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Summary:

Ever since World of Warcraft started showing signs of cancer-like growth — ravenously consuming massively multiplayer online game subscribers — video game industry entrepreneurs and investors have hunted for a WoW killer, the next big game capable of toppling the 11.5 million subscribers developer Blizzard has amassed worldwide. They need to stop looking.

wowUpdated: Ever since World of Warcraft started showing signs of cancer-like growth — ravenously consuming massively multiplayer online game subscribers — video game industry entrepreneurs and investors have hunted for a WoW killer, the next big game capable of toppling the 11.5 million subscribers developer Blizzard has amassed worldwide.

Stop looking. The only company capable of building a WoW rival is Blizzard itself, says gaming industry analyst Michael Cai. He arrived at his conclusion while researching an online games study entitled “Networked Gaming: Driving the Future II” that will be released this month by research firm Parks Associates. Update to reflect Cai’s new position: (Cai has since left Parks to pursue an opportunity elsewhere.)(Cai has since left Parks to become V-P of Games Research at Interpret LLC)

Instead of squaring off against another juggernaut, according to Cai, WoW’s biggest competition will be a swarm of Lilliputian-sized MMOs that will whittle away its user base with the promise of free play. By his estimation, WoW accounted for half of the $860 million in revenues that MMOs generated in the U.S. in 2008. He expects all online games to generate $1.6 billion by 2013.

The problem confronting MMOs that want to dance in the same arena as World of Warcraft is that few development studios are given either the time or the resources to develop a title capable of competing with WoW. Bobby Kotick, CEO of Blizzard parent company Activision, has estimated the publisher would need to invest anywhere from $500 million to $1 billion to build a competitive massively multiplayer game. While game companies want a piece of WoW’s success, most simply can’t afford to compete head-to-head and instead choose to chase other markets.

Despite WoW’s subscription-based dominance, it’s the so-called “free-to-play” business model that Cai calls “a major industry driver.” In just three years, free-to-play games’ share of the market grew to 15 percent in 2008 from zero. He expects they’ll account for a full 36 percent of MMO industry revenues within the next five years.

And the promise of future profits from free-to-play games is enough to entice even the industry’s heaviest hitters to enter the market, which has so far been dominated by U.S. startups and the vanguards of successful Korean or Chinese studios that have succeeded with such games in Asia. Electronic Arts is in the process of building a free-to-play shooter, Battlefield Heroes, while Sony Online Entertainment has Free Realms, a kid-friendly MMO that SOE president John Smedley has pointedly said he hopes will reach a larger audience than WoW.

Although almost 50 percent of all U.S.-based MMO players exclusively play free games, most free-to-play gamers don’t actually pay for their play time. That’s because technically speaking, free-to-play games are not entirely free, but mostly free. Unlike the eat-everything subscription buffet, their bits and pieces are served up à la carte. Operators depend on players liking the game enough to dole out a few dollars each month on virtual items or premium features.

Currently only some 5-15 percent of U.S. free-to-play customers spend money on these games, and only 12 percent of all MMO players have ever purchased virtual items, says Cai. On average, these paying players spend between $10 and $30 a month.

Right now, there are not enough virtual item sales in the U.S. to fund a “AAA” free-to-play MMO game (like a WoW sibling), concludes the Parks Associates report. But the business model is lucrative enough to be the lone source of revenue for a “lightweight” or “mid-session” MMO — games like Nexon’s MapleStory or Gaia Online’s Zomg.

WoW will continue to dominate the market over the next couple years, says Cai. And during that time the subscription model will remain a revenue-generating machine for World of Warcraft-class MMOs. But the subscription model will begin to show its age as development and service costs increase, and as audiences veer from the significant time and financial obligations these games command.

Gradually these subscription titans will be overrun by online games with new business models. Such games have already managed to snag four spots on the list of 2008’s top-grossing MMOs. The free-to-play market is about to get crowded.

Image courtesy of World of Warcraft: Wrath of the Lich King.

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By Mary Jane Irwin

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  1. Kelly’s World- A View into the mind of Uber Geek, Kelly Adams » Blog Archive » WoW must be giving it away… Sunday, February 15, 2009

    [...] was reading a “d’uh, that’s obvious” article today regarding how the massively multiplayer online game (MMOG) industry needs to stop looking for the next WoW killer. And I came across this particular bit of text that, well, just doesn’t add [...]

  2. Couple of points:

    – Blizzard is in fact working on a new MMO built on a new franchise (so no Diablo, Starcraft or WoW 2), couple of days ago Jeff Kaplan (WoW’s Lead Designer) started working on it. So I guess yeah they have read the Innovator’s Dilemma and already building their own WoW-killer.

    – Growth in North America has slowed down. A good indicator is the number of servers (which can be translated directly in how many people play instead of PRopaganda), I never bothered plotting that on a chart but maybe I’ll do it later
    http://www.wowwiki.com/Realms_List

    – Majority of US/EU customers are on a subscription model but my understanding is that Asian customers play mainly with pre-paid time.

    My opinion is that the subscription model lays the foundation of the type of game you are creating. So I do not believe that at this stage there is any credible contender and we’re too far in the race for this generation of games (WAR? LotR? lol they’re jokes in comparison) and the next window of opportunity will be when WoW’s engine will start to show its age.

    PS. and yeah Second Life still blows donkeys.

  3. Interested to see how Lucas Arts fares with their Bioware-created MMO based in the Star Wars Universe…

  4. Correct; there will never be a WOW killer…it’s too entrenched and ingrained in people as the first thing they think of when people say MMORPG (used to be EverQuest, is that even still around?).

  5. some danish guy Monday, February 16, 2009

    This article is interesting, but you sound very 2001ish.
    giants always stumble at one point, who thought that google would come up with a new search (and they’ll probably be run over and passed by sooner then later).

  6. » On the Possibility of WoW Killers Whyos Monday, February 16, 2009

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  7. Mary Jane did a good job but I never said MMOs based on these other models will “whittle away” WOW’s user base with the promise of free play. For the next few years, very little overlap and intersection between the demographics of gamers playing subscription games and alternative models. However, a few years down the road, when today’s teens grow up with free to play, it’ll be interesting to see how it plays out. Plus, a lot of VC money has gone through the drain and yeah there are still new companies trying like 38 Studios, but a lot of the incumbent developers/publishers like Turbine and SOE are investing more in free-to-play too. It’s hard to have formidable competititors challenging a giant if nobody is investing in them…

  8. Ten Indicators You Might have World of Warcraft Addiction | world of warcraft addiction Friday, February 20, 2009

    [...] Stop Looking for a WoW Killer (gigaom.com) [...]

  9. Quake Live May Spark Gaming Industry Shake-up Wednesday, February 25, 2009

    [...] the U.S. free games market has yet to produce a game that will make players ditch their consoles or World of Warcraft subscriptions. But imagine, he says, if Halo 3 or Gears of War 2 were free: “You would have 100 million [...]

  10. MMORPG Network Aeria Partners With Offerpal Wednesday, March 11, 2009

    [...] MMORPG developers used to monthly subscription models are looking for new ways to make money in the post-Warcraft era, so I imagine they are, too. [...]

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