Does It Lose Money When You Do That? Don’t Do That

(a.k.a. “How to invest in MMO development … profitably”)

The world is full of games companies that blow stupid amounts of money on making online games (typically “massively multiplayer online games” (MMO)). It’s time to put a stop to this madness; honestly, I thought everyone learnt their lesson about 5 years ago when we had the last wave of “everyone’s making an MMO … oh god, these things are TEN TIMES as expensive and ONE HUNDRED TIMES as difficult as we thought … Run away!”. Apparently not.

I think there’s two ways you can learn for yourself how to make a profit from developing online games:

Option 1: Does It Lose Money When You Do That? Well Don’t Do That Then

(this is also known as the “Mike Myers / Love Guru” approach to becoming a successful Executive at an MMO developer or publisher)

The rest of this post will be about this.

Option 2: To invest $50m profitably, you just need to know how to invest $5m profitably, and then do it ten times in a row

(this is also known as the “portfolio of successes” approach)

The *NEXT* post on this subject will be about that…

How to lose money when making an MMO

I’m going to use two simple case-studies here, both 2008 (there are good examples from 2003/2004/2005 too – like The Sims Online, for instance – but I’ve got more than enough to go on just from *this* year’s disasters. Tabula Rasa, anyone?)

If you want more detail, or more games, and less sensationalism, I’m available for some MMO consultancy at the moment ;) (email address is on the About page) …

Here’s one way to publish online games for a loss:

1. Target business and use-practices of people at the top end of the generational curve (ignore microtransactions, enforce creditcards, expect people to expect to have a credit card, etc)

2. Struggle along spending more and more money chasing lower and lower profit margins out of the market you still have available, using Expensive IP Licenses to shore-up the increasingly unpopular Core Gameplay

3. …Wait. Give it 3 years and your investments will be worthless, the “current” market will detest your products, and you won’t have any staff left who even know where to begin when it comes to making and selling product for the new today’s (the future today) customers.

It can’t fail.

Look at Hellgate: London / Flagship:

GFW: So if you knew then what you know now, what would you have done differently all along? Maybe both on the development and the business side.

BR: Less. It’s actually a pretty easy answer. I would have done less.

Hellgate: London / Flagship

(quotes from the post-mortem interview with one of the directors, Bill Roper – http://www.1up.com/do/feature?pager.offset=3&cId=3169356)

These guys securitized bank loans – for something as ultra-high-risk as MMO development – on the total IP of the game. This really surprises me, they decided to make their success all/nothing, this deal implements a strategy of: “if we don’t succeed massively, we are deliberately forcing ourselves to fail”, since it was taking out of their hands the ONLY thing they could have leveraged for new revenue sources and for obtaining new investment.

GFW: So Comerica’s control is the IP…

BR: IP, code, tech, and tools. So to be honest, if I personally had the money, I’d buy it back out. The technology and the toolset that we built is a really powerful platform for creating titles. That was really the goal of what we were going to be doing at Flagship. We were going to be using the tech and tools — using the platform — [and] creating games based off of that as our core moving forward. –

“It was a decision that we made because we needed to get more money into the company”

On why Hellgate failed:

“Hellgate came out, and it wasn’t as good as it should have been. There’s a myriad of reasons for that. Some of them were just bad timing in the PC market. The PC market was lousy last year. Some of it was the fact that we were an independent studio. We didn’t have unlimited money, and we had to ship when we had to ship. Part of it was because we overreached, and that was a design problem that was totally our fault. We tried to do too much. We tried to be a standalone game and a free-play game and an MMO and an RPG and a shooter. We were trying to be something for everybody and ended up really not pleasing many people at all…”

Interesting, because that’s clearly not a good explanation – those things are none of them reason enough to explain the failure – but then later he says something else that DOES sound like a sufficient explanation. He talks about something that would actively prevent people from purchasing product, which ultimately is usually why you “fail” as a games company:

“BR: Free- and subscription-based. I think we should have picked one or the other. We should have said, “Hey, you buy the box, and then it’s free online play, and we’re going to [disappear] for a year, except for bug fixes, and crank out a new expansion.” Or we should have said: “You know what? There’s no single-player version. It’s subscription only. That’s how we’ve geared the game. That’s how it’s gonna work,” and done that from the beginning. We wanted to get people who’d never subscribed to a game before to play it by themselves, then go online and play it with their friends, and then they see all this new content and want to subscribe. But I think that was a model that caused a lot of confusion and caused a lot of division amongst our community, too.”

