Yesterday game industry analyst Michael Cai stated that he believed World of Warcraft's only true competition in the MMORPG space would come from the competitors using the free-to-play, microtransaction-driven model in remarks made to GigaOM. Cai reached his conclusions while researching an upcoming online games study called "Networked Gaming: Driving the Future II" that will be published later this month by Parks Associates.
Cai considers the free-to-play model a "major industry driver," because the model went from controlling 0% of the market in 2005 to 15% in 2008. Cai expects that free-to-play games that monetize through microtransactions will account for 36% of the revenue generated by MMORPGs within five years. Upcoming free-to-play projects by game industry heavyweights like Electronic Arts and Sony Online Entertainment seem to agree with Cai's assessment of the model as one positioned for rapid growth in the near future.
Cai believes that WoW accounted for half of the $860 million in revenue that MMORPGs generated in the US in 2008 and expects that online gaming will be a $1.6-billion-a-year industry by 2013. Cai stated that he felt only WoW creators Activison Blizzard had the talent or resources required to design and build a subscription-model game that could successfully displace WoW's position in the MMORPG space. This agrees with public statements made by Bobby Kotick, CEO of Activision Blizzard, that a competitor would need to invest from $500 million to $1 billion dollars to build a subscription title that could compete with WoW.
Where the free-to-play model will encounter difficulty in outperforming WoW is in monetizing individual users efficiently. WoW earns money off of each subscribed player, while a player in a free-to-play game frequently doesn't need to spend money to advance. Right now 50% of all players who engage in online games play only free games, but the free-to-play space is still only generating 15% of the industry's overall revenue. That's because only 5 to 15% of all free-to-play gamers actually opt to spend any money per month on premium virtual goods or currency. Cai estimates that the minority who do opt to spend on a game spend, on average, between $10 to $30 per month.
While a game monetizing at this level can certainly get popular, right now Cai's upcoming report concludes that there is currently not enough money in the space to fund a triple A game capable of offering gameplay depth and other features comparable to WoW. Instead the free-to-play space is now oriented toward what are essentially light, casual MMORPGs like Nexon's MapleStory and Gaia Online's Zomg.
Cai expects WoW to continue to dominate the MMORPG market for at least the new few years, but also expects that rising development and service costs will eat into the subscription model profitability. Over time he expects an increasing number of players to turn their attention instead to free-to-play titles that do not demand as much time or financial investment as a subscription MMORPG. Gradually, over the long term, Cai's report predicts that the free-to-play model will eventually displace the subscription model completely.
Michael Cai will be presenting on Virtual Worlds By The Numbers: A Look At The Market Research on March 10th at Engage!Expo in New York City.
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