Online Gaming Is The Wave Of The Future--So When Does the Future Arrive?

by Greg Costikyan & Leonard Quam

Len and I wrote this article back in October 1998; it was published in the January issue of

magazine (which never paid us, by the way).

I played my first network game in 1979. Yes, really. It was called Empire, and I and a bunch of friends sat around the computer center at NYU and played it on dumb terminals connected to a VAX. It was cool.

I could see that this was the wave of the future.

I designed my first online game in 1989. It was called MadMaze, and it ran on Prodigy. It attracted more than two million players before the old Prodigy service finally died.

I could see that this was the wave of the future.

And you can play online on Gamestorm and MPlayer and the IGZ [now the MSN Gaming Zone] today, and see that it's cool.

Online gaming is still the wave of the future.

It has to be. It's so obvious. Networks solve the gravest technical limitation of computer games: their inherently solitary nature. Throughout history, pre-PC, games have been social affairs, ways to have fun with your friends; solitaire games were ways to kill a little time when you couldn't play the real thing. The development of computer games has been strangely warped, in ways game developers only dimly realize, by the single-user nature of the home PC.

The net will change that. It must. It allows games to return to their natural form, to become what they were always intended to be: ways to have fun with other people.

Online gaming is the wave of the future.

But somehow, the future keeps receding.

Billions and Billions--Any Day Now

The surveys claim The Future Is Now. Jupiter Communications says online gaming will be a $1.6 billion market by the year 2000. Forrester Research says $1.6 billion by 2001. Kagan claims $1.375 billion in 2000. They're all in broad agreement.

We're in the money, boys! It's fiesta time. Whoohoo!

But here's the reality: Total 1997 online gaming revenues, according to Frost & Sullivan were $93 million.

To make those surveys true, we need a 16 fold increase in revenues in three or four short years.

Let's look at the history a little bit.

Commercial online gaming did not spring full-blown from the forehead of Tim Berners-Lee (creator of the Web). Indeed, it antedates the Web by several years; it began on commercial online services--GEnie and CompuServe and Prodigy. It was never a big business by comparison with computer gaming, let alone consoles; perhaps at its height it grossed $50 million annually. It was built on connect-time revenue, and games designed to maximize players' connect-time. It was built on a narrow customer base--relatively few players--but a deep one. Players typically spent dozens of dollars each month on the games they loved--some of them, hundreds of dollars.

It wasn't big, but it was profitable.

Then came the world wide web; suddenly, the online world was much bigger. But the commercial services began to fall--all but AOL. And the commercial online game providers--Simutronics and Kesmai--flocked to AOL, and prospered.

Until--until AOL went flat fee. Suddenly games, a substantial revenue source for AOL under connect-time charges, became a nightmare. People played like mad, because it was free to do so. And gamers spend far longer online than most people. That's good if you're charging for time; it's horrible if you're charging a flat fee. Because people online consume resources: modem ports, processing time, bandwidth.

If you're charging flat fee, the ideal customer is one who never goes online. Or at worst, goes online a few minutes a day to check his stock portfolio, and gets exposed to an ad or two in the process.

Simutronics and Kesmai made out like bandits for a few short months; their contracts with AOL gave them money for each hour gamers spent playing, even though AOL was charging its customers by the month now. But when those contracts expired, AOL changed the terms, of course.

In other words, from 1996 to 1997, online game revenues, at least for the old-line producers, actually declined.

Kesmai's stuff is still on AOL, but the relationship between the two companies sucks despite the settlement of Kesmai's $1 billion lawsuit against AOL. Simutronics is off on their own, partnering with Excite, they're off AOL entirely. Some of Engage's games are available through AOL, but they're also available on Gamestorm and TEN.

Ultimately, AOL was forced to institute a $2 an hour connect-time fee, above and beyond the monthly charges, for its games (other than a few classic card and boardgames). It was the only way to make those games work.

But the net result was to lose AOL's audience. They'd been used to an hourly charge; then they were told it was free with the monthly fee; then they were told that they still had to pay the monthly fee, and extra bucks as well. A lot of customers washed their hands of the whole deal.