It would seem that game developers – even ex-Blizzard ones of some fame – still don’t really understand the business side of their business. One of the fundamental lessons of mass-market consumer business is that “the consumer must understand why they want to buy your product”. This is what Marketing *is all about*. Without it, they won’t buy. If they don’t buy, you don’t make money. Simple as that.

With businesses that sell to a small number of clients (e.g. middleware), this isn’t an issue – in many cases you actually WANT an excuse to sit down and explain your product / offering to the potential customer. You have enough time, and each purchase is expensive enough, that you can afford to fly to the office of *every potential customer on the planet*. And that explanation process usually enables you to find extra things to sell to them, and give you a chance to put-down your competitors. Doesn’t work with mass-market consumers, though.

“Everything from the development side to the business side was set to this model that we’d put together. We hoped that it was going to actually work, and we told ourselves that maybe it’ll work better than we think it’s going to work, right? But there was just a lot of confusion.

People were saying there’s going to be the haves and the have-nots. There was a lot of backlash against the model. It’s always tough to gauge percentages, though, because the people who post online are the people who are angry regardless of whatever, so then you’d assume that everybody hates the game, or everybody doesn’t like your magazine, or whatever it is.”

I understand this fear, this trepidation – it’s an inescapable part of trying to make a new market, something you’re always doing when you do a high risk venture aiming to achieve hundreds of millions of dollars of revenue. We had the same fear at Mind Candy when we were developing Perplex City; we knew that if we got it wrong, it might well kill us as a company. But here’s the difference: we went to market with a shipped product on less than a million dollars, AND FOUND OUT … before blowing tens of millions of dollars in pre-loaded risk.

(for the record: I found it pretty scary, that first time. Props to Michael for pushing it through. Now, though, I wouldn’t do it any other way. In fact, it’s one of the reasons I stopped working for a big publisher – that they kept wriggling-out of “try it and see” in favour of “spend, spend, and spend even more, then gamble on the outcome, and fire lots of people if we guess wrong”. Bugger that for a game of soldiers…)

“We never really much left crunch mode, for the core Hellgate guys.”

“it kind of became this negative perfect storm of us trying to chase making the game better and really digging ourselves into a bigger and bigger hole. That’s why we did things like take out loans against our IP and pouring our own money into it, so we could turn the corner. And we ran out of gas before we got around the corner. ”

Damion Schubert gave this a name years ago: “Anarchy Online”-Purgatory. It’s the idea that you’re providing a service that has a high support cost day-to-day, but you naively failed to budget resource for that. So, you’re cutting so many corners trying to find enough resource to support the existing service that you have nowhere near enough resource left to do ongoing development.

Worse, if your product shipped at sufficiently low quality, your support costs are vastly inflated supporting bugs that you could have fixed for much less than the cost of supporting consumers who encounter them. But, given the above problem, you end up spending as much each month on support for a bug as it would to fix the bug – and you know it! – but you don’t have the cashflow to allow you to fix it. You are doomed, but you can carry on surviving and suffering for a very long, slow, death.

“Once marketing starts happening, if you change the date, you’ve flushed that support. We said we’ve got to ship. As we started down that path, working on the bugs and things, there was so much more there, and it was so much more complex than we’d ever imagined”

Here is what I think of as the Fallacy of MMO Marketing. I’ll be going into this in more detail in the next blog post.

Traditional game-marketing is a waste of time and money for an MMO. The MMO will always be there.

If you cannot come up with a marketing plan that works around the sales model (which, for an MMO, is “continuous”), then you need a new marketing dept. Using an old dept, who will hold you to extremely difficult ways of working (like, “big bang event” marketing), ways of working which *no longer make any senses or serve any purpose for an MMO*, is stupid. From a technology perspective, from an operations perspective, from a design perspective, from a sales perspective: from all these, you do NOT want a big-bang event. It’s only the marketing dept that wants it, and then only because “that’s all we know how to do”.

Age of Conan / Funcom

Speaking of AO-Purgatory … what about Funcom, makers of that game, who in 2008 released their next major MMORPG – Age of Conan?

It looked great. But why did Age of Conan (AoC) make massive sales, while Blizzard had a dead period in the run-up to WotLK, but then fare poorly? Why didn’t they manage to steal the WoW players permanently?

Plenty of reasons. But one set is this: here’s another way to publish online games for a loss:

1. Make a game which costs a vast amount of money up-front before you’re allowed access to the “magic garden”, so everyone has to rely on word-of-mouth for purchasing decisions

2. Make it difficult to start playing, to actually PAY that money, so that many buyers “don’t get around to buying it” for a while – perhaps not until their friends have been playing for a few weeks or a couple of months.

