SOE: "When you can't beat them, change your business model."

A little story in the New York Times details SOE’s new strategy to offer free play item-based trading games and ad-driven revenue games instead of subscription based games.

Says Smedley:

“Right now our revenue is almost all subscriptions,” John Smedley, the unit’s president, said in an interview. “In two years, we would like to see no more than 50 percent of our revenue coming from subscriptions, and five years from now we think less than 10 percent of our revenue will come from subscription sources.”

At the same time, Mr. Smedley said he wanted to diversify his customer base, which is 85 percent male and 32 years old, on average. Women have become the major driver of the casual games business (games like Bejeweled and Bookworm), and Mr. Smedley wants a piece of that action."

So that’s it. They’ve basically given up on keeping up with Blizzard and are now looking for a new approach. They’ll probably continue to support their current users with expansions, but from the quote above it doesn’t seem that they are planning any new sub-based MMOs in the future.


Because hey, ad revenue is a given and not cyclical. No wait …

Perhaps they should work on a fantastic MMO that blows away the 800 pound gorilla and then reap the extra subscription revenue. Smed should hang it up if they can’t continue the MMO fight. Ad revenue is a joke.

You don’t think that they try to do this with every game that they create already? I don’t think that it’s as easy as you think it is.

More from the article:

In general, Mr. Smedley wants to replace subscriptions with a combination of microtransactions, advertising and what he calls the “velvet rope” approach.

The game will be free to play in general, but will require paid membership for access to special zones and activities (hence the term “velvet rope”). In terms of microtransactions, players will be able to buy virtual in-game items like pets and clothing à la carte. And there may also be advertising inside the game.

“Velvet rope” = subscription. The only real difference is that the subscription isn’t required for ALL of the game content, but only for SOME of the game content.

There will never be a Dikumud clone that “beats” World of Warcraft unless it’s a direct or indirect (eg World of Starcraft) sequel. Period, stop, end of line.

You don’t “blow away” the 800 pound gorilla. You maneuver around it.

You guys are right, yes they swing and miss the mark and yes it’s hard to bead the 800 pound gorilla. But they are trying to introduce another option, ad revenue into games to make up for the fact of lower market share. And my point is, I don’t think that will work. If they need a more creative staff, different management, an entirely new design team, whatever. Do that if you want to stay in the MMO business. The last thing gamers need or want is an inferior MMO release with ad content in the game.

I’ll note that in most other forms of business, the recurring revenue model (i.e. subscriptions in this case) is more heavily sought after than spiked revenue (a new release.) I just don’t see ad revenue driving a game company forward month after month. If I’m wrong, god help us.

Don’t forget they said the same thing about Everquest back in the day. “There will never be a bigger MMO.”

Who says ad content is in the game, or that it’s not a successful business strategy? There are games (Asian and western) doing quite well on that model, and advertising doesn’t have to be in the game itself. You’re making some assumptions by reading between the lines.

Overall, it sounds to me like what you’re saying is, “Make whatever creative changes you have to make to be successful making the same product as everyone else is making.” I’m not sure that’s a successful business strategy. :-)

But they are trying to introduce another option, ad revenue into games to make up for the fact of lower market share. And my point is, I don’t think that will work. If they need a more creative staff, different management, an entirely new design team, whatever. Do that if you want to stay in the MMO business. The last thing gamers need or want is an inferior MMO release with ad content in the game.

From the sound of it, they are also trying to do item-based trading in their games. This is probably much more lucrative than ad revenue - most of the MMOs and online games releasing in Korea and China are using the “velvet rope” and item-trading models to good effect (Kart Rider in Korea, Zheng Tu in China).

The problem with item-based games is that they require a different design philosophy- players don’t need to achieve their “+25 sword of awesome cutting” through questing, they can just buy it online. So the most tricked out guys aren’t the most dedicated, instead they are the ones with the biggest credit card limits. The game content isn’t built around long quest chains and raids, it is built around grinding and frequent item drops.

And these games aren’t that sticky- the MMOs in the top 10 in Korea tend to turnover pretty quickly because players have no barriers to exit- since their character is a sum of payments instead of quest-specific objectives.

Isn’t the “velvet rope” approach pretty much what Dungeon Runners and Hellgate:London are doing? Given reaction to those games so far, I don’t know if that revenue model will fly.