Nobody's making much money on AOL.

And since then--no one has found a viable business model.

Kesmai (aka Gamestorm) is bleeding money; but Kesmai is owned by News Corp, which has deep pockets. Simutronics (aka Playnet) claims it's operating in the black, that they've made the transition to the Web successfully, and they're growing; even if true, they have not attracted additional capital to spur their growth, and must bootstrap themselves up inch by inch. They're both okay for the nonce. But they're hanging on, waiting for the coming of the Lord--waiting for the Promised Day, when online gaming will be a billion six in annual revenues.

And I have no doubt their management gets up every morning and prays to God it comes soon.

But--maybe the old-line online firms are just dinosaurs? Maybe successful online gaming in the era of the Web will come from somewhere else?

It's possible. Let's look at what else is going on.

The Low-Latency Mafia (and Other Aggregators)

TEN, MPath, and DWANGO were all built on one basic theory: latency was the fundamental problem of online games.

And it is a problem, to be sure. Your computer pulls data off your hard drive in microseconds. Anyone who has browsed the web knows it takes a while to download even a few K of data. And getting a response from another machine typically takes a noticeable fraction of a second--sometimes even a few seconds, if the routers between the machines are overloaded.

Increasing modem speeds doesn't solve the problem. Oh, the download gets there quicker, but the latency doesn't change much; only a small part of latency is due to the PC-to-ISP connection. Most of it results from bottlenecks on the Internet and the inherent latency of analog modems--and the fact that a data packet often has to skip through several routers before it finds its destination.

The low-latency networks deal with this problem in different ways: DWANGO has its own network, with dial-up lines in major cities. TEN and MPath connect over the Internet, but have priority routing to cut latency times.

And as a result, you can play games like Quake tolerably well over one of the low-latency networks--much better than over the public Internet. And they provide a service, too: they act as matchmakers, providing lobbies where you can go to find people to play. And run tournaments as well.

TEN and MPath were funded by venture capitalists; DWANGO by a single private investor. Their business plans depended on the notion that people would pay a premium for low-latency access. Originally, they were all going to charge for connect-time; TEN still does (although it also has a higher cost, unlimited time deal).

But the problem is that hosting play of boxed game titles has become a commodity. The IGZ does it for free. Many game manufacturers have their own player-matching sites. People won't pay a premium for this service, any more; TEN and MPath have been forced to lower prices, or to put some of their services in an uncharged area while retaining charges for "premium" services.

TEN is grimly holding onto the connect-time model, although it has an unlimited deal. HEAT--Sega's low-latency aggregator--charges a flat monthly fee--not a good model for games that require people to be online continually, as all boxed games with net play versions do. DWANGO is still charging connect-time too, and has a deal with Microsoft's IGZ to funnel some people its way.

People who lay out $50 for a boxed title feel they've paid their nut. And they've gotten used to the idea that they can play on the net for free. They won't pay for the privilege.

So the original business plans for all these companies are out the window.

MPath loudly maintains that advertising is the answer. This is fashionable, because advertising is one of the few revenue sources anyone has made to work on the Web. There are some advertising bucks out there to get.

But not, at present, enough.

And advertising is a sucky way to support games, anyway. Gamers don't want screen real-estate sucked up by a banner ad. And if there is an ad up there, no way they're going to click through to the advertiser's sight; they're too busy blowing away other players. Take the time to do that, and you'll find yourself a corpse when you return.

But no one--no one--is making money out of the business of low-latency support and player matching. They're all hemorrhaging money. And TEN and MPath's management spend more time desperately hunting for additional capital than they do trying to run the business.

Expect one or several of these guys to disappear. Soon.

[And indeed, DWANGO has since bitten the dust.]

The MUDs

They call themselves Massively Multiplayer Virtual Worlds. That's a mouthful. It doesn't even make an acronym. And it's bullshit anyway; it's supposed to make these games sound cutting-edge and cool. Actually, what they are is graphical MUDs.

