within the economy. As soon as you move money out, it has a negative effect on the in-game economy.
Are there any negatives around designing your economy around F2P?
- Robert: So many more people come into a F2P game so you need to ensure you can support so many more players. With subscriptions, if I am charging $15/month I need to ensure I supply content constantly. In F2P, maybe not so much content needs to be there.
- Nicolay: F2P is more of a theme park. But items need to have value in order for people to buy them.
- Min: I don't think it is so dissimilar. In f2p, you still need to make a fun game. We aren't just developing product to sell items, we need to make the game fun first, content needs to be updated constantly. Need to earn your money every day.
What are the challenges on the subscription model?
- Nicolay: Because players are paying on monthly basis, you need to provide service. The player anticipates certain level of support that has to continue forever. Can't just say here is the game, have fun, don't ask us for help. This is the biggest challenge for developers coming from retail games.
- Robert: The game is a service... now you need to keep them entertained.
- Hilmar: If your goal is to develop a subscription game, you need to think about how you develop a merit economy that can't be turned into a microtransaction system later. I suggest designing something that accommodates both revenue models. Trying to fight against what your customers want will always be a losing war.
A number of games from China have converted from subscriptions to F2P successfully - what can you do to convert?
- Min: There is much more intense pressure in China to go to F2P. There, it is about demographics and peer set, because so many games in china are f2p, other publishers are converting to compete.
- Nicolay: It happened overnight in China... bam, it's microtransactions. Now publishers say it's the only way to complete. We've been following it, as Western devs, we need to look at that but it's difficult from Norway to understand what's good for the Chinese audience. It's important if you sublicense to listen to the partner you have... a lot of Western pubs that go to the East fail.
- Min: I've heard that games that go to F2P have done far better than as subs. Games able to get a customer base and monetize it. Maple Story was successful in States because the players it goes after couldn't do subscriptions. We get them in first, then monetize them.
- Hilmar: In China, people are used to a cash-based economy. There is not a lot of culture around subscriptions and there are also legal constraint as well around implementing a proper subscription model. Westward Journey 3 did it in an interesting way, similar to us.
What will happen to F2P when the first $200M budget game comes out? i.e. WoW goes F2P?
- Robert: What we're seeing is a shift that a lot of the f2p games are so much lighter than traditional MMOs. Heavy MMOs are beautiful, but that puts a barrier to entry based on min spec - younger demographics don't have these systems. Global expansion doesn't support those specs either. Our games are above 5gb in size, whereas Maple Story is close to 1gb now.
- Min: What would a $200m f2p game look like? I can't imagine spending that much... the game would be too big. Would a $200M game be a terrabyte game that wouldn't reach a mass market consumer?
Casual users really dislike big downloads and don't like pressing the "install" button. Does the web open that up to us? Is a web MMO as popular as WoW possible?
- Nicolay: We have it already. If you want to go into foreign markets, you need to be web-based - microtransaction or subs. A web-based game can be just as big - I think it will be even bigger than big client products.
- Min: In S Korea, people have no problem downloading big client products as the web is so fast. I often wonder if browser-based gaming is an interim step until web speeds creep up and people can return to client download.
- Hilmar: Most of the subscription games are designed for retail, even though we have no retail component. Take Conan... why not have 1 starter zone, 1 char class get it to 100mb as a download?
- Robert: Retail will always be around, but we need to design games for ease of entry - so we don't spend 6 hours downloading. Casual players need to get into game very quickly and can't spend their weekend figuring out how to get into the game.
- Nicolay: Need to be able to get into the game within minutes.
- Hilmar: Starting Runescape is bliss. You're into it in 2 minutes. That's a big part of its success.
In f2p, you have a store with microtransactions. Do you need more infrastructure than a subscription game?
- Hilmar: A store is just a market exchange that all games have.
- Robert: If you have a F2P game supported through retail cards, that's a simple transaction - clean. In a subscription-based business, you will have credit card problems as players can dispute anything on credit cards. The way credit cards are set up, you can dispute any charge. So your CSR costs can go through the roof because of this. Prepaid cards cannot be returned.
Hilmar - do you have zero issues with point cards, Min?
- Min: We don't see fraud issues at all, but we pay a higher margin on those sales. Credit cards are single digit surcharges.
In terms of distribution, are your costs higher if you are putting these cards out to retail?
- Min: Offering payment methods relevant to your target demographic is important. Over 20 years old, credit cards are viable. In the teen demographic, prepaid cards are still the dominant form of payment. Maybe SMS payments will come, but it is all about accessibility and convenience. In demographics such as Club Penguin's, credit cards are a big part of their payment methods as parents are paying.
- Nicolay: I think Habbo has 140 different payment methods. The ability to pay has to be the lowest barrier to entry, otherwise you aren't getting any money.
- Robert: SMS charges surrender so much margin to carrier, but retail cards may be more expensive just to get into channel.
- Hilmar: It's puzzling why carriers aren't lowering their surcharges. People would switch to it immediately, resolving credit card issues.
- Min: There is no access for our consumers to use credit cards. In 2006, we did $8.5M in the US in virtual item sales - in 2007 we did $29.3M in virtual items. Virtually all of that growth came from enabling people to pay.
- Robert: Companies like Turbine are looking at the console to expand their playerbase. Potentially we can use an xbox payment system, so we don't need to do it ourselves. It's about expanding access for players.
What do you see happening 5 years out?
- Hilmar: Dual currency systems. Most companies will evolve into local dual currency systems or perhaps an industry movement to have one proper currency system.
- Robert: 3-5 years out, I think we'll see cross platform online games: pc, console, hybrid models of revenue: F2P, cards, ad-based, subscription-based - there will be lots of options offered so players can choose.
- Min: 3-5 years out, PC will make a huge comeback. Online gaming will go beyond niche & core - it's going to be mass market. 5 years out there will be much more content out there - right now people are starved for content. Club Penguin fans will eventually need something new.
Will the balance of power shift from EA/Activision to more smaller players?
- Hilmar: We will see more Nexons, but they aren't a small company. I don't think core game companies are wired correctly to play in that space.. Nexon is a god example of a pure play.
- Min: You're right - it' s about the DNA of the company. Some companies are wired for online service - those people will make big impact on market.
- Robert: You hear about big companies all the time, but Club Penguin and Runescape were under the radar for so long, but makign tons of money. The press follows the big names but overlooks the stuff in the background making tons of money.
- Min: The scary thing to me are the diversified media companies that bring IPs, TV channels, etc. I'm not worred about the EAs.
- Robert: Viacom is running 7 or 8 virtual worlds... they are monetizing them, driving lots of revenue.
- Hilmar: I am not worried about diversified media companies. When I talk to them they are unable to understand our business and our direct relationship with consumers. We have lots of experience with that. Most diversified media companies just produce content for their retail channels.