SXSW Live: Casual Multiplayer Online Games: Serious Revenues

Here's the team as of 11:30 while Austin's weather is finally starting to bloom into what we wanted all week...

Intro haiku...

Jeremy Liew - lightspeedvp.com -- vc firm in online gaming
mmos are hot
millions of players online
where's the money

Adrian Crook - freetoplay.biz
I'm adrian crook
freetoplay.biz
write on games

Nabeel Hyatt - conduitlabs.com - launching a new kind of mmo this yr
we're social
and games but at conduit
music drives us

Michael Acton Smith - moshimonsters.com - mindcandy ceo
A dot pet monster
play with it care style share
but don't let it die

And a limerick to boot...
There once was a monster from nantucket
who watched the zuckerberg panel from a bucket
unimpressed with lacy
so he heckled
she told him to email her...

Joe Hyrkin - giaionline.com - vp, biz dev
giaia online rocks
movies games galore
I help make the dough

You can define a casual MMO like puzzle pirates. It's in Java, etc. But there's a larger story in MMOs with facebook, and other platforms.

If it's online in a community, even someplace like Club Penguin, with reduced barrier to entry, community, and web-based.

A casual MMO can be defined across a lot of categories. At Gaia, a lot os built around the community, the engagement -- and when you increase the engagement, the fun exponentially rises.

We've stayed away from the virtual worlds at mindcandy. It's amazing how much has changed in the last year. There's a lot of different things going on.

2.5, 3-d -- not being 3d has a lot of benefits. Nothing to download, access everywhere. MTV has 4 virtual worlds that require DL. They came to giai asking for web-based experience. The Gaia version quadrupled traffic # in 48 hours.

So what matters is level of accessibility and engagement, not in polygon-based avatars.

Even if it's HTML, like Yahoo! groups -- is that a virtual worlds.

Engagement is not technology based, but immersion based in ways different than limiting it to a tool. It's about the place, not the technology laid on top of it.

The best quote on the graphics issue -- the graphics don't matter, it's the how the mind interprets the experience.

For the market that most of these games cater to, graphics is not a central selling factor.

What's Gaia demo? 13-24, sweet spot is 16-20

mindcandy is 17-20, but big secondary audiences of low teens, twenty somethings, moms, and grandmoms coming.

Demos range from club penguin and Webkinz: 4-7, to habbo hotel: tweens/teens, then as they get older the demos have a lot of growth opportunity.

Nabil -- is in that growth area working with 16 at the floor and college kids build their online identities. Funny that once people get their drivers license, it's less about building personal identity in games, and more in straight-up social networks, and that leads to a demand for a very different kind of gaming product.

Why go after the different market? There's lots of corollary evidence that this is a good crowd, rock band, guitar hero, WOW. The audience is mature, because they've been used to this type of experience, and are ready for more mature MMO experiences.

Will these people be in the workplace still seeking virtual worlds? Generationally, people our age and above make a separation between virtual and offline worlds. As these kids age, their needs will change from roleplaying identities to.

Look at cyworld. and the penetration going on in Korea. What are the challenges that exist for us looking in the future.

Are there cultural differences in the way MMOs are being used in Asia than here. Especially in Korea, folks are importing these games in the US. Culturallyk, the way in which these experiences have evolved. Social networks are massive in terms of engagement, and will start to be a combo of the two. We're absolutely in our infancy, starting to figure out what the pieces are. Adoption is going to drive the kind of changes we're expecting down the road.

Getting back to identity play -- diminished when this takes place more in the real world. Some MMOs in asia are about identity play, with restraints in place by the culture. Your sense is that this is less of a component?

Yes, less, but absolutely a piece. Mobility in China is limited, but online, there are virtual ways to explore that you can't achieve in real life.

Exposure and the market's ability to expand is key.

If you build a great product for a younger audience, it can grow rather quickly. But what he loves about the casual MMO around virtual pets, which is very mainstream. WOW with 10 million users will seem niche in the future. Kart rider has over 100 million users. Dance competition has 100 mil. If you can create successful MMOs around female experience, the guys will come -- and this is very overlooked. SNs like facebook, the games are made by men and male focused.

Adrian -- bringing massive MMO games that have been largely male is changing.

Last month, barbie girls game pulled nine million registered users in nine months. A game that caters to girls exclusively.

Build-a-bear -- three million in a few months. Webkinz is more and more of a success story. Media and toy companies are riding brands to massive scale. What do you do in an environment where the heavys are throwing their weight around.

Going after the 6-10 market would take a hugh market differentiating idea to make even a ripple. As these cycles go -- when big media notices something, there's a year or two of domination that dies off.

But that's why you have to look at the audiences that aren't being served. As long as you have a distinct focus, value for a certain set of people, there's a ton of potential.

Michael agrees -- they plan to make serious revenue from virtual items and micro transactions -- but more on that later.