MUDs have been around forever on academic computers. You play a character in a fantasy world. You wander around, talking to other players, slaying monsters, having adventures. A community gets built up; powerful players with connections to others, people who hang around helping (or bushwhacking) newbies, history and legends of their own. They're fun.

When the Internet boom began, it was an obvious imaginative leap: Let's take these academic games, successful in their own way, and add on all the media assets people have come to expect from commercial game software--animation, video, music, sound effects--and presto, a hot online game.

It is an obvious concept. It is a good concept, too: MUDs truly do work in text, and there is absolutely no reason they can't work with graphics.

There is a potential marketing problem, to be sure: To provide all those graphics, you need a CD-ROM. That means shovelling your product down the dicey, screwed-up distribution channel for PC games. And you need to persuade people to buy a game they can't play without a net connection at retail--customers who are used to taking a CD-ROM home and booting it up and playing right away.

But that can be overcome.

What can't be overcome is screwed up design. Take Meridian 59; it has a completely perverse way of handling the problem of server overload. To avoid having any single server bogged down by too many people signing on at once, Meridian 59 is not a single game. Instead, when you sign up, you get assigned to a particular server. Whenever you sign on, you sign onto that server. You can't sign onto different servers. Players on different servers can never interact with each other, because each is its own separate universe.

Play with your buddies? Forget it.

This is not Meridian 59's only flaw, of course; among others, its world is just too damn vast for the number of players in it. Hard to find anyone. Hard to find anything to do.

Or take the most famous, and allegedly most successful, graphical MUD: Ultima Online. Richard Garriott, throughout his career, has made a point of encouraging the players of his games to act in moral ways. So: he designs a game that rewards player-killing. Dumb, dumb, dumb. Any MUD-experienced player could have told him not to do that. Can you say "the arrogance of design?"

Poor conception extends beyond the game itself. UO charges you a monthly fee to play. You must be online continually to play.

So guess what? People spend hours online. Hours and hours and hours and hours. Particularly since, if you don't want to play a player-killer, it takes hours and hours and hours to get anywhere in the game.

They spend much more time than Origin had expected. They consume many more resources than expected; that's why lag was so bad (and still is at times), that's why it's sometimes hard to sign on. Supporting UO requires a lot of hardware.

EA claims UO is successful. Real successful, you bet. So successful it's spawned lawsuits. So successful that the turnover rate among players is staggering. So successful that the UseNet is overrunning with irate and unhappy UO players.

EA claims UO is making money; they have 100,000 members, which means $1 million in monthly revenues. That's a big chunk of change, and maybe it's true; but what EA hasn't said is whether "making money" simply means "our monthly income exceeds our exepenses," or whether it means "yes, we're actually earning a decent return on our investment to date." I'd be vastly surprised if the latter is true.

A year ago, I counted more than a dozen people who claimed to be developing Massively Multiplayer Virtual Worlds. Almost all of them have quietly disappeared.

UO has left a bad taste in people's mouth. It's poisoned the well. Unless something like Everquest or Asheron's Call proves a staggering success, this market is dead for now.

[Actually,

is now perceived as a hit; despite its flaws, it is, after all, bringing in a LOT of monthly revenue.

looks like it will succeed, too. Building a graphical MUD takes a lot of money, though--substantially more than a typical CD-ROM development project. But far from being dead, it looks like there's increasing interest in this market.]

Will the Big Boys Save Our Bacon?

So if the old online games business is suffering, and the two big recent attempts to create a new one--low-latency networks and graphical MUDs--have cratered, who is going to build this $1.6 billion business? And where's the revenue going to come from?

One possible answer is: The big media firms. Let's include Microsoft in this.

The Internet Gaming Zone claims to be the most successful game site on the web. It claims 2 million registered users. [4 million, now.]

That's looks real good by comparison to TEN's 30,000, say. But the comparison is utterly misleading.

TEN's members pay, every month. Very, very few of IGZ's members pay for its premium services. Microsoft doesn't say how many do.

