Umair Haque / Bubblegeneration

Tuesday, September 06, 2005

Simulation Economy

Nice NYT piece about WoW, illustrating continuing growth of MMOGs. Complete with famous-last-words style quote:

"..."I don't think there are four million people in the world who really want to play online games every month," said Michael Pachter, a research analyst for Wedbush Morgan, a securities firm. "World of Warcraft is such an exception. I frankly think it's the buzz factor, and eventually it will come back to the mean, maybe a million subscribers."

I've read Pachter's research, I think it's pretty good. So I'm totally mystified by this quote - Lineage I + II have something like 2.5 - 3m subs combined alone.

You don't need numbers to prove this - just think about, for example, PSP penetration. It should be totally intuitive.

The other thing to remember is that the price of access to MMOGs is about to drop exponentially as ad-based revenue streams become more and more viable. If anything, the data that we've got right now tells us that potential MMOG consumers are highly price sensitive - viz Habbo Hotel's hypergrowth - so when prices are slashed, subs will likely explode.

And, final thing - remember, as subs explode, the best MMOGs are platforms for (really) strong network FX. Value to be gained from signing is gonna explode (think about how your incentives become unstoppable when all your friends are on SecondLife instead of MySpace or TheFaceBook) - there will be serious increasing returns in this space. Which is why we see venture investment beginning to ramp now.

Argh, one more thing I've gotta mention. A big reason for hypergrowth of MMOGs in Korea is the phenomenon of bulk sales to, for example, Net cafes. That is, the Net cafe buys seats/licenses - and then you buy an account at the Net cafe. This is a simple risk/cost sharing mechanism that makes it possible for kids to play games at a very small incremental cost (instead of a relatively large fixed cost). Something you might wanna keep in mind.

-- umair // 12:40 PM // 1 comments

Comments:

Umair,

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# //

Ritholtz // 2:29 PM