In competing with 100 million budgets coming from Disney's Pirates and tinkerbell and more online. Do you worry about differentiating in that Environment?

It is tough, but it's also very fertile because of all the attention, you don't have to mow the tall grass. It's differentiating with emotional connection, educational components where solving puzzles gives you prizes. Getting the kids AND parents on board is very important for competition and monetezation.

Joe -- it's fine for the big brands to build their sites. Just cause they make big movies does not necessarily mean they're able to serve unique audiences over the long-term. Disney will be successful with club penguin because they bought it. It's still yet to be seen if these companies, like MTV can continue to engage without a televised promotional presence.

Now on to the serious revenue. How do we make money in this business?

Is it about subscriptions and box software like the past?

Last decade or so, he's been making console games, and one of the more popular blog posts was rev models for online games:

Ads and virtual item sales

Merchandise model - webkinz, barbie USB keys (friend authentication method)

Marketing model - survey

Superrewards -- plug in code, and allow purchases in trade.

There are a variety of models out there at different levels of intrusiveness?

Isn't Webkinz just a fluffy jewel case? Yes -- they're made a ton. They've created a prepaid card that you can take to bed with you and cuddle.

Parents are much more comfortable because there's something tangible there. It's also just a year subscription before you have to buy another pet.

Horse game virtual world of my little pony. In build-a-bear, you make the bear, then when you go online, it shows your customization. And toy companies love it because it turns the product into a relationship.

Bella Serra is a less well-known example. A couple of years old, Scandinavian. They guy who made it made magic gallery, and it's put in at retail in cards, like pokemon for girls, but with fantasy horses. Scratch off the unique code, go online and see your horse. Coming up is SN feature. They have about 1 million registered users.

Gaia is going more than one million per month in virtual goods. First, the thing that has made their succesful is that it's built around the world, buy things for your avatar, help your experience. There used to be a model where everything was free except for one or two special items to be used or traded with others for Gaia gold.

It help pay for the servers. Now there's stuff only available for cash. As part of the Gaia cash are cash cards at Wal-mark, K-mart, etc. Every month is a range of different items, from hats for avatars to evolving items that change into different items over time after purchase. They're just scratching the surface on the kinds of self-expressive ways that people can buy, and Gaia can sell. The notion that you hang onto something and auction later adds value and depth to the experience. So even if you don't like an item, you can look at it as an investment to get more Gaia gold later on.

Scarcity? Not sure how they're going to handle that, but they continue to experiment with that. The auction component adds some sophistication that alleviates the need for scarcity. There's also consumables, item decay. There's a whole range.

There's also the notion of beginning to syndicate these monetization models for use across other MMO sites.

At Gaia, they continue to get 10% or more of the reveue in cash in the mail. They had one kid who sent five singles in a fedex to make sure they got the special item pre-deadline.

Greenscape is doing $5/month and a million users to drive a ton of revenue. Parents are liking the subscription model, because it assures a certain level of privacy and protection. Teen sites are a bit tougher.

It's important to recognize the blurred line in these age groups, online stuff, offline stuff, it's all the same to them.

What you're hearing is that the payment mechanisms and the array you have to support is a hill to climb in the beginning, but larger guys like Gaia have an advantage in trying many different models.

If you look to the market in WOW, it's virtual goods that help awesomeness. Are the opportunities in self-expression? Upgrades for functions?

It's really about monetizing your unique engagement loop. Rock band doesn't charge for the clothes that you can dress your online avatars in, but the tracks are key. So those are what people are buying in droves.

Virtual clothing and styling avatars can't be ignored. 75% of virtual items in Korea are gifts, just ways of strengthening relationships with other people.

Advertising and sponsorship...what is and isn't working.

Gaia has expanded rapidly with corporate sponsorships in the last year. It's tough to make the balance between engagement and forcing brands on users. Try to bring them in in ways that they're bringing in new functionality. Scion made cars available in Gaia.

There was an item creation contest sponsored by a brand. Almost every major studio is promoting films. In almost every instance Gaia is out trafficing movie trailers against almost all other Web properties. They've template-ized this process over time to get these programs up in the air more efficiently.

Average sponsorships for a month can be between 75k and 200k. They're starting to see deals in the much higher six-figures now they never thought they'd see. Relationships with Nike, major CPG. They're seeing a lot of engagement with their brands than other media.

Q:
Guy from American Cancer Society. Looking at MMO as advocacy, education, and philanthropy. Is this a component you'd be interested in doing?

A:
They would totally look at those kinds of things. There is education that happens by way of user interests.

Q:
As opposed to building something and getting feedback, what about letting users design the elements.

A:
There is a whole cadre of people making game-building communities. But they're not touching core mechanics, they're building little mods. But everything that goes on, you can't let the users touch the core.