3. Make the game beautiful and wonderful for the first 2-3 weeks, and make it suddenly really, really bad by comparison in the third/fourth/fifth weeks.

4. Ask people to pay / renew their monthly credit-card subscription just after they’ve encountered the bad bits, and they’ve had a richly bathetic (sic) experience.

It can’t fail. Your early adopters will be asked for more money just at the point that they feel most ripped-off and are looking for an excuse to “punish you”. Their friends will “get around to” purchasing your product just about the time that all the early adopters are saying “this game sucks, I hate it, it’s really crap” – because they haven’t had time to “get over” their disappointment yet.

Confession: I’ve never actually played AoC. I’m sorry; I’m going to analyse a game I’ve not played (I make a point of trying to seriously play each and every game for a while before making a judgement. It’s a hard life, working in the games industry ;) ). But, you see, even working at an MMO Publisher (as I was at the time), I couldn’t start playing it with my friends at work. I had to pay $100 for the priviledge of trying it out. I couldn’t start playing even then, even if I had money to burn and burnt it – I had to find a shop selling a box. I didn’t need the box to play, it didn’t contain anything, it was just a magic token that someone wanted me to win in a quest before I would have proved myself worthy.

Publishers who do this are Foolish. They are clever people who’ve seen that there is money to be made in boxed retail, but they’ve sold their own intelligence short by not thinking about WHAT money there is, WHY it is there, the SIDE-EFFECTS of that money, the MARKET that is being reached, and how to INTEGRATE that market with their other markets. My example above is an example of one of those “other markets” which is being destroyed because they failed to think about product / market fit as a whole rather than as a set of discrete silos. That kind of thinking is “old style” marketing, before the internet, when companies could ruthlessly control their products. That kind of Marketing Executive generally finds it hard to get a job these days, as their approaches work poorly in the world in which we now live. And the customer doesn’t know or understand these things, but they innately perceive them – and they say the publisher is “Stupid!”. And they vote with their wallets.

But also, from the oppositive point of view, … they *learned* from Anarchy Online (AO), they *learned* that improving the new-user experience radically improved attraction and retention. I cannot over-emphasize this point: it was one of the biggest changes ever made to AO content, and it’s proven time and again to be a distinguishing feature in the commercial success of MMOs.

So, you get stuff like this (Scott Jennings, aka LumTheMad, talking about AoC’s failure):

“SJ: Well, the budget wasn’t big enough to make a Tortage-style experience from 1 to 80. Would $15 million have bought Tortage-style polish for 60 levels? Probably not. Would any amount of money have? Probably not. But … that’s what players expected.

When they got past Tortage and got to the “kill 40 snakes and bring me the skin because it is yummy in my tummy,” players got angsty about it. They felt bait-and-switched because here was this very polished experience which then … stopped.

Even more than that, though … the cutoff at that point was just so drastic, I feel like it was a decision point for subscribers. As in, “Hmm, I don’t think I want to play any more” decision point. But, zooming out from AoC for a bit to the larger view.”

…but you see, Funcom only learned ONE thing from AO – they didn’t have a holistic enough view to realise that what they were doing was creating an EASY “cancel subscription” decision-point for players, as Scott says. Successful MMO companies create EASY “prolong subscription” decision-points for players.

The tragic thing is that this concept is considered basic knowledge that every business person in most companies is expected to know. Apparently, Funcom didn’t have anyone who knew. (I’m sure they did, but what they shipped makes it look as though they didn’t have anyone. I can think of many practical reasons why the people who had the knowledge were divorced from the people who made the shipping decisions, most of them innocent but unfortunate).

I don’t think Funcom are stupid. I think they have excellent game design skills, but they are consistently let down by poor production / technology / operations / management.

Basically: Great Ideas, Shame about the Execution (not “implementation”).

Anarchy Online was a gem of a game, if you look at the content, the world, the ideas, the gameplay. Shame about the execution of AO *as a complete product*.

Age of Conan is a lovely rendition of a bloodthirsty IP. Shame about the execution.

Which means, I suspect, that Funcom will never be allowed to make an MMO again. In the games industry, it is only execution – the ability to deliver – that counts, and Funcom has now failed not just once but twice. In a row. Only a fool would give them money now.

Conclusion

Well, that leaves a lot of openings for stuff to talk about in Option 2 (learn to make MMOs profitable at one tenth the cost)…