Vendors Test Gaming Fee Models

As the future of video gaming services comes into focus, Microsoft, Nintendo, and Sony are all enhancing their online gaming services in a bid to offer gamers richer, more challenging interplay experiences than they can find when playing just by themselves. What is not as easy to discern is how the suppliers will make money from these services, however. “Vendors are experimenting with a number of subscription models with the goal of finding one that appeals to gamers and works financially for them as well,” said Michael Wolf, a principal analyst with market research ABI Research.

The movement to online services started with the introduction of Microsoft’s Xbox Live, an online gaming service launched in November 2003. The service was designed to enable users to play with other hardcore gamers in any other location the service is available. “It is much more appealing for gamers to compete against other players — especially those quite interested in a particular game — than just trying to top their own high score,” stated Michael Gartenberg lead analyst at JupiterResearch.

Heated Competition

Microsoft took the early lead in this space, but competitors have responded. Sony’s PlayStation Network Platform is the focal point in the launch of its PlayStation 3 console; the service, which offers video chat, messaging, matchmaking, ranking, and game uploads and download, is available in Asia now and is expected to be rolled out in the U.S. later this year. Nintendo developed its WiFi Connection service, which helps online gamers find access points as they travel, for its current Nintendo DS console and next-generation Wii system.

While the online services offer potential benefits, they have been slow to take hold. “Initially about 20 to maybe 30 percent of Xbox users signed up for the Microsoft service,” said Rob Enderle, president of market research firm Enderle Group. That percentage translated into 2 million users, a solid, but not overwhelming, number.

The uptick has been low for a variety of reasons. Because a small number of users signed up for these services, gamers would occasionally log on to play with someone else and find no one else online.

Part of the problem was not of the vendors’ own making. To play games online, users need high-speed broadband connections, something which is becoming more common now but had been a market inhibitor during the past few years.

Barriers to Adoption

Also, the services relied on credit card payments. In many instances, gamers are teens who have not established a credit history. Recently, vendors moved to let users sign up for the services via cash or debit cards.

Another hurdle is the number of games available with the online services was small. “Lately, there has been a major push among title suppliers to enhance their games, so they can be played online,” ABI Research’s Wolf told TechNewsWorld.

In addition, initially, only hard core gamers were attracted to the online services. Because of this, “New players came online and got blown to bits, which was so disheartening that they did not come online again,” Enderle Group’s Enderle told TechNewsWorld.

In response, vendors designed algorithms that match players who possess similar skills and developed tiered gaming services where like-minded and like-ability players can find each other online by choosing playing levels that they feel comfortable with. The end result is casual players do not face off against tournament champions unless they want to. “There are some gamers who want to improve their level of play by competing against more experienced players,” said JupiterResearch’s Gartenberg.

Morphing Model

Developing these services is an expensive proposition. Microsoft said that it planned to invest more than US$2 billion in the five years after the Xbox Live launch. The company needs to recoup its investment and had been using yearly online gaming subscription fees, which are about $50, to do that. Customers are able to access Xbox Live for free, but they are not able to play any of the games online without a subscription.

Considering Microsoft’s early lead in this market, Sony and Nintendo are relying on other models to attract gamers as well. “Free online gaming is something Sony and Nintendo are using to build up their market share,” noted ABI Research’s Wolf.

Consequently, the gaming subscription model is morphing. In Sony’s case, users play some games for free and others are available only at an extra cost. Another model taking shape allows users to play online for free for a set number of hours each month and then be charged once they go over that allotment.

Vendors are also turning their services into e-commerce engines selling a variety of gaming and non-gaming content. The suppliers are pushing the sale of games and gaming gear, such as hats, tee shirts, and posters. In addition, the services are starting to support other types of content. “Sony plans to use its online service to promote its movies and music,” noted JupiterResearch’s Gartenberg.

The end result is there is now a hodgepodge of service offerings and a growing array of pricing models. “The subscription market is in a state of flux now, but consistent models that benefit the vendors as well as the users should emerge in a year or two,” concluded Enderle Group’s Enderle.

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