University of Wollongong Research Online University of Wollongong Thesis Collection 1954-2016 University of Wollongong Thesis Collections 2005 Business model developments for the PC-based massively multiplayer online game(mmog) industry Wei-Hsiang Hsu University of Wollongong Recommended Citation Hsu, Wei-Hsiang, Business model developments for the PC-based massively multiplayer online game(mmog) industry, M.Info.Sys. thesis, School of Economic and Information Systems, University of Wollongong, 2005. http://ro.uow.edu.au/theses/330 Research Online is the open access institutional repository for the University of Wollongong. For further information contact the UOW Library: research-pubs@uow.edu.au
BUSINESS MODEL DEVELOPMENTS FOR THE PC-BASED MASSIVELY MULTIPLAYER ONLINE GAME (MMOG) INDUSTRY A thesis submitted in fulfilment of the requirements for the award of the degree MASTER BY RESEARCH from UNIVERSITY OF WOLLONGONG by WEI-HSIANG HSU, M.A. (ICT) SCHOOL OF ECONOMIC AND INFORMATION SYSTEMS FACULTY OF COMMERCE 2005
CERTIFICATION I, Wei-hsiang Hsu, declare that this thesis, submitted in fulfilment of the requirements for the award of Master by Research, in the School of Economics and Information Systems, University of Wollongong, is wholly my own work unless otherwise referenced or acknowledged. The document has not been submitted for qualifications at any other academic institution. (Signature) Wei-hsiang Hsu 4 March 2005
TABLE OF CONTENTS TABLE OF CONTENTS I LIST OF FIGURES VII LIST OF TABLES VIII LIST OF ABBREVIATIONS IX ABSTRACT XI ACKNOWLEDGMENTS XIII 1. INTRODUCTION 1 1.1 BACKGROUND 1 1.2 RESEARCH QUESTIONS 2 1.3 SCOPE 3 1.4 THE PURPOSE OF THIS RESEARCH 3 1.5 RESEARCH METHODOLOGY 3 1.6 LIMITATIONS OF THIS RESEARCH 5 1.7 STRUCTURE OF THIS THESIS 6 2. INTRODUCTION OF THE MMOG 8 2.1 DEFINITION 8 2.1.1 Massively multiplayer online game (MMOG) 8 2.1.2 Massively multiplayer online role-playing game (MMORPG) 8 2.1.3 Business Model 8 2.1.4 Value Chain 9 2.2 HISTORY OF ONLINE-GAME INDUSTRY DEVELOPMENTS 10 I
2.2.1 Academic Beginnings 10 2.2.2 The Commercial Online Services 10 2.2.3 Enter the Internet 11 2.3 ONLINE ENTERTAINMENT AND ONLINE-GAME MARKET 13 2.4 MMOG CATEGORIES AND ATTRIBUTES 14 2.4.1 MMOGs Compared to other Computer Games 14 2.4.2 MMOG Categories 15 2.5 MMOG TECHNOLOGICAL INFRASTRUCTURE 20 2.5.1 Single-Session Multiplayer Games 20 2.5.2 Persistent World Multiplayer Games 21 2.5.3 MMOG Architecture 21 2.5.4 Server Hardware and OS 23 3. THE FORCES OF DRIVING CHANGE IN EXISTING INDUSTRY VALUE CHAINS AND MARKET STRUCTURES 25 3.1 NETWORK ACCESS 25 3.2 CUSTOMER NEEDS 27 3.3 THE DIGITAL-CONTENT VALUE CHAIN ARCHITECTURE 28 3.4 BUSINESS MODELS 29 4. CURRENT BUSINESS MODEL STRUCTURE FOR THE ONLINE-GAME INDUSTRY 32 4.1 THE DIGITAL CONTENT VALUE CHAIN FOR THE MMOG INDUSTRY 32 4.2 DISTRIBUTION CHANNELS AND MARKETING MODELS 33 4.3 REVENUE STREAMS 37 4.3.1 Retail 37 4.3.2 Advertising 38 II
4.3.3 Subscription 38 4.3.4 Pay-For-Play 39 4.3.5 Other Revenue Models 40 4.4 BUSINESS MODELS 41 4.4.1 The business model in developer/publisher relationships 41 4.4.2 The Business Model in Publisher/Customer Relationships 42 5. ISSUE DEFINITIONS 47 5.1 DISCUSSIONS OF CURRENT BUSINESS MODELS 47 5.2 MARKETING ISSUES 50 5.2.1 Customer Demographics and Attributes 50 5.2.2 Distribution Channels 52 5.3 GAME-PLAY ISSUES 53 5.3.1 A bad launch online-game case study 53 5.3.2 Game Performance 55 5.3.3 The Security Issue: Online Cheating 55 5.4 FINANCIAL ISSUES 56 5.4.1 Alternative Revenue Streams 57 6. SURVEY AND ANALYSIS 59 6.1 SURVEY OUTLINE 59 6.1.1 Introduction 59 6.1.2 Purpose 60 6.1.3 Recruitment Respondents 60 6.1.4 Method 60 6.1.5 Time Period Survey Conducted 61 III
