• Corporate deal, not the “founder buy-out” traditionally commonplace among gaming fansites. MMO-Champion was previously owned by Major League Gaming, already a multi-million dollar enterprise (by comparison, $46 million funding).
• Completes a duopoly (2 dominant businesses) in the core World of Warcraft “fansite” market – Curse and ZAM. While there are other large businesses and specialist niches on the fringe, none of those appear to be growing into the core WoW market.
• Exposes an intriguing driver of this market structure: Systems costs – the underlying technology and support costs. Intriguing because these were crucial in determining the market structure of far more traditional sectors of the economy, like groceries.

This article analyses the latest acquisitions and discusses the unseen importance of systems costs. On this page:

• The Other Online Game
• Curse vs ZAM
• Sold!
• Systems Costs
• Descent into Madness

The Other Online Game

New readers may be surprised to learn that there are millions of dollars involved in World of Warcraft-related websites. A Strange Game and Learn2Play, the new Real Money Trading provide an introduction.

My Map of World of Warcraft Online Communities showed the structure of this market in 2008. By 2010, all the communities in the core top-left quadrant of that map had become owned by large (typically multi-million dollar) businesses. The centre-ground is now commercially mature: In 2010 there is no big fansite that didn’t exist in 2008, while many of the large fansites in 2008 had barely existed in 2006.

All these large businesses are now diversifying into other games, because WoW hasn’t expanded beyond around 5-10 million players (excluding China), and inevitably this will fall at some point in the future (no video game can remain so dominant forever). Diversification is a tricky strategy because WoW continues (through strong marketing and new player retention) to attract customers, while competitors fail to challenge it. Indeed, its competitors are increasingly not even “Massively Multiplayer Online Games” – instead, browser games like Maple Story, or (Facebook) social games like Farmville.

Owners’ focus varies: For example, IncGamers has almost forgotten its roots as WorldofWar.Net, while WoWWiki is increasingly a platform to aggressively promote Wikia’s wider gaming portfolio. In contrast, Curse and ZAM still feel like they have World of Warcraft at their core, and continue to develop (or invest in) a range of services for World of Warcraft players.

So if World of Warcraft continues to be popular, and the core market remains mature, Curse and ZAM will tend to dominate popular fansite content. Other larger sites, without sufficient focus, will tend to get left behind (just like WorldofWar.Net), and smaller niche sites will tend to remain in small niches. This is why Curse and ZAM are interesting.

Curse vs ZAM

The Curse gaming network emerged from a World of Warcraft guild of the same name, originally as a database of addons – small scripts/programmes that can be run within the game. WoW addons remain its forté, with both developer and player-facing services. Curse started buying up WoW fansites in 2008, including MMO-Champion’s traditional competitor, World of Raids. World of Raids subsequently lost many of its visitors, while MMO-Champion thrived. Curse also attempted to launch a database website, in direct competition with ZAM’s Wowhead. Rather too direct: ZAM threatened legal action due to the similarity of WoWDB’s design.

ZAM was created from the acquisition of 3 large databases of gameplay information (Thottbot, Wowhead and Allakhazam) by some combination of Brock Pierce/Jon Yantis/IGE/Affinity Media (accounts vary). ZAM is understood to still to be privately owned. ZAM have also had some success with addons (especially WoW Interface), and have become interested in guides: Acquiring Tankspot’s video guides, writing event guides on Wowhead, even acting as a host for Deca/Alex Albrecht’s Project Lore.

In 2008, Curse’s ties with World of Raids would not have made it a natural ally of MMO-Champion. However, MMO-Champion hasn’t had flawless relations with ZAM either: Wowhead publicly appologised for “not appropriately crediting” the reuse of MMO-Champion’s content. The appearance of MMO-Champion’s own database probably didn’t help either.

While Major League Gaming does run World of Warcraft tournaments, MMO-Champion’s audience isn’t solely interested in tournaments. It is not surprising to see the site sold. And if my analysis is correct, there were only ever 2 potential buyers: Able to find the (undisclosed, but presumably substantial) fee, able to guarantee a reasonable amount of editorial freedom, and able to offer systems support:

Sold!

Independent fansite acquisitions typically involve:

• A creative founder suddenly discovers they can’t manage servers, staff, legal issues, or… and yet dealing with these things prevents them from continuing to do what they are good at. It might sound odd, by selling often isn’t about “the money”.
• An operating/managing/owning network that has experience of doing all the things the founder cannot, and can gain an “economy of scale” or market share or something useful from doing so: Typically by sharing expertise, management and information across many somewhat-similar websites.

At least that’s the ideal model. Some acquisitions are far more cynical or aggressive: Sites acquired solely for short-term advertising revenue, to resell a domain name, or to promote some dubious third party product or service.

This case is more complex, because the site hasn’t been independent for 3 years: It is difficult to judge all the reasons for a corporate acquisition (accountancy can often justify such decisions), but the main motivation for the sale appears to be technical. And not just visual issues, like the desire for fully-functional forums or a modern design. This is the most interesting reason Boubouille (the founder) gives:

“I think some people just underestimate the technical shitstorm behind each Beta patch or every single news. Having the backup of a WoW-focused company with tons of WoW-focused developers is a pretty huge thing for me.”