On a typical night, as many as 15,000 people may be online on the IGZ [now 30,000]. Maybe 200,000 people actually visit the Zone from time to time. The rest signed up once, but rarely, if ever, return.

If you look at the Zone, most of the people are playing Spades or Hearts or another card or boardgame. IGZ provides these for free; it doesn't even feed you an ad as you play.

The Zone has got to be bleeding cash.

Microsoft, of course, is in for the long haul. They know full well that $1.6 billion may not materialize tomorrow, but they want to have a piece of it when it does. Unless its core business starts suffering, which is unlikely, or unless the Zone becomes a truly enormous drain of cash, Microsoft will support it for years to come.

But some day, it has to pay its own way. It's not going to do that by letting you play Hearts for nada. Nor by matching Age of Empires players for nothing. Keeping those games free only makes sense if they act as loss-leaders, attracting players who graduate to games that cost money.

The Zone does charge for some games; you can pay by the month, or you can pay by the day. Neither is a good model for games that force you to stay online, but this is the model the Zone has chosen. It does have the advantage of being simple to understand.

But somehow, I have a hard time believing that the people who play Hearts for free are real likely to want to play Tanarus (a futuristic tank combat game on the Zone) and pay money for the privilege. People who play Hearts will continue paying Hearts. Hearts is not a good loss leader.

I'd be astonished if revenues are a tiny fraction of the Zones' operating costs. They're going to have to find another model.

Microsoft isn't the only company trying to make this work; Sony is another. The Station@Sony.Com also claims to be "the Internet's premium game site." At the moment, they've got solo-play, online versions of Jeopardy and Wheel of Fortune. They get a lot of use; these are good brands, and the online versions are well done. Sony is launching multiplayer versions this fall.

The games are free, of course.

Sony has only one game for which they charge; again, Tanarus. It's not clear why anyone would prefer to pay Sony money rather than Microsoft to play Tanarus; that's the problem with non-proprietary games. And given that the Sony audience consists largely of people who don't play this kind of game, it's not clear how much Sony can possibly make from Tanarus. Not very much, is my guess.

Sony does claim to be launching three new games real soon: ChronX, an online collector's card game that's also available elsewhere on the Internet; Everquest, another graphical MUD; and Fantasy War, a multiplayer diplomatic fantasy conquest game. (Which I designed.)

Sony claims it will charge for all three. It hasn't announced how it will charge, or how much; it does seem likely that Sony, by contrast to the Zone, will adopt different charge models for different games.

This makes some sense, because different models work better for different games. It runs the risk of confusing the customer, however; there's a good argument for a simple, clear, business proposition. Like the one the Zone offers.

Even in the best case, though, Sony is not going to make money off of The Station any time soon. Certainly it gets some promotional mileage for its TV properties from The Station, but that is unlikely to be enough to satisfy The Station's corporate masters. And unlike Microsoft, Sony is not deeply committed to the Internet. It isn't an integral part of Sony's master plan.

Sony could turn around tomorrow and yank the plug on The Station. Its managers, no doubt, are desperately hoping their new games fly--and that the Big, Big market that's somewhere over the horizon shows up soon.

The Boxopoly

Perhaps we should be looking to the people who already make money publishing computer games: the boxopoly, the companies that sell boxed CD-ROMs through software outlets. Maybe they can make online work.

In fact they have--sort of. The games that get played most on the Internet are boxed titles: Quake most of all, but others too. In the coming year, it will be a rare title that doesn't have an Internet play version.

And increasingly, the net-play version is not a mere afterthought. Age of Empires actually works better as an online, multiplayer game than as a solo one. Quake III has now become Quake Arena, intended mainly for online play. The boxed game publishers are getting more sophisticated about online.

Latency will always be an issue for them, of course; they won't want to slow down solo play to make the online game better. But never mind the design issues; the boxopoly has one big, big business problem. Only it's not a problem for them; it's a problem for us.

The problem is that they sell boxed games. They get $50 of revenue (shared with retailers and distributors, of course) for selling a box with a disc in it, whether you play it once, a hundred times, or never. That's all they expect; they don't expect you to pay connect-time, a per-game charge, a monthly subscription, or anything else.