It’s certainly too early to predict that it won’t work for a game like HGL, but I’d say if anything people react negatively to it and they will have to overcome some big obstacles to prove that model is viable.

Very true I am making assumptions. There isn’t much ad revenue based games (that I’ve played) to help me draw a more complete picture of what Smedley is proposing. But, changing the business model is just as risky as striving for a higher market share and missing the bar.

Maybe you guys can suggest how this might work? How could SOE do well online with ad content?

In the interests of full disclosure, I’m working on one of the games in the announcement, FreeRealms. I’m not saying that to stifle any heckling or voices of doom… it just seemed funky to discuss anything in this thread and not say that.

They made good money with a 450,000 subscriber game. Try to make a couple more of those. You don’t need 8M subs.

Of course, making a 450,000 subscriber game, or even a 200,000 subscriber game, isn’t necessarily any easier than making an 8M subscriber game.

I also don’t like the idea of microtransactions. I just don’t like thinking about all that stuff, trying to decide what to buy, whether it’s a good deal or not, etc. With a monthly sub, I make one buying decision and then I don’t have to worry about it.

Can you talk about it? I’m sure plenty of us are interested in learning about it.

Just shoot him in the leg and take away his business.

He already had a product aiming at casual and hardcore gamers inhouse and add on top of that a the number one setting which was one the one hand a very fantasy-esk but in addition sci-fi pure.

Let me quote from

"I might also say that if you managed to screw up a Star Wars MMO, then for fuck’s sake maybe you don’t get any more major franchises. "

but let’s extend it a bit. You shouldnt get any business at all anymore.

Yep, no way will I play one of those games where you go to an item mall as your only option for getting decent in-game loot. I have tried a couple and there is no reason for playing. I like the reward based advancement found in MMORPGs. Once that is removed, I am not sure why I would want to play. There is zero sense of accomplishment.

I am sure there are plenty who would happily pony up their dough to have the bestest gear, but how long can those people possibly play a game before it wears thin? Lessee you get maybe $100 up front from those folks, whereas I would pay $10-$15 bucks a month for a year give or take a couple of months and am much more likely to hang on and not cancel my subscription.


SOE managed to make a Star Wars MMO lame. I’d say they’re not trying hard enough, or maybe trying and going in the wrong direction.

SOE has been heading in this direction for a long time. They’ve been adding games from other publishers to their fold for the last three years and making them available on Station Access in an attempt to sell quantity over quality. This is just the logical extension of that idea.

SOE wants to be a gaming portal. They want ALL kinds of gamers to come to them, not just the hardcore MMORPG fans. To that end they’re looking at ways to support casual games via in game ads and ways to support more expensive to develop and maintain MMOGs with things like pay-to-play content and “membership-only items”.

A lot of people don’t realize this, but the #2 MMORPG in the world behind WoW is Runescape. That’s right, Runescape. As sad as the graphics are, as simple as the gameplay is, it pulls in millions every month from $5 membership fees that allow people access to content they can’t get with the free version. Add to that advertising revenue from the free version’s interface ads, and you get a revenue stream that companies like SOE look at and salivate over.

A lot of people don’t realize this, but the #2 MMORPG in the world behind WoW is Runescape.

I’ve heard people throw this stat out before, but has anyone ever sourced it? Also, #2 in terms of what: accounts created, number of active players, number of total players or annual revenue?

I think that there are bigger Chinese MMOs (Fantasy Westward Journey, World of Legend Online, etc) that pull in bigger subscriber numbers. Lineage I has higher sub rates than WoW in most Asian countries and probably is the #2 revenue MMO out there on a global basis. Second Life claims 20MM or so accounts created (most of which are inactive).

Remember, the two aren’t mutually exclusive. And no one has said what you can buy via micro-transactions yet. Yes, in many Asian games you can buy some of the best items in the game that way… but it doesn’t mean that’s something we plan to do.

I can’t say a lot yet about how our business model works, but I can say that we want people to feel an investment in FreeRealms, in their character, and in the world. We respect the player who has fifteen minutes a day and the player who has fifteen hours a day equally. Our goal is to not screw one of those players over in favor of the other.

That means we don’t want either:

a) You to grab your credit card and go buy the best sword in the game;


b) You to have to coordinate with six friends and three guilds to start the four hour raid process that will end up maybe giving you an item one guy in your group can use.

From a design perspective, that’s a really interesting puzzle to solve.