The online gaming market is a paradox: although it attracts a growing number of users, it hasn’t generated matching revenues. However, it is now approaching a crucial moment in its short history. Online gaming has relied almost solely on PC gamers – but Internet-connected consoles are right around the corner. Fred Diot explains how they’ll shake up the market…
Even though millions of people play games online across the major markets, revenues have so far proved elusive. Datamonitor estimates the industry will only be worth $670 million this year. However, it will reach $2.9bn in 2005.
From representing the second largest market for online games behind South Korea, the US will climb to the first spot by 2005. Impressively, the US will generate more revenues than the entire Asia Pacific region.
Europe will continue to lag behind the US and Asia Pacific, due to its fragmented market, the slower rollout of console online gaming and the overall lower penetration of broadband in households.
Consoles will seduce consumers
The online gaming market has experienced several false starts in its short history – but the launch of Sony’s PlayStation 2 and Microsoft’s Xbox online should mark the beginning of a true period of growth.
While it is safe to expect teething problems in the short term, once the market embarks on this road, this trend will be irreversible. Consumers are bound to be seduced by the promises of massive multiplayer gaming.
Nintendo, true to its cautious nature, is playing a wait and see game in online console gaming; Sony and Microsoft are the most active. But the two giants have have adopted opposite approaches to online gaming.
…but who will pay?
Sony intends to spur consumer demand by not charging players to play online. However, Sony places the burden of setting up the infrastructure required for online games on publishers and developers.
Microsoft, on the other hand, will charge players a monthly fee to play online, which could stifle demand, but it plans to handle the infrastructure in the hope of stimulating the number and quality of games available.
The success of its Xbox Live service will be crucial for Microsoft. It is currently third in the console market closely behind Nintendo. However, console online gaming could enable Microsoft to differentiate its console and pass the GameCube, which lags behind in this sector.
Hardcore gaming gets pricier
Currently, most of the PC online gaming revenues come from the hard-core market, composed of die-hard gamers willing to pay to play. Although this market continues to thrive, the limited success of recent entrants in this sub-market has shown that the audience for games like Ultima Online is not infinitely expansible.
The real opportunities lie with the large segment of hardcore gamers, who play online-enabled boxed games for free online. Games such as Quake and Counter-Strike enjoy a very large user base, but these users represent no added revenues for the creators of these games.
While publishers and developers have so far contended themselves with allowing their games to be played online for free to encourage usage, a growing number of them will in the future will change their stance. The difficulty will be to attach a fee to a hobby that has been so far free. Publishers and developers will therefore have to offer new types of services to justify charging users.
Given the current state of the online advertising market, it is likely that the casual online gaming sub-market will continue to be dominated by large sites. Advertising will need to evolve towards more complex messages, with users being more carefully targeted with appropriate advertisements corresponding to their profiles.
The games industry as a whole but also ISPs and telcos are waiting for console online gaming to start in earnest. So far, developments have been slow and linked to the will of console manufacturers. Even if publishers and developers are keen to take part in this market, many of them remain cautious about their investments after various misfortunes in PC online gaming.
In this context, console manufacturers really need to stimulate publishers and developers by showcasing the viability of their solutions.
Related research: Datamonitor, Global Online Games (DMTC0844)