For them, online isn't a business; it's an aftermarket. Online play is another marketing point for the PR department to check off, another selling point for the consumer. They have no interest in supporting online play after the game is sold, except to the degree that it's necessary to keep customers interested in buying the next title they produce.

They offload the cost of supporting online customers onto other people: onto the low-latency networks, onto the aggregators. Maybe they even try to get money from the networks in exchange for an exclusive deal. Maybe they even build their own site for online play, to identify and track and engage with their customers.

But as far as the boxopoly is concerned, while online is cool, it doesn't contribute to revenue. It's another expense, because they have to spend money and resources supporting online play long after the box is sold.

The boxopoly isn't the solution; it's the problem. It's one big reason online gaming is on the ropes. The boxopoly got gamers used to the idea that it should be free to play online.

It's free to play boxed games online because supporting online play is (still) a tiny part of a boxed game's marketing costs. But the fact that all these games are free to play is a big, big problem for anyone who actually wants to make money on the net.

Wall Street Journal)

People aren't used to the idea that they have to pay to play any more. And that's true even when they haven't laid out $50 for a CD-ROM. They won't pay to play online-only games, either, not in any numbers.

$1.6 billion by the year 2001? Don't make me laugh! Not when the boxopoly is giving it away.

[Actually, Battle.net--Blizzard's own site for play of

and

-- is now operating in the black

on the basis of advertising revenue... So "retail sale and free online play" is now the flavor de jour. PC Games has gone so far as to declare that this is the model for online gaming, with the implication that as it is now, so shall it ever be. This is nonsense; if you have a wire into someone's house, it's silly to make him go buy a box full of air and a plastic disk when what he's really buying is bits.... But never mind.]

It Takes Money to Make Money

Building a business takes cash. The cash can come from any number of sources: retained earnings, going public, debt, venture capital.

Let's look at retained earnings. To retain your earnings, you need to have earnings to retain. Nobody's making much, if anything, in online games.

And bootstrapping a business this way is a slow process; frequently, there are investment opportunities you have to pass up because cash is short.

If we're to get to a billion six in three short years, it's not going to be through the retained earnings of people in the field.

Investment bucks are needed, from folks with deep pockets.

Venture capitalists? Fugeddaboutit. TEN was started with venture capital from Kleiner Perkins, one of the big tech investors. MPath had money from Institutional Venture Partners and some others. The VCs have placed their bets in online gaming. The croupier is poised to rake them in. They've been burned.

They're not going to make any more big investments in online anytime soon.

Big media companies? Microsoft is here to stay, but it doesn't look like they're going to pump in another big chunk of capital any time soon. Sony is doing interesting things, but their commitment is uncertain. Sega has HEAT, but it's not going anywhere. Someone else could jump into the ring--Viacom, or Time Warner, or Bertelsmann. But why would they? They've all tried to do boxed games without success! They have no inherent commitment to games or to the net, the way Microsoft does; and no one else has shown how to make this work. Getting involved is likely to be costly--and who knows when the return will come?

The stock market? It's true that Wall Street rewards Internet stocks with astonishing price/earnings ratios. But the boom in Internet stocks is based on two things: the boom in advertising, and the boom in electronic commerce. As I've argued, games are not well suited to advertising. And they aren't an electronic commerce play. If you go to Wall Street, you have to try to argue that even though nobody has made online gaming work, you can. And you'd better either have a truly original business plan--or an amazing gift of gab.

Companies don't normally get their original funding from the stock market; they use it to cash out, or to get additional capital for expansion. People like MPath and TEN have a problem Yahoo never did; they have revenues. That's a problem, because if you have no revenues yet are growing like kudzu, like Yahoo was, you could be the next General Motors, who's to say. If you have revenues, they can look and say, you're running at a loss, your business plan didn't work off the bat, how are you going to make this work? And you'll have no answer.

The Street is no solution.

