More gamers buying virtual items; introducing the “MMOG Lite”

By Erin Bell |

North American and European gamers have traditionally been far less enthusiastic than their Asian counterparts about spending money on virtual items such as crops, outfits, furniture and power-ups. However, a new survey from DFC Intelligence and Live Gamer indicates that gamers in North American and Europe are now much more comfortable with buying digital content through a new kind of virtual world that the study has termed “MMOG Lite.”

According to the report, entitled “Consumer Trends in Virtual Goods and Downloadable Gaming in North America and Europe,” 60% of respondents said that they had purchased some kind of in-game item.

The study points to the fact that the virtual item model has begun to catch on largely due to the increased popularity of gaming on social networks like Facebook. Games like Zynga’s FarmVille, Sony Online Entertainment’s Free Realms, and Nexon’s Combat Arms have attracted millions of users while making money by selling virtual items.

A major advantage of the virtual item model, according to DFC Analyst David Cole, is that it gives a game a potential lifespan of years online as opposed to a few months on retail shelves.

The study coined the term “MMOG Lite” to refer to massively-multiplayer online games that still offer the traditional persistent world and character building of larger MMOS, but without the high monthly subscription fees associated with their larger cousins.

“MMOG Lite represents a broadening of demographics interested in gaming,” Live Gamer President & Co-Founder Andrew Schneider told Gamezebo. “In the traditional definition of MMO, one might not include Club Penguin or FarmVille but the multiplayer genre has expanded, hence a new definition and a new audience which includes player who never self-identified themselves as gamers before.”

DFC forecasts that this MMOG Lite market will grow from about $800 million in 2009 to more than $3 billion by 2015. However, neither Schneider nor DFC Analysts David Cole believes that the core MMO business model will ever vanish altogether.

“I think it is really about providing a range of prices and flexible business models,” said Cole.”There are some high-end games that at $15 a month are an absolute bargain for heavy users of those.Really for those games there is an opportunity to upsell the heaviest users on virtual goods and other additional products.So yes, I see them co-existing, but with some of the MMOG Lite products perhaps taking away some of the more light users.”

Korea is still the most lucrative market for virtual items, according to the survey. (In 2008 alone, Cyworld – the Korean equivalent of Facebook/MySpace – reportedly earned $200 million in virtual goods revenue.)

“Korean and other Asian markets have found online usage based models as a great way to get around piracy issues and build a legitimate game business,” said Cole.”Korea [is] the most highly online connected country in the world, with very fast broadband speeds. Furthermore, they never had a major established console or packaged goods business to compete for time and attention.This set the stage for them to be able to be the first one to adequately deliver products to a wide audience under a virtual goods model. The rest of the world is still catching up.”

Interestingly, however, the study revealed that markets like Germany, Japan and the U.S. were catching up to Korea and even doing so through a higher average revenue per user (ARPU) rate.

Schneider said that there were some important lessons that could be taken out of Asia and from the social games market to be applied to core US and European game industries. For example, transitioning to a fixed-fee (subscription-based) model to a model based on microtransactions can greatly increase the number of players in a given game and generate higher revenues. “Some great examples are Shanda’s transition of Legend of Mir II from subscription to item-based model in 2005. Revenue went from $75M in 2004 to $275M in 2008.

“Another examples is NCSoft Japan doubling active users in that region after changing the Lineage business model from subscription to item-sales.”

Schneider cautioned, however, that these models don’t always work. “To follow these compelling examples, publishers/operators need to be focused and have the tools to understanding their virtual economies and know how to optimize.”

“Music titles, shooters, sports games and pretty much any type of game will be able to benefit from growing consumer acceptance of digital items,” said DFC analyst Jeremy Miller.

Miller also suggested that the success of social networks like Facebook show that the popularity of virtual items can extend beyond games.

“FarmVille proved that fact and there is a near 100% overlap between people who play games and entertainment enthusiasts,” added Schneider. “The microtransaction model works when a percentage of users pay for content – between 1-10% of total registered user base … we see a correlation between passionate gamers and passionate fans of other forms of entertainment – from television to film to music and beyond and see the same types of purchase dynamics apply.”

The survey involved just over 4,800 gamers in North America, the U.K. and Europe, and analyzed seven years of Live Gamer virtual goods transaction data from games released in the U.S., Germany, Japan, the Philippines and Vietnam from 2002 to 2009.

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