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Chapter 5. Calculating and Expanding the Profit Margins: The Cost of Doing Business

Chapter 5. Calculating and Expanding the Profit Margins: The Cost of Doing Business

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[ Team LiB ]



Some Numbers

In Table 5.1, it is assumed that a PW will achieve at least moderate to high subscriber numbers by current standards—that is,

200,000–300,000 monthly subscribers at about $10 per month each. Note, however, that subscription fees are on the rise, as with NCSoft

charging $15 per month for Lineage and Funcom's Anarchy Online (AO) and Mythic's Dark Age of Camelot charging $12.95. The second

column represents the approximate number of employees that ideally would be devoted to the CS task. The percentage at the far right of

each line item represents the approximate amount of an ideal 40% of subscription revenue that is devoted to supporting the MMOG/PW.



Table 5.1. Support and Operations



Costs



These numbers vary by company and customer niche; each PW customer niche differs greatly in its needs. For example, an RPG requires

a larger player relations staff than a vehicle simulation with fewer RPG elements.

Even at a level of 60% of revenue devoted to support, as shown in Table 5.1, a moderately popular PW (100,000 or more subscribers) will

generate significant gross profit over a minimum lifecycle of five years.

Table 5.2 considers broad subscriber income numbers alone, not factoring in revenue from initial stock-keeping unit (SKU) and add-on

SKU sales, which can and do amortize a product's initial development and launch costs.



Table 5.2. Moderate Support Costs, Subscription Games



If support costs can be contained to 40%, as shown in Table 5.3, the outlook for gross profit becomes truly impressive, especially at the

300,000 and above subscriber level.



Table 5.3. Low Support Costs, Subscription Games



A game that reaches 300,000 subscribers quickly, as EverQuest (EQ) did, will exceed or equal the gross revenue generated by even the

most popular home PC SKUs within three years.

The bottom line: With a longer lifecycle than any single SKU and most series (Age of Empires, for example), PWs look to be the most

profitable PC game products for the next three to five years. The first PW to reach 500,000 subscribers quickly is going to represent a

huge windfall to the owner.



[ Team LiB ]



[ Team LiB ]



Add-On Profits

Until the past three or four years, most online games didn't really look at add-on revenue profits from alternative sources. Lately several

games, among them EQ, Ultima Online (UO), and Dark Age of Camelot, have started to get into the merchandising of peripheral

products, such as t-shirts and other clothing, jewelry, cups and glasses, figurines, collectible trading cards, fiction series books, and even

paper and pencil versions of the online game. This can all add up to some nice incremental income to add to your margin, and you

probably won't have to pay for the creation or production of the items. There are plenty of small merchandisers out there who will pay

you a fee and royalties for the right to create and market these items to your customers.

One area of potential income that is currently the subject of controversy is the auctioning of player/characters and in-game items. If

you've been paying attention for the past four or five years, you know that players have been using auction sites such as eBay to sell rare

game items, in-game currency, and "buffed" characters to other players, sometimes for thousands of dollars. More than one small

company has sprung up to do nothing but create and sell characters and items, and that is where the controversy comes in.

Most publishers don't want this activity in their games and don't support it. There are several reasons for this, all tied to CS and player

relations resource expenditures:



A significant number of individuals who auction game characters and items are scam artists. The seller advertises an

inventory for a character and, when someone has paid the auction price and taken possession of the account, the buyer finds

that the inventory doesn't match the auction notes. When this happens, the seller is usually not available, so the player

complains to the publisher or developer. This consumes hours of CS resources that can be better spent elsewhere.

Supporting such auctions by third parties, especially companies or individuals that do it as a business, tempts them into using

bugs and exploits to grow characters more quickly, as seen recently by the Black Snow Interactive/Funcom AO controversy.

This not only keeps your security and exploit team hopping, trying to keep up, but it also has the tendency to skew whatever

economy exists in the game and to irritate and annoy players who legitimately build their characters and find they can't

compete with the doctored ones. In a game that features some form of player vs. player (PvP) combat, this is a very serious

issue.

Most PWs have "spawn points," or areas where non-player characters (NPCs) and monsters that may carry rare items or

necessary quest items regularly pop up after they are vanquished. As the creation timer on these spawns varies, sometimes

being hours between spawns, players tend to "camp" on these spots, waiting for a spawn to occur. Companies making

money off auctions tend to bring as many people as possible to camp and monopolize acquisition of these rare items,

effectively locking out legitimate players from having a chance at a spawn. Many rare items are needed to advance in certain

quests or complete armor or weapons sets, and if a player is blocked from getting them at the spawn points, he/she must

either buy them or quit the game in disgust. This costs the publisher players and subscription fees.



