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As promised earlier, today I'll analyze the attractiveness of the Online Video Game Industry, or what is commonly referred to now as MMOs. As a long time MMORPGer I've played many of these games and currently "pwn mad n00bs" on the Scryers Server in World of Warcraft Online.

I started playing Everquest 7 years ago, and have participated in Beta trials for City of Heroes, Shadowbane, Dungeon & Dragons Online, Yugioh, and Chaotic. So I've been around the block a few times and think I can analyze this industry impartially. To do this I'll be using Porter's Five Forces model to try and pinpoint just what is so sexy about these massive multiplayer online games for companies that are considering entering this market.

I. Rivalry - Ugly (Low)
According to the awesome research conducted by http://www.mmogchart.com/ the current market is dominated by Fantasy based MMORPGs (94% - click here for chart), which is rolling up the big game titles like World of Warcraft, EverQuest & Final Fantasy XI that service this genre.

However, if you look at total market share based on game title, World of Warcraft dominates the market with over 62% of the market! That's some L337 pwnage if I might say so myself. I would also say that this market is highly concentrated and therefore less competitive as a whole.

To get any kind of traction in this market you need to have a strong brand. The companies like WoW and Final Fantasy were easier to establish in the market because they had a reputation amongst gamers and the resources to fund the advertising campaign required to reach customers. For new entrants, you have to consider purchasing the licensing rights to produce a MMO in order to have a shot now. You can go with your own brand, but it's very difficult (I'll explain further in the Buyer section). Either way, you'll be competing over a small piece of the pie, unless you can differentiate from the rest of the group. This increased rivalry makes it very unattractive to new entrants.

II. Threat of Substitutes - Hottie (High)

They don't call these games World of Warcrack, or Evercrack (in the late 90s) for nothing. The social aspect of the MMO as well as the entertainment factor makes it a unique product onto itself. Some would say that there are some alternatives, such as video games from Microsoft Live, that allow you to interact online and compete in games virtually. While this is somewhat true, platform (XBox 360, PS3, Wii) games aren't true substitutes for the real thing. So in this area, of focus, the market is pretty attractive.

III. Buyer Power - Cutie (Medium)

The customers for MMO's are a unique bunch. On the one hand, it has been my experience from interacting with people who subscribe to different games, that these customers are fiercely loyal to their game. I'm sure it has to do in part with the expensive switching costs involved. For starters, a customer wishing to leave their current MMO would have to purchase the new game at their local video game shop (or download it from the company at full price). Their progress within the game, their investment of time, subscription fees, as well as any friends and communities they met along the way would be lost as well. These are strong barriers to switching.

Community sites like Penny-Arcade or GuComics (my personal favs) can play a pivotal role in the sucess or failure of a game. They give new games a fair shake, but have high standards as well, which can sometimes kill a game before it ever reaches the public. It isn't even entirely of their own doing either. Much like Tiananmen Square or the Washington Monument served as meeting places for discussion and disagreement with the establishment, these virtual meeting places provide many within the gaming community the opportunity to voice their frustrations over the current system (of play within their game). If others see this and agree it can catch on really quickly. So while I want to say that Buyers (ie customers) are weak in general...if provoked long enough, they can mobilize and make things very difficult for even established companies within the industry. I would therefore conclude that the Buyer Power factor is somewhat attractive for a new entrant.

IV. Supplier Power - Ugly (Low)

Running an MMO has high fixed costs, in part because of the cost of infrastructure (i.e. fiber networks, servers, backup servers, routers, switches, etc.) and experienced IT staff to supervise the operations of your servers. Since MMO run 24/7, 365 days a week, you need to have staff available to troubleshoot the hardware and software issues that could arise at any time, while constantly looking at keeping up with the tech cycle so your game isn't outdated. These setup costs are very high and make the Supplier Power aspect very unattractive for new entrants.

V. Entry Barriers - Ugly (Low)

Speaking of software, each company holds their own code as proprietary. If they give up on a title and decide to release the license back to the owner, they are the sole owners of whatever programs or designs they created. This means that any new entrants looking to pick up where an old company left off would have to pay to get the rights to that company's content, or start from scratch all over again. This also means, if you want to enter the MMO market, you have to be willing to pay big bucks to recruit expert game designers, graphic designers, and programmers, because they are hot commodities right now.

Secondly, while there doesn't seem to be any obvious collusion going on in regards to the subscription fees, the market seems to be working with a 14-16 per month subscription fee. I think this is just a case of the market hitting a mature stage of its life cycle (given current technology, services, etc.) and newer entrants who will be tempted to charge higher subscription fees to recoup some of their development costs sooner will not fair well. The current gamer would have little interest in paying the costs (as noted in Buyer Power) to switch, and new customers who look at their options will have little reason to rush to pay more than what the market average is for similar products. These entry barriers make it really hard for a new entrant to the industry if they don't have the ability to overcome these barriers. I would therefore call this a low attractiveness factor.

Conclusion - A star will only carry you so far before the crappy teammates drag you down to the predictable end. I believe the lack of credible substitutes make it very enticing, however, given that the rivalry, supplier power, and entry barriers factors are all low attractiveness I believe it doesn't make sense to jump into this market at this time. Sadly, my work here won't stop Disney...Argh!