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Summary:

Investors poured $237 million into virtual world-related startups and payment systems last quarter alone, according to a report released today by industry trade show producer Engage Digital, signaling venture capitalists’ continued enthusiasm in the market. (Nearly $600 million in funding went into this sector for all […]

WoW and SLInvestors poured $237 million into virtual world-related startups and payment systems last quarter alone, according to a report released today by industry trade show producer Engage Digital, signaling venture capitalists’ continued enthusiasm in the market. (Nearly $600 million in funding went into this sector for all of last year.) And ask the average tech-savvy person to name a major virtual world, chances are they’ll mention World of Warcraft or Second Life. Both MMOs certainly get the lion’s share of media attention; according to Nielsen Games, they often generate the most total monthly player minutes among all PC-installed worlds. However, as the recent investment news suggests, WoW and Second Life are only part of the story; neither world is truly representative of the MMO sector, nor reflective of where the larger virtual world industry is growing.

Why? In the case of Warcraft, its continued, unprecedented growth in subscribers suggests it’s a category killer in its particular sub-genre of virtual world, the subscription-driven, 3-D fantasy MMORPG. Subsequent rivals in that space have fallen far short of WoW’s 12 million subscriber base; most of the major game publishers are now focusing their energies on non-fantasy MMOs like Star Wars: The Old Republic, or experimenting with non-subscriber worlds, like Free Realms, largely leaving WoW alone in its own sub-genre. In the case of Second Life, while it’s earning tremendous revenue, its user base of some 750,000 monthly uniques makes it a midsized world at best, behind some dozen or so MMOs with regular users in the millions. Second Life’s particular sub-genre, a 3-D, dynamically user-created virtual world, has yet to attract any major competitor.

Meanwhile, numerous other virtual worlds are more popular than Second Life or even World of Warcraft, successfully operating on different platforms and revenue models, targeting various demographics. Consider, for example Zynga’s YoVille, an MMO that can be played only on MySpace or Facebook. Web-based and cartoonish, it’s not 3D and immersive like Second Life or WoW, but a virtual world all the same, offering users a simulated contiguous space with real-time interaction via avatars. It’s also tremendously popular: Just 14 months after its May 2008 launch, it now counts 8.5 million monthly active users on Facebook alone. But perhaps the most surprising thing isn’t its size; it’s that other MMOs, such as Maple Story and Habbo, are even larger. World of Warcraft and Second Life may be the most visible makes in the display window, but don’t forget the many other high-performance models on the show floor.

Wagner James Au is the author of The Making of Second Life (HarperCollins) and a member of the GigaOM Analyst Network. His complete discussion on trends and opportunities in the virtual world industry is now available on GigaOM Pro: “Virtual Worlds: Trends and Opportunities” (subscription required).

Trademarks courtesy Linden Lab and Blizzard Entertainment.

  1. Re WoW’s 12 million players.

    That was in 2008 just after the expansion came out at it was 11.5. And even then Blizzard stopped giving the breakdown of subscribers per geography.

    1/2 of that number were Chinese players and the game is no longer available there – so don’t expect them to comment on how many players WoW has anytime soon.

    My guess is that EU and North America pretty much is saturated and they are possibly getting single digit growth (assuming they are getting growth at all in the US). Their focus has shifted in player retention and you will see the 3rd expansion coming way sooner than the previous 2. Blizz figured out that expansions bring back old players and they sell well in itself.
    A great proxy is for keeping tab of players is # of servers. Last batch to go online in the US was in January (on the heels of a great expansion). Since then nada.

    Warcraft days of glory are over.

    Expect a focus on other properties such as Diablo, Starcraft and the new IP that’s coming in 2011ish with possibly a single subscription for all of them.

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  2. [...] is the Hamstern not going MMO, he takes his guns for hire to another site (a real one at that) with a sadly misguided post on WOW & Second Life getting too much face time in the [...]

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  3. I’m not sure why you think WoW is no longer sold in China. The WotLK expansion was banned, not the entire game.

    I seriously doubt you’re going to see WoW die any time soon…it’d take a serious MMO that really does everything they do better (and no, I’m not a fanatic, I barely play it anymore). That said, I agree that their growth is going to be dinged as they go forward. They’re running out of new markets to hit up for double-digit growth. That doesn’t mean growth will be zero, though. Remember, the population is still growing and the newer generations are more computer savvy and more likely to play the game sooner.