Debt? Hahahahahaha. Secured by what assets? A server farm that depreciates as quickly as DRAM prices drop?

There's money going into online gaming, yes; at this point, mostly from Microsoft and Sony and a few startups that still have some capital to burn. But there's no way the capital that's being spent can generate a $1.6 billion business in three years time.

Let's look at electronic commerce. Jupiter and others project e-commerce as being about as large a market, in the same time frame, as online gaming--maybe a bit larger. Open Market, CyberCash, Interworld, and iCat have raised close to $150 million in private placement money, and since the first three went public, they've almost doubled that. Open Market alone has raised more than TEN, MPath, and Engage combined. And that doesn't even begin to mention the kind of money that IBM, SAP, Microsoft, Ernst & Young, and the other big players have thrown at the problem. Put it all together, and $1 billion, easily, has gone into e-commerce investment.

Online gaming?

MPath has received around $30m, TEN over $17m (some put it at around $30m), AOL paid $17-20m for ImagiNation, and over $10m was dropped in Engage. Taking the largest estimates, that comes to roughly $90 million. Of course, those are only the large, publicly announced investments; you have to add in what Microsoft has spent on the Zone, what AOL has invested internally in games, what News Corp spends on Kesmai. And on and on. Maybe you get three or four times that number, in total. At the most optimistic estimate, $400 million is going into online games. That's less than half of the least optimistic estimate for electronic commerce.

A $1.6 billion industry by 2001? Not on a bet. Not with this scanty capital base.

[Still not enough investment--but some interesting developments. Origin is becoming an online-only developer. IMagic has reinvented itself as an online game company. It looks like things are finally coming together...]

The Business Model's Broke

Connect-time is dead. Oh, it will survive, in small corners of the online universe. But the back has been broken; AOL and the ISPs are all-you-can-eat, and few people will pay connect-time charges any more.

A lot of other models are being tried: monthly subscription. Pay for a single game. Pay for a monthly subscription to a tier of games (the "cable package" model). Nobody's found a model that works... Yet....

MPath says advertising is the answer. And advertising revenues on the web are growing like corn in Oklahoma. But--what proportion of it is going to be spent on games? And why? The major advertisers in print gaming media are game companies--no car or cigarette ads there. And even granted that gamers are a good demographic--male, wealthy, high-tech, buying just scads of computer hardware every year--games are inherently so compelling that gamers aren't going to give much attention to the ads.

You gonna click on an AT&T ad while being chased by a dragon?

And there's a lot of unsold ad inventory out there on the Web. Because advertising is the only revenue source content-providers have found, they all want a piece of it. TEN and Engage and MPath are competing with Yahoo! and Geocities and Alta Vista. It's not hard to figure who wins that war.

Advertising may be enough to support online Hearts. It's not going to support a multimillion dollar development budget for a new, hot online game. It's not going to amount to $1.6 billion in 2001.

Abandon Hope, All Ye Who Enter Here

Is that what should appear at the top of every new online games business plan?

It's probably a good idea. The SEC would approve. You don't want to mislead investors.

But we do at least have some idea what doesn't work, now. And can make some guesses about what might. (And if I knew what would work, believe me, I'd be out grovelling for dollars before vulture capitalists today instead of writing for wonky computer gaming zines.)

Technology Is Not The Answer

Low-latency networks weren't the solution. Cable modems aren't, either. Latency and bandwidth are technical issues; but they're issues that prevent online games from being just like solo PC games. That's not a problem; it's easy to design games that don't behave like solo PC games. Ask the boardgame publishers. Ask the collector card game publishers. Ask Kesmai, for God's sake.

Online is a different medium. And it solves the gravest limitation of the PC game; it lets people engage. It lets them talk, and flirt, and ponder serious issues, trade comic books, and make friends. A typical PC game lets you say only one thing: Bang bang, you're dead. The hot online games of the future (hell, of next quarter) will have a far greater verbal repertoire.

But you must design for the medium--not around perceived limitations. Technical limitations are not what's holding online back. Bad design is.

