Xbox Live Business Model in Need of Change?

In an intriguing conversation earlier this week, Guild Wars developer Arena.net co-founder Jeff Strain in a interview with GamesIndustry said that “Microsoft’s Xbox Live service needs to be overhauled before the service will be attractive to MMOG developers.”

Strain, whose past game experiences have taken him with travel companions such as Blizzard, his previous job before leaving to set up Arena, believes that “the business model used by Xbox Live is fundamentally not designed for the close relationships MMOG operators require with their players and community.”

“Their whole goal is to encourage people to go and buy games on the shelf, then there’s an online component for it,” he explained. “But for us, when you buy it on the shelf, that’s just the beginning of our relationship with you – and we want a direct connection with our customer so that we’re always giving you new content, always supporting you directly. Xbox Live just wasn’t really built, from a business standpoint, to support that.”

Click Full Article to read the entire interview.

In an intriguing conversation earlier this week, Guild Wars developer Arena.net co-founder Jeff Strain in a interview with GamesIndustry said that “Microsoft’s Xbox Live service needs to be overhauled before the service will be attractive to MMOG developers.”

Strain, whose past game experiences have taken him with travel companions such as Blizzard, his previous job before leaving to set up Arena, believes that “the business model used by Xbox Live is fundamentally not designed for the close relationships MMOG operators require with their players and community.”

“Their whole goal is to encourage people to go and buy games on the shelf, then there’s an online component for it,” he explained. “But for us, when you buy it on the shelf, that’s just the beginning of our relationship with you – and we want a direct connection with our customer so that we’re always giving you new content, always supporting you directly. Xbox Live just wasn’t really built, from a business standpoint, to support that.”

GamesIndustry.biz: You’re running an MMO without a subscription fee, and using an episodic content model instead – but it seems that basically, you’re accepting less revenue for providing an MMO service than other firms are, since many of them release paid-for expansion packs as well as charging a monthly fee. How do you justify that, economically?

Jeff Strain: First of all, it costs us far less to operate Guild Wars than a traditional MMO. The technology team behind our server technology is the team that built the original Battle.net. At that time, there was no broadband, so the whole thing was built around 28.8 modem assumptions – so we learned a tremendous amount about latency masking and bandwidth optimisation. When we built the core network technology behind Arena.net, of which Guild Wars is one game that uses that technology, it was really designed with those principles in mind. Even though we knew that broadband was growing and that most people would have it, we wanted to make a game that was very bandwidth-light, because we knew from the beginning that we were not going to charge a subscription fee, and that – bandwidth – is one of your primary operating costs. Obviously you pay for the server infrastructure up front, but your ongoing cost is bandwidth, and we use substantially less bandwidth than almost any online game out there. So, right up front, we’ve cut our support cost that way.

The other big factor, though, and by far the larger factor, is that we just think that if you have a game that requires a subscription fee, you’re going to have fewer customers. Obviously, there are examples out there of very big MMOs that have done well and have lots of customers – but they’re building on established franchises and large existing customer bases. Guild Wars was a new product, and we wanted to come out of the gate really strongly and capture a very large number of players right off the bat. We just believed that we could be more effective at that without a subscription fee. With a subscription fee, you’re going to cut twenty, thirty, forty, maybe even sixty per cent of your total potential customers right off the bat.

So our goal is to create this game, create this business model, have a large and thriving community – and then sell content directly to them. Really, if you think about it, if I make two games a year and I do a good job, make sure that they’re really cool and really strong, and that you want to buy them; that’s about the same as what I would get if I was paying a subscription fee for one game over that year. You’re right, it’s a little bit less – but fundamentally, it’s in the same ballpark. So, that’s our goal – make sure that we make enough content, that it’s cool enough, fun enough, and released on a regular schedule, so that we’re just as profitable and can support the game to the same degree that a traditional MMO can.

What’s your view on digital distribution? Is that something that seems like a good fit for your business, given that you already have a large existing base of customers with fast internet connections?

We certainly want to make that easy and viable for people to do. I think that there are two groups of players; there are those who see all the value of what they purchase in the bits that they get access to, but there are still a lot of people who really want to pay for physical goods, and who are uncomfortable paying for something and not having a physical representation of it in their hands. So we will always very strongly support our retail and distribution partners by having exceptionally high quality products on the shelf in terms of the packaging, the materials, collectors’ editions, CDs, posters… Things you can actually get your hands on.

