The Future is Multiplayer Games

As part of my ongoing attempts to bring new voices and new thinking to GigaOM readers, I have a post from Eric Friedman, who runs a website called Multiplayer Games. Given that I have no interest in playing games, it is safe to say I haven’t got a clue about this business which is going to be one of key consumers of bandwidth in coming years. Eric is going to keep us posted on the latest from the world of online gaming.

Park Associates says that more than 50% of U.S. Internet gamers spend time playing games against others. Online Gaming (OLG) according to In-Stat/MDR says that the total OLG market will approach $4 billion by the end of 2008, up from just over a billion dollars in 2003. So as we prepare for the launch of the XBox 360, here is a look at some monetization strategies of this fast changing world.

Guest Column by Eric Friedman

Every other press release and major gaming analyst predicts that multiplayer games revenue is set to at LEAST double within the next five years. This is no longer a pipe dream, but a realistic goal that will be reached by the end of the decade. What many analysts fail to realize is exactly how this will happen. Due to the increased amount of online game releases, previous research, and revenue numbers from basic subscription models – it is now fairly easy to see how the market will evolve. The biggest question that remains, however is what will be the monetization strategies. I think there will be two predominant models.

1. Pay-per-play model: This is based on the old coin-op model in which players can signup/logon and pay each time they want to play a game. While you may think that this is an outdated model – it is essentially what is being done at every major gambling website. (Yes I am assuming these are considered multiplayer games too) By setting high payout minimums and high pay-in minimums online gambling is a lucrative business that is here to stay. Customer acquisition costs alone show how powerful this genre has become with some online casino’s paying almost $100 for each new customer who signs up and begins play.

This space is set for “real-world” integration with real casino’s, special treatment, comped goods etc.. There is no limit to how far the online casino’s will take the “gambling experience” because like the brick and mortar hotels – the sky is the limit. With the advent of higher speed connectivity and more powerful hardware, expect to see massive innovation in this space. One thing to remember is that the technological advances happening to a portal near you (AJAX/RUBY magic) can only make the online gambling experience that much better.

2. Subscription model: This structure is based on a flat rate payment system that allows for unlimited play for a monthly or yearly fee. Monthly fees usually go over well with new subscribers as the out-of-pocket costs do not seem as high, and most games have re-occurring fees if you forget to cancel. Another, and usually discounted option, is yearly subscription fees.

This will usually guarantee some gameplay each month, but can mean coughing up more dough from your pocket (or your parents pocket) to get things started. The first movers in this space are showing a high advantage over the late entries – but there is still room for explosive growth. For a strong example of the backbone supporting the MMOPG industry just take a look at IBM who recently announced a sub-set of scalable hardware servers to support the world of massive online gameplayers.

Eric Friedman is the editor of website, Multiplayer Games.