6.1.6 Analytical Method 61 6.1.7 Objectives 62 6.1.8 Design 62 6.2 ANALYSES OF THE SURVEY 64 6.2.1 Analyses of Marketing Issues 65 6.2.2 Analyses for Financial Issues 72 6.2.3 Analyses for Game-Play Issues 74 6.3 CONCLUSIONS OF THE SURVEY RESULTS 75 6.3.1 Marketing Issues 75 6.3.2 Game-Play Issues 76 6.3.3 Financial Issues 77 7. SOLUTIONS FOR KEY ISSUES 79 7.1 RECOMMENDATIONS FOR MARKETING ISSUES 79 7.1.1 The Game Style 79 7.1.2 Cybermediaries in the Distribution Channel 80 7.1.3 Promotion 80 7.2 THE ONLINE COMMUNITY 83 7.2.1 Online Communities on Marketing Issues 83 7.2.2 Online Communities on Game-Play Issues 85 7.2.3 Online Communities on Financial Issues 87 7.2.4 Strategies to Maintain Online Communities 87 7.3 SOLUTIONS FOR GAME PERFORMANCE 90 7.3.1 Network Traffic Improvements 90 7.3.2 Technical Infrastructure Improvements 91 7.4 SOLUTIONS FOR ONLINE CHEATING 93 IV
7.4.1 Built-in cheating detections 93 7.4.2 The Encryption of Sensitive Game Data 94 7.4.3 Game Players and Security Awareness 95 7.4.4 The Good Password Practice and Management 95 7.4.5 The Bug Patching Approach 96 7.4.6 Logging and Audit Trail 96 7.4.7 Post-Detection Mechanisms 97 7.5 SOLUTIONS FOR FINANCIAL ISSUES 97 7.5.1 Pricing Strategies 98 7.5.2 Virtual Goods Transactions 99 7.5.3 Payment Methods 101 7.5.4 Billing Methods 102 7.5.5 Possible Revenue Streams from Secondary Markets 103 8. BUSINESS MODEL DEVELOPMENTS 105 8.1 THE SERVICES AGGREGATOR MODEL 106 8.2 THE PARTNERSHIP MODEL 109 8.3 FUTURE DEVELOPMENTS 111 8.3.1 The Free-Distribution-with-Subscription Model 111 8.3.2 The Game-on-Demand Model 112 9. CONCLUSION 114 10. FUTURE RESEARCH DIRECTIONS 122 10.1 CROSS-PLATFORM COMMUNICATIONS AMONG DIFFERENT GAME PLATFORMS 122 10.2 THE CROSS-CULTURAL USER INTERFACE AND LANGUAGE BARRIER 123 10.3 THE BLOG 124 V
10.4 THE ROLE OF THE GOVERNMENT IN MMOG DEVELOPMENTS 124 10.5 CONCLUSION FOR FUTURE RESEARCH DIRECTIONS 125 REFERENCES 126 APPENDIX A: QUESTIONNAIRE QUESTIONS 140 APPENDIX B QUESTIONNAIRE RESULTS 144 VI
LIST OF FIGURES FIGURE 1. THE GENERIC MMOG ARCHITECTURE 22 FIGURE 2. INTERNET USERS BY REGION, 2002 26 FIGURE 3. BROADBAND PENETRATION, 2002 27 FIGURE 4. THE TRADITIONAL MMOG DISTRIBUTION SYSTEM 35 FIGURE 5. INTERMEDIARIES AND THE NEW DISTRIBUTION SYSTEM 37 FIGURE 6. THE STRUCTURE OF A MMOG VALUE CHAIN 41 FIGURE 7. MMOG ACTIVE SUBSCRIPTIONS, 1997-2004 49 FIGURE 8 THE CONCEPT OF THE SURVEY DESIGN 63 FIGURE 9. THE STRUCTURE OF THE K2 NETWORK SOLUTION 91 FIGURE 10. THE REDEFINED BUSINESS MODEL STRUCTURE 105 FIGURE 11. THE DIRECT-TO-CUSTOMER MODEL 107 FIGURE 12. THE SERVICES AGGREGATOR MODEL 108 FIGURE 13. PREDICTION OF THE REVENUE GROWTH IN THE PARTNERSHIP MODEL 110 VII
LIST OF TABLES TABLE 1. TABLE OF RESEARCH METHODOLOGY 5 TABLE 2. MMOG CATEGORIES AND CHARACTERISTICS 15 TABLE 3. THE DIGITAL CONTENT VALUE CHAIN 29 TABLE 4. COMPONENTS OF DIGITAL VALUE CHAIN FOR THE CURRENT MMOG INDUSTRY 33 TABLE 5 EXAMINATIONS OF THE TRANSFER TIME FOR VARIOUS FILE-SIZES IN DIFFERENT BANDWIDTH 34 TABLE 6. THE TABLE OF KEY ISSUES 50 TABLE 7. OUTLINE OF SURVEY ANALYSES 64 TABLE 8. COMPARISONS OF THE AGE DISTRIBUTION 65 TABLE 9. COMPARISONS OF GENDER DISTRIBUTION 66 TABLE 10. COMPARISONS OF EXPERIENCE IN PLAYING MMOGS 67 TABLE 11. COMPARISONS OF HOW LONG THE GAMER HAS BEEN PLAYING MMOGS 67 TABLE 12. THE SURVEY RESULT OF THE PLAYER S FAVOURITE GAMES 68 TABLE 13. COMPARISONS OF THE FAVOURITE GAME GENRE 69 TABLE 14 COMPARISONS OF THE GAME ORIGIN 69 TABLE 15. COMPARISONS BETWEEN THE REASONS THAT PEOPLE CHOOSE THE MMOG 70 TABLE 16. COMPARISONS BETWEEN THE GAMERS MMOG-PLAY PLACE 72 TABLE 17. COMPARISONS OF BILLING METHODS 72 TABLE 18. COMPARISONS BETWEEN THE PLAYERS REGARDS ABOUT THE RATIONALITY FOR THE ONLINE-GAMING CHARGE 73 VIII
LIST OF ABBREVIATIONS A I AOL ATM B2C BBS CEO CESA COLS CRC DSL EA ESA HTTP IAB IDSA IFPI IGDA IS ISP ITU LAN OEM Artificial Intelligence America Online Line Automated Teller Machine Business to Customer Bulletin Board System Chief Executive Officer Computer Entertainment Supplier's Association Commercial Online Services Cyclic Redundancy Check Digital Subscriber Lines Electronic Arts Entertainment Software Association Hyper Text Transfer Protocol Interactive Advertising Bureau Interactive Digital Software Association International Federation of the Phonographic Industry International Game Developers Association Information System Internet Service Provider International Telecommunication Union Local Area Network Original Equipment Manufacture IX