But for those players who are comfortable with direct downloading, then certainly, we’ll support them directly. It’s especially easy with Guild Wars, because of our streaming technology. It’s true that we use that to update the world and run the live aspects of the game, but also, one of the things that’s kinda cool is that most people don’t realise that they have Factions right now on their hard drives. We did a Factions preview event last month, and we’re doing another at the end of March, on March 24th. The way we do that is that we essentially stream down the entirety of the game to people; but we disable those parts of it that we don’t want them to access right now on the server, so all the new missions are there on people’s drives, but nobody can actually play them.

What that means is that when we release a new campaign, we’ll start streaming it to you probably around three or four weeks before it’s actually available for sale – and by the time you’re ready to buy it and it’s available directly online to purchase, all the graphics and resources and sound already reside on your hard drive. You purchasing it is just paying for it, and then there’s no download – you just go! It’s kind of interesting that way.


How are you managing the development of an entire new Guild Wars game every six months? It’s a pretty huge undertaking – are you running development teams in parallel to achieve that?

Yes, they’re staggered. Last October we had staffed up to the point where we had parallel teams – overlapping, staggered development teams. So each of these new campaigns has an entire year of development, from a full development team, and they’re released on staggered six month cycles.

For example, Factions has been in development since the say we shipped Guild Wars. Campaign III has been in development since about November of last year, and is already far far down the pipe. So that’s how we did it. We haven’t split all our teams – it’s not like we’ve just taken the company and split it. There are some teams that are like service teams, such as the server technology team – obviously, they work on both products. But in terms of the world art, the character design, the mission and story, the core mechanics design… Each campaign has its own dedicated team for that.

It’s actually working out really well. We were curious to see how that was going to go, because normally if a company has more than one project going, they’re completely different projects and there’s all kinds of politics over who gets to work on the A project and who works on the B project. We were curious to see how that would go from a company culture standpoint, but it works great – everyone still feels like it’s Guild Wars and we’re all one team, but everyone has their niche and their focus.

Do you have an oversight team in place then, to ensure that everything stays balanced and consistent across these campaigns?

Yeah – the lead designer, James Phinney, who was also the lead designer of Starcraft. He arbitrates both and makes sure that no team is doing something that screws over the other one, or fundamentally violates the core mechanics of the game. He stays on top of that.

You mention that your Arena.net technology solution is low bandwidth – has this allowed you to structure your servers around a central location for all players around the world, or do you still have local data centres in different regions?

Our server infrastructure is actually kind of reflective of our core technology. We have data centres all over the world – we have data centres in Europe, data centres in the US, Korea, Japan and Taiwan. As you know, when you create your account in Guild Wars, it’s a global account – you don’t pick one of those data centres or servers, you’re not even really aware of them.

What happens is that it knows where you are, and when you play, you’ll probably be connected to one of the European servers – if you’re playing with your buddies, or by yourself, in general it knows your home datacentre. But if you want to play with me, and I’m on one of the US datacentres, the datacentres will communicate with each other and try to figure out the best place to host our game. They may decide that the total experience across both of us is going to be better if it hosts the game in Europe, and so it’ll hand off my character – it migrates my character record temporarily to the European datacentre, you and I play our game, and then when we’re done, it migrates my character back.

The datacentres all work in a confederated manner. It’s presented to you as one big massive server that’s serving the entire world, because you never have to be aware of where they are, but there’s a lot of datacentre communication going on on your behalf in the background to make sure that it’s optimising the play experience for you.

As a specific example of that, we just had a world championship event in Taiwan, where we had six Guilds – two from Europe, two from the US, and two from Korea. When they played, they were all playing on servers in Taiwan, because it knew where they were playing and it migrated their server records to Taiwan for that match – so that the latency was optimal.

You describe Arena.net as being your core technology as well as your company name; do you have plans to license that to other companies or use it in other games?

Right now, we’re the Guild Wars company. We do have a lot of technology that could support any kind of game, certainly, but our commitment to the players right now is, “come join us in Guild Wars and we will support you constantly – there will always be new content.” Right now, that is our primary focus.

Having said that, all of the server and network technology, all the engine technologies, animation technologies, the tool pipeline and the streaming technology that we developed for this game, would make games in other kinds of genres equally cool and fun. We’re an ambitious company, and we have very definitive plans for the future, for future products – but right now our focus is Guild Wars, and will be for the foreseeable future.