    Honestly, I wouldn’t be surprised if they figured out a way to create a MMO based on Starcraft. “Starcraft Universe” using the same basic model from WoW but in the Sci-Fi genre. They’d make billions. They wouldn’t even have to worry about spaceflight…they could focus on jumping between worlds. Give them some time to push Starcraft II out and keep on the lookout for that. They’d be stupid not to do it.

    Forgetting WoW for a sec and getting back to my point about copying WoW’s feature list, it’s interesting to see how many of the “bigger” MMOs are not grabbing Blizzard’s playbook. Age of Conan was a disaster…it’s crawling no matter what Funcom says…it’s never going to be anything more than another Anarchy Online…keeping it’s small pool of players around for a while. WAR seems pretty solid but it has limited appeal to the general MMO public. It’s more PvP centric so if you liked DAOC then you’ll be happy there. LOTRO is all about Tolkien fans but the fact that the game’s “maturing” with discounted rates and a lot of poking about getting back into it after the Moria expansion, it seems like Turbine’s worried about retention (and ultimately relevance).

    Aion and Crimecraft are launching sometime in the next year (Aion’s coming in September barring any changes). Aion will steal another chunk of the limited fantasy MMO market from WoW and others but only for a while. Crimecraft will be niche like EVE is.

    And, while all of these MMOs are doing their thing and taking chunks of marketshare and in most cases innovating a bit here and there, none of them are fun for long. I remember playing Tabula Rasa…general chat was filled with people talking about how they were so glad there was something OTHER than WoW to play. None of the major MMO companies are figuring this out. Everyone’s focused on being different from WoW and finding some niche outside of WoW’s subscriber base…no one’s trying to really compete. Blizzard did a great job of creating a lot of content with (largely) balanced paths bringing you around the world and keeping you busy. The PVP was there as well so the achievers who got to the end game had something to do. And they’ve changed a lot since they launched but you can still find everything where you expect it.

    Last year at GDC, I remember hearing a statistic that stated there were 100+ MMOs in development. Haven’t heard anything more recent but I can imagine there are still plenty in development still. All the VC funds mentioned in the article are likely funding a lot of those games but honestly…we’re talking about a red ocean which makes you wonder at the logic behind the investments. Sounds like a mini-bubble forming here.

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  4. [...] WoW and Second Life Don’t Tell the Whole MMO Story – Wagner James Au, GigaOM [...]

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  5. Habib Ullah Khan Tuesday, July 14, 2009

    Yes James but what exactly are you trying to say? An editor once told my journalist friend: “When you write a piece make sure it has hook you hang it on.” I just dont see the hook buddy.

    MMORPG’s are MMORPG’s. No need to complicate them. I think fantasy because of the role RPG’s and novels already had on the generation was a natural early adopter with SF also in the periphery for the same reason. These are natural evolutions of any exciting category of entertainment or even technology. If you delve into the monster Blizzard has created you would notice the incredible IT infrastructure they employ with singular load balancing and scaling techniques as well as the process map that governs millions of subscribers globally. GE would be proud. What would be most useful is if someone identified the elements of entertainment and service and IT that combine to make a useful MMORPG, how the market leaders use that successfully and what succesful challengers need to emulate to even have a chance.

    That my friend is a hook.

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    1. Celeste LeCompte Tuesday, July 14, 2009

      Habib — You’re right about what’s needed — and James has an entire report over on GigaOM Pro looking at the broader opportunities to capitalize on IT and service trends in MMOs (not just MMORPGs) that you might find useful. Here’s the link http://pro.gigaom.com/2009/07/virtual-worlds-trends-and-opportunities/ ($79 sub required).

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  6. [...] in Site on Jul.14, 2009 GigaOM has posted up a fascinating feature by Wagner James Au which claims that World of Warcraft and Second Life, [...]

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  7. Jeremiah Spence Tuesday, July 14, 2009

    Why the use of the term “MMOs” in relation to virtual worlds or social virtual worlds? The consistent use of terminology in virtual worlds research literature utilizes the term ‘virtual world’ to refer to anything that is not game-centric, such as Second Life or any of the many other non-game worlds out there. -j

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  8. Worth mentioning that $200 million of the $237 you mention is actually for russian company building a micro-transaction system for Facebook. So not really about 3D MMOs as the post title and most of the copy suggests Wagner? Most current investment is really going to 2D social networks – quite a difference from the thrust of the item I would suggest?

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