OS P2P PC POS PW MMOFPS MMOG MMORPG MMORTS MUD RAID ROI SOE SSL TCP TGS TLS TTP UDP UI UNCTAD VOD Operation System Peer to Peer Personal Computer Point of Sale Persistent World Massively Multiplayer Online First-Person Shooters Massively Multiplayer Online Game Massively Multiplayer Online Role-playing Game Massively Multiplayer Online Real-Time Strategy Multi-User Dungeon, or Domain Redundant Array of Independent (or Inexpensive) Disks Return On Investment Sony Online Entertainment Secure Sockets Layer Transmission Control Protocol/Internet Protocol Tokyo Game Show Transport Layer Security Trusted Third Party User Datagram Protocol User Interface United Nations Conference on Trade and Development Video On Demand X
ABSTRACT The development of information technologies brings innovations into traditional entertainment, and this development allows for the creation of a new leisure style: online entertainment. Online entertainment is an emerging industry, and increasingly, companies are pursuing this new trend with profit motives. However, the struggle of online-music industries shows that the market is not yet mature, and is still seeking viable business models. Online-game industries are also going to face similar problems that those online-music industries have already experienced. The purpose of this thesis is to study business model developments for the online-game industry. The focus will be the PC-based Massive Multiplayer Online Game (MMOG). By utilizing the structure of the digital content value chain as a conceptual framework, this thesis will use this framework to analyse the structure of current business models. In order to improve current business models, analysing case studies and investigating key issues, which have a potential to influence the business development, are important in this thesis. The research will focus on three areas: marketing, game-play and financial issues. By seeking practicable solutions for key issues, these proposed solutions will be applied to create viable developments and restructure business models. The research method will review the last five years of research literature, explorations and case studies. This thesis mainly focuses on the case studies of Asian online-game developments, with a focus on Japanese and Korean game industries because their industries are the major players in the online-game market. In addition, the survey methods will include the use of the online questionnaire in order to obtain experiential XI
resources and to increase the accuracy of this research. The contribution of this thesis is to establish viable business models based upon the experience of Japanese and Korean online-game developments as patterns, for Chinese and Western online-game industries. XII
ACKNOWLEDGMENTS Firstly, I greatly appreciate my supervisor, Mr. Joseph A Meloche, for his guidance, encouragement and constant support during the course of this research. This research was successfully carried out under his supervision and assistance. I also appreciate Dr. Helen Hasan for her support to examine the structure and content of my thesis. This makes my thesis better and wonderful. I express my gratitude to my classmates of Feng-Chia University and the University of Wollongong, and my friends in online communities: Gamer.com, Gamebase.com, and Boom8.com. Without the support and suggestions of these people, it would have been difficult to finish the online survey for my research. I would like to thank my dear friend, Ms. Qin Zhao, for her support and encouragement in my daily life. Her suggestions really benefited my research, and her enthusiasm gave me more energy in my research and life. Finally, I thank my parents, Mr. Hsu and Mrs. Yang, for their encouragement and financial support. I also thank my young sisters, Chih-Shan and Ya-Lin, for their suggestions regarding living in Australia. XIII