What about licensing all that technology to other people?

As you know, we’re a wholly-owned subsidiary of NCsoft, and NCsoft has product development teams all over the world – so we will license it internally for other NCsoft products, but we won’t make it available for license to non-NCsoft companies or companies that aren’t being published by NCsoft.

Is it already being used by some of those companies?

It is, yes.

What is the possibility of Guild Wars appearing on other platforms?

We’re watching this generation of consoles very closely. Obviously, there are a lot of console players who don’t play PC games. For us, there are two issues. One is that from a technology standpoint, consoles are all about going to a store, buying a disc, putting it in and playing it – and that content is static. All of what I’ve talked about regarding the streaming technology, how we constantly update the game and things can change from winter to summer, and that we’re using it as a publishing platform too; none of that is possible on a console. We’re glad to see that a hard drive is an option for the Xbox 360, because that goes a long way towards helping us treat it that way – but it’s still an option, and it wasn’t built into all the systems. It’s unknown whether the PS3 is even going to have that or not.

So we’re looking for that, and we’re looking at how broadly Internet will be adopted for the next round of consoles – how much people really get into that. Right now, for online games, it’s all about PC. That’s where the online gamers really are. If that changes, though, then we’re ready. All of our technology is developed in an engine-agnostic format; we can very quickly plug in the client component for different platforms. Certainly, all the back-end technology, the server technology, doesn’t care what the host platform is at all, so we could very easily do versions of our games that inter-operate across different platforms.

Then, finally, there’s the business model issue. Xbox Live, for example, their whole goal is to encourage people to go and buy games on the shelf, then there’s an online component for it. But for us, when you buy it on the shelf, that’s just the beginning of our relationship with you – and we want a direct connection with our customer so that we’re always giving you new content, always supporting you directly. Xbox Live just wasn’t really built, from a business standpoint, to support that.

So, there need to be some changes in the business model, and we’re keeping an eye on the technology – but we love console games, and I’d love to see Guild Wars on an Xbox or a PlayStation 3.

Is that kind of change to the business model something that you think will come down the line? After all, NCsoft have said that they’re working on console games…

Yeah, I do think so. I think that Microsoft is a smart company, Sony is a smart company. They know that you can’t hire an inexperienced team or somebody who’s always just done straight console work and just have them make an MMO game. There is such a body of knowledge that is specific to that kind of gaming – it would just be a horrendous undertaking to try and do that from scratch. They know it’s in their best interests to attract the top developers to develop for the console, and they know that that’s going to take some business model changes – and I think that what we’re going to see is that once the dust settles from the launch of this round of consoles, they’re going to be very willing to engage in those discussions. So yes, I think that there will be changes.

It’s a pretty significant thing that you’re asking from them, though – they see customers on their consoles, on their online services as being “their” customers, and you’re essentially asking them to hand off that customer relationship to you… That’s quite a lot to ask.

It is – but by the same token, they gain a lot from it too. Their business model is built on taking a licensing fee for each copy sold – and the Guild Wars model is still very much based on selling new things, twice a year in fact. I think it’s probably easier with us than it is with the subscription model, where what you buy at the store is really not even a factor, it’s that ongoing monthly revenue stream that’s really at issue.

But yes, not to shy away from your question, it is asking a lot – but right now, on PC, we’ve got a multi-million customer base, we have fantastic direct relationships with them, and we’re not highly incentivised to go and give that up. So it’s definitely going to have to be a meet in the middle kind of thing.

Finally… Do you ever wish that some day you’ll make it through an interview without you, or someone else, having to say the words “World of Warcraft”?

You know… I’m from Blizzard, and I worked there for many, many years. I actually started that project at Blizzard, I started the World of Warcraft project. I’m very fond of those guys, and I’m very proud of them for what they’ve pulled off. It’s a beautiful game, and I very much respect it… And I’m not answering your question… [laughs]

It’s been interesting for us to see. I do believe that the success of World of Warcraft is a case of “the tide rises and all boats float”. I believe that it’s been a positive for the entire online game industry. I don’t ever necessarily want to have to do one of these and not hear it mentioned. I guess what I would say is that our goal is to make sure that they never get to do an interview and not have Guild Wars mentioned.

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