The problem with just banning the activity and not supporting it is that it is unenforceable. If you drive the auctions off eBay or other large

auction sites, the perpetrators will just set up their own site and the support calls will just continue. One way to have at least some control

over the situation is to have your own auction site.

The advantage here is, as the publisher or developer with access to the source code, you can lock down accounts that put up an auction

and display the contents for all potential buyers, assuring that auctions run from your site won't be stripped before transfer. This kind of

security is good added value to players. You also can bill the buyer and subtract a fee from the sale price before transferring the rest to

the seller, effectively making incremental income profit from the activity.

No publisher has yet done this, and there may be legal reasons not to get involved. You also have to consider the intangible effect on

your customers, many of whom deplore the practice. However, it is an option for you to consider.



[ Team LiB ]



[ Team LiB ]



Part II: Design and Development Considerations

Chapter 6 Basic Design and Development Issues

Chapter 7 Digging Deeper into Development and Design Issues

Chapter 8 Getting into the Design

Chapter 9 Other Design and Development Issues



[ Team LiB ]



This document was created by an unregistered ChmMagic, please go to http://www.bisenter.com to register

. it. Thanks



[ Team LiB ]



Chapter 6. Basic Design and Development Issues

"These worlds are complex, revolve around communities, and require a lot of forethought. It's no longer about,

'Wow, wouldn't it be cool if…' but rather, 'So if we put this feature in, how would it affect long-term balance? Could

players abuse it?' and so on. A good, experienced development team will know where the common pitfalls lie, and

what precautions to take early on in the development process. Something as simple as having adequate

bandwidth and hardware on launch day is often overlooked by first-time developers."

—Daniel Manachi, The Themis Group



KEY TOPICS



Practicalities and Advice

Design



Online game development teams are weird. Not disturbing weird, like some guy standing on a street corner arguing macro-economics

with a fire hydrant. No, it's more like the weirdness of a lovable but dotty old aunt who can immediately take over and manage the

extended family when her sister has been in an accident, but has trouble in the morning remembering how to tie her shoes.

The weirdness in development teams comes from the fact that they are pie-in-the-sky creatively and down-to-earth technologically. This

tends to produce an effect not dissimilar to multiple personality disorder in an individual: Personality A is the fun, creative one who can

design the most complicated, elegant game ever, while Personality B is pretty no-nonsense, task-oriented, and has the nuts and bolts of

coding and hardware down to a tee. The problems come in when they fight for control of the body; most times, the fun, creative

personality wins out, even if the matter is something Personality B should have control over. It is the age-old conflict between the

theoretical and the practical.

This conflict is not readily apparent to outside observers, but it affects everything the team does throughout the development process.

Most developers, be they designers, coders, artists, or network specialists, enter the industry because making games is supposed to be

a fun, creative activity. Like everything else in life, however, the nuts-and-bolts issues have to be attended to as well; as an industry, we

just haven't been good enough Type-B personalities.

One of the common themes throughout this chapter is keeping the two personalities in harmony. Someone has to act as a rudder for the

enormous creative energies of the team and must know when to steer them away from the theoretical and toward the practical. These

energies are enormous; you'll rarely meet a visionless, incompetent online game development team. Often, though, you will meet teams

poorly steered and constantly making emergency course corrections because they forgot to plot the sandbars on the navigation chart.

Someone has to keep things in balance between what co-author Bridgette Patrovsky calls the "esoteric, dream-state BS" that teams can

get lost in and the need to actually get things planned, tasked, coded, drawn, and tested. The ultimate responsibility for that falls to both

the producer and project manager, the former to keep the team balanced and the latter to keep the producer informed of just what state

the development is in. We discussed the project manager in previous chapters; you'll learn more about the producer later on in this

chapter.

This chapter will have two focuses: the theoretical (design) and the practical (development). There is plenty of room for movement and

opinion in each. Technology discussions, especially, have a tendency to appear cut and dried, and there is always the temptation for an

author to lay down what appears to be hard and fast recommendations for development tools, specific languages, operating

environments, and so forth. The plain fact is, this industry is still young, and while some good solutions for everyday problems do exist,

every new game is different and probably will require a different solution set, especially persistent worlds (PWs).

So, to mangle an old saw, instead of trying to teach developers how to chew technical cheese, what we seek to do in this chapter is give

some guidelines and let the reader know what has worked in the past with tools, design issues, and development processes, as well as

what hasn't worked.



Throughout the chapters in this section, we'll make some points about console and hybrid online gaming and identify which points about

PW development do and don't apply to them.



[ Team LiB ]



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