Boom or Bust?

Why is it that when someone bills themselves as “a leading developer, publisher and distributor of online games”, I’ve likely never heard of them? 

Like I don’t already get enough junk mail from various people who want to show me how to increase the size of my johnson, sell me Cialis, increase my sperm count, send me a watch that looks just like an honest-to-God Rolex so I can pretend to be rich, too, inform me of the latest hot penny stock or introduce me to other shy, but sexually deviant, single daters in my neighborhood: somebody spammed the Terra Nova mailing list with this press release.

It did get me thinking, though probably not in the way the spammer intended.

The industry is starting to remind of the 1994-1996 boom-bust cycle: The same kind of over-hype, the same kind of over-reaching by hundreds of investors on games and portals and, unless I’m quite mistaken, in a couple-three years, the same kind of bust, when 90% of the games and investments get trash-canned. 

This time, it may be on an even grander scale.  In 1996, I counted over 130 online games in development (not counting classic games such as Mah Jongg, Chess, Poker, et al), at least a dozen portals touting themselves as ‘it’, and literally dozens of new studios.  This was the Hollywood era, where movie studios were going to show the game industry how to make games, and with the commercializing of the Internet, they were going to own us.  By 1998, 90% of the games in development and their studios had been quietly closed down, including almost all the Hollywood game studios (anyone remember Time-Warner Interactive?  I didn’t think so) and at least $300 million had been tossed down various rat holes.

It effectively killed outside investment in online games in the US until Asia became recognized as a force in 2001-2002; note that the market went from over 35 MMOs in development in the US in 1994 to 4 in 1998 (that I know of), two of those being funded with ‘inventor’ money and sweat equity until they could demonstrate a working prototype.  Of those 35, only 4 launched by 1998 and another 2 launched in 1999; the rest were drowned in various studio bathtubs.

I’m starting to see that same kind of mid-1990s brash, almost arrogant over-enthusiasm now.  For example, not a week goes by that some VC, fund analyst or investment manager doesn’t contact me, wanting advice about some game, developer, publisher or market (and of course, as money people, they want it for free; “Let’s build a relationship and see where it goes.  As a starter, you can dump me the entire extent of your industry knowledge.”).  Everyone wants to get in on the ground floor.  Except, there are literally hundreds of MMOs in development in Seoul, at least 300 in test in China at any one time, I know of at least 30 MMOs in development in the US and Europe and publisher money is starting to flow back into MMOs and online gaming.  There is no ground floor anymore.

As Counselor Troi might say: “Captain, I sense something…”

Comments

[Chas]

1.

Hey! We learned alot from Hollywood:

- produce 10 flops for every profitable investment,
- put so much value in licensed content, and very little value in actual content creation (particularly good writing).
- dazzle the audience with enough effects and they'll ignore the paper-thin plot, or entire lack of plot.
- the allure of sex (skimpy outfits, almost-humanly-impossible bodies, etc) works even better than effects, but must be balanced against getting a bad rating.
- let the indie studios gamble with innovation, watch what works, then imitate it while throwing enough $$ to drown the original creator out.
- milk it for all its worth.

I think point #1 is one of the key reasons for the boom/bust cycle. Investors notice the blockbuster, and dream of payoff. They believe they understand the risks by looking at the failed box-office movies, but they never see all the other bombs that never make it to market.... so they invest with false expectations, get burned, and get out. Sooner or later, they believe they've "learned from their mistakes" and start the cycle again.

[Ralph]

2.

Regardless of the time period, crappy marketing prevails.

What I'd like to see answered (if only by patient observation) is whether the differences in scale between now and the past boom will result in the same proportion of games succeeding (around 1/6th to 1/8th depending on how you count?) or if the same number of games will succeed. The reason why I think the latter is even possible is because of the necessity of the successful games to be "good", by whatever metrics the market dictates, and how in my fantasy world the quality "good" is directly related to the ability to attract and retain a playerbase of greater size.

To sum it up, I think there will be as few 'giant' successes as ever, but it will become even more difficult for niche successes to persist.

[Steven Davis]

3.

The state of the industry is fascinating. In the US particularly, we see endless variants on the same sword & sourcery stuff - a design model that is expensive to build and operate, takes a long time to develop, and is thus very risky... but it is like World of Warcraft.

While in Asia, they seem to be designing to budget and resources. Dance games (Audition), Racing games (Kart Rider), even the fantasy games are built with more discipline (Maple Story as 2D side-scrolling RPG and darn successful). Yes, there are the big 3D "graphics porn" extravaganzas, but game developers seem to be more open to building clever, fun game systems and these are the games that are making money.

It is possible, with some research, to show that real money can be made (unlike the 1990s) and that innovation can be rewarded (though not in the US yet).

So, there is a Boom, the question is whether the US will participate or be left permanently behind by Korean and Chinese game developers.

The only way for online games in the US to start "booming" is to start being realistic. Independent film makers do not try to make "Star Wars", they make "Sex, Lies, and Videotape". Small and independent game developers need to take the same approach, build the best game that they can build within the resources they have.

By the way, when is the (Computer) Games Industry going to realize that it is better to be a game than a movie? (Answer, when they realize that there are other forms of games besides computer games)

Fun facts:

The simplest game in the world, the Lottery, was a $110 Billion industry worldwide in 2000.