Design for the Business Model

Choose a business model--pick a card, any card. I don't care which. But after you've chosen, tailor your game to the model.

Don't choose a model that costs you money when people connect--and then build a game that requires people to spend long hours online. If that's your business model, design a game that gives people their gaming fix with minimal connect-time; turn-based games fit the bill. So do games that match players--then let their own machines do all the processing, without connection to the server, until the game is done. There are many ways to do it, but you can't disconnect the model from the game.

The business model must be tailored to the game--or the game to the business model. Either way. But they must be a natural fit.

[At least four operations are now operating in the black: Gamesville (ad supported web games). Simutronics (monthly subscription). Ultima Online (retail sale plus monthly subscription). Battle.net (retail sale with online play free--or rather, subsidised by ads). Which reinforces my point that the problem isn't the business model--four profitable operations, four different models.]

Think Outside the Box

I hate that phrase; it's such a cliche. But it's a lot more polite that saying "Don't be a fucking moron."

Online gaming is a different medium. It is not just like PC solo gaming with wires welded on. It's not just a graphical chat environment with a leaderboard. Don't assume you can take an existing gaming style and transport it, lock stock and barrel, directly to the Net. Think about what the net does best. Think about the techniques used in all sorts of games--boardgames, roleplaying games, live-action RPGs, card games, everything and anything--not just solo PC and academic computer games--and look for tricks to steal. Find a combination of stolen and novel ideas that does something no one's ever seen before.

That's the only way you'll find the "killer app"--the game that's so cool that everyone wants to play it, so great for online that you can't get anything like the same experience anywhere but the Net.

Do It Online-Only

If you want to maximize your audience, you must get away from the boxed-game distribution channel. If you shove your product through that channel, people will expect to play for free, because that's how all boxed games work. If you want to build a game business online, you must do it online.

[Not the conventional wisdom at the moment, but I'll stand by it.]

Keep It Proprietary

The online services have shown that if online is a commodity, no one makes bucks. If everyone offers Quake, no one can charge for it. If you want to charge for a game, you've got to have an exclusive.

Content Is King

Forty percent of American households have PCs. Almost all of those have built-in modems, now. More than half are on the net

There's enough mass; there just isn't a market, yet.

How to build one? There's only one answer: You need the game, the killer app, the thing that's going to make people eager to cough up dough to play. Once someone has been successful even once, the market will appear. Others will see the success and try to imitate it--or look for novel ways to duplicate it. Gamers will get used to paying when they play.

Want to invest money online? Don't choose a technology play. Don't fund yet another aggregator. Build the hot game that will set the world on fire.

Recovering from Mistakes

But what about the poor bastards who are hemorrhaging money today? Is there any hope for them?

Yes. But they must do two things. First, survive: There will be a shakeout. The weak will fail. Those who hang on have a chance when the curve turns upward.

Second, figure out how to--and I'm into the realm of marketbabble here--figure out how to rebuild the value proposition in the mind of the consumer. Meaning: Figure out how to get Joe Gamer to believe it's worth paying a few bucks to play a game online, even if Hearts and Quake are free. That by comparison to laying out $50 at CompUSA, $10 for a month's gaming, or $3 to play a single game to completion--whatever your business model--isn't really so bad.

It should be feasible. How many $50 games do you actually get $50 worth of value out of? Some, you get that and more; I'm still playing Civilization II. But most are into the closet in days. (Anyone want a copy of Tex Murphy: Overseer? Cheap?)

So--if you're charged by the game, or some equivalent, and you've got to play the game 20 times before you've paid $50--isn't that worthwhile? If the game sucks, you're out the cost of a cup of coffee and a doughnut. If you adore it and play it again and again, you'll wind up paying more--but surely, in that case, the game is worth the candle.

But that's what the online operations must do: Make the case that online gaming can and will cost money. Get the consumer to be willing to pay.

And if they fail--then online gaming's hour will never arrive. No money, no development funding. No development funding, no games.

And we'll be stuck trooping down to CompUSA for the rest of our lives to purchase another damn Command & Conquer clone.

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