The US casino industry alone was about $50 Billion in revenues last year.

[galiel]

4.

I think there will be as few 'giant' successes as ever, but it will become even more difficult for niche successes to persist.

I'm surprised to hear this sentiment here. It seems a bit myopic, ignoring the long tail phenomenon, which becomes possible because of the law of accelerating returns.

The overall market for online games is growing, and growing more diverse. At the same time, hardware and software costs are decreasing, FOSS solutions are becoming increasingly viable, and basic technological knowledge is expanding and opening up.

Don't look at the temporary bump in MMO development costs as if it were a permanent and inherent trend; rather, see that the market is bifurcating, just like film and other media. On the one hand, a small collection of mega-budget, mega-audience blockbusters (most of which don't make money, with a single failure likely to bring down a studio)--made by a decreasing number of conglomerated mega-corps. On the other hand, a very long tail of many small, sustainable niche products made by enthusiastic independents with vision and courage and hutzpah.

If anything, in the future it will become harder and harder to make one MMO that pleases a significant part of the overall increasingly diverse market--and it will become increasingly difficult for large, unwieldy and risk-averse mega-corps to successfully compete in the long tail arena. Easier for them structurally to make a mega-game rather than a hundred mini-games--which is another interesting phenomenon of the long-tail: consolidation and economies of scale don't really apply. It is easier for small indies to create and manage one or a handful of small worlds than for a mega-corp to manage a hundred or a thousand of them. It all has to do with responsiveness to customers and the ability to take risks and to be driven by passion and to tap into and trust the wisdom of crowds.

Perhaps too much time in the distortion field of a huge, top-down mega-corporation has, understandably, affected your vision. Hopefully, now that you have escaped that bubble, you'll see that there are a myriad of opportunities for small independent teams to successfully and sustainably serve niche audiences :-)

The barriers to entry today are mostly temporary circumstantial limitations that will go away as open source tools, automated management, AI moderation and other tech developments mature. Similarly, as developer's sophistication with regard to the human social architecture of games grows, we will increasingly design-out antisocial affordances and increasinly design-in constructive architecture, which in turn will reduce the overhead and maintenance per-player, and thus the maintenance costs.

Let's not forget, as well, that certain significant costs such as bandwidth are rapidly trending toward zero. The entire economics of creating and managing an online world are in flux, and, while mega-corps at the moment are in a pissing contest over who can blow the most money, the long-term cost trends are acceleratingly down.

Ultimately, the cumulative player-base--and the cumulative economic-base--of the long-tail indies will eclipse the mega-productions, which will, IMO, eventually grow extinct altogether, like the mega-publishers of other media.

It wasn't too long ago that making a movie or a record was considered technologically opaque and out of reach of the average Joe.

[Brian 'Psychochild' Green]

5.

I agree with Jessica, 100%. I'd even go so far as to say she's stating the obvious for anyone with any knowledge of history and business trends. This is always the way it goes: Something is considered "impossible", someone does the "impossible", everyone rushes to copy what is now "standard", most projects fail because people don't really understand how the "impossible" was accomplished.

So, the question becomes: what can developers do? The best bet is to get someone experienced on your side, preferably someone with a bit of historical knowledge on their side. I don't think the situation is impossible, even for small games. One of the games actually launched in 1996 was this little underdog called Meridian 59....

Anyway, there's my two cents.

Have fun,

[Q - Rob Ellis II]

6.

Jessica.

Please tell all the people with funding that I am the next big thing. Then act incredulous of their ignorance. They will be too embarrassed to ever contact you again and I will get all their game money.

Win-Win

[Jon Grande]

7.

In reply to Chas' post ... about "Hey! We learned alot from Hollywood"

#1) Produce 10 flops for every profitable investment"

JG: Wait - that's better than the rest of the industry. I think you mean 50-100 flops for every profitable investment (you can literally count them on 1 hand - quick - name 3 successful games that started in Hollywood).

#2) Put so much value in licensed content, and very little value in actual content creation (particularly good writing).

JG: Isn't that almost as bad as normal studios putting too little focus on gameplay and too much focus on everything else?

#3) Dazzle the audience with enough effects and they'll ignore the paper-thin plot, or entire lack of plot.

JG: Um ... yeah ... whole industry = guilty.

#4) The allure of sex (skimpy outfits, almost-humanly-impossible bodies, etc) works even better than effects, but must be balanced against getting a bad rating.

JG: Um ... yeah ... whole industry = guilty.

#5) Let the indie studios gamble with innovation, watch what works, then imitate it while throwing enough $$ to drown the original creator out.

JG: Um ... yeah ... whole industry = guilty.

#6) Milk it for all its worth.

JG: Um ... yeah ... whole industry = guilty.

I think many of your points are true of hollywood failures, but they're also nearly universally indicative of the failures of the industry as a whole.

Granted - I sound like a cynic - but I do work in the industry, and do actually hold out hope that we can aspire to be more of an enlightened art form and less of a voyeuristic alternative to other ADHD addled media.

[Bruce Anderson]

8.

We need innovations and new ideas. Also, most of these little MMORPG companies go wrong way to earn money. Most of them are free. They try to sell game items. Will this work?