I hinted at the complexity of the process in the Adventures in DBC Files box. There are 2 problems:

1. Large amounts of regularly changing, but partial data, which must still be delivered accurately, as fast as possible. Hundreds of thousands of things, many inter-related.
2. Only a few “fansites” that need tools to analyse this data, and only a modest number of people with sufficient specialist knowledge to work with the data.

This is a lot like… groceries.

Systems Costs

Grocery stores’ (especially supermarkets’) competitive advantage lies in the rapid turnover of stock: The faster the store can buy merchandise from suppliers and sell it on to consumers, the sooner that cash will be available to buy more stock. Effective inventory (especially “supply chain”) management is key to profitability. That means lots of data, constantly changing.

But that’s not the only similarity: Each grocer gains advantage over competitors by developing “better” systems to manage inventory and related information. Sharing those systems with others would lose competitive advantage, yet ever-better systems cost more and more to develop. The only way to survive is for grocers to merge businesses, and share systems costs in a single merged business, even if they continue trading under familiar store names. It’s what forced US giant WalMart into Europe, and many European grocers to do the opposite. And for the whole industry to slowly agglomerate into a handful of huge global businesses.

Gaming fansites aren’t quite on the same scale as Wal-Mart. Yet. But the pattern emerging is similar: For example, programming expertise (and code) can’t be freely shared between competing fansites, because then everyone would produce precisely the same analysis at precisely the same speed, and any notion of competition would be lost. Yet several sites in the same network can share expertise much more freely between themselves – meaning fewer programmers or more flexibility.

While gaming sites are often profitable, most continue to make remarkably little money from so many customers: MMO-Champion may have 7 million monthly visitors, but it will struggle to earn a cent ($0.01) out of most of them. Most of that revenue disappears in operating costs, before a 40% profit margin (typically expected by early-stage venture capitalists) has been paid. On a fansite property that has probably already reached its maximum potential (barely 7 million people both play World of Warcraft and read English). So either this acquisition was part of an ill-conceived rush to spend venture capitalists’ cash (possibly before Games Workshop take it all in damages), or someone is planning to gain some serious efficiencies.

Descent into Madness

In theory almost anyone can setup a new WoW fansite. But in practice they won’t be able to compete anywhere except an undiscovered niche, because the technical, systems “barrier to entry” is now so high. The “fansite” market structure that emerges is the ultimate reflection on the complexity of the game itself: So much information, that individual websites can’t sustain themselves alone.

But then, rationally, none of this made any sense at the outset. As I previously concluded:

“Much of the third-party information is already coded into the game by the developers, obfuscated as game-play, discover by players, fed into third-party services, and then used to play the game by everyone else.”

We shouldn’t be concerned about systems costs because there should only be need of one system: The one in the game.

And I didn’t even mention that these third-party services are not licensed, but still tend to profit from the developers’ intellectual property. Or that such information might be better delivered in-game, not via websites. And that websites are preferred precisely because they can be operated commercially without permission. But then we’d have to acknowledge that these websites remain popular because they’re doing something game developers seem unable or unwilling to do.

While Curse and ZAM are still small businesses compared to mainstream game developers/publishers, both now have much to lose should anyone try to unpick this mess. Strange game indeed.

Why Create a Starcraft 2 Marketplace?

Pardo stated:

“If you create a really cool map, with all original content, that’s awesome, you can put it up onto the service [Battle.net], and actually make money on your map.”

Blizzard is prepared to share a “portion” of the revenue if you create your own Intellectual Property, and don’t simply re-use their property. Seems reasonable.

The SC2 Marketplace is intended to allow parts of the mod‘ community to evolve from amateurs to professionals. “Fan made” maps were acknowledged as an important way to keep Starcraft alive – over time, players shifted from Blizzard-made maps to fan-made maps. But maps (Pardo used Warcraft 3 as an example) still tend to use Blizzard’s game assets (such as art textures), because creating original content takes a lot of effort. And passion alone does not pay the bills. By allowing map authors to earn money from popular maps, those people would be able to fund the creation of their own, original game assets.

There’s a real sense that Blizzard lost the chance to nurture and (commercially) gain from innovations within “their game engine”. Rob Pardo again:

“The Tower Defense maps came out of the Warcraft 3 community. And now you see Tower Defense in the PlayStation store…”

Earlier in the day Stompalina tweeted about the similarity between Battle.net (Blizzard’s community platform) and Steam (Valve’s community platform). And she’s not wrong.

Both companies are unusual. They have both escaped from the traditional publisher-funded business model that underpins most major (non-casual/Flash) game development and distribution. Valve’s Steam originally gained popularity from games like Half Life, but has now become a method of distributing games written by others – everyone from small college/”garage” projects, to mainstream titles, like Total War.

Valve is already ahead of Blizzard in constructing a social-gaming platform, even though Blizzard was there first, and should understand the media better (from developing World of Warcraft). So perhaps opening up Starcraft as a semi-commercial platform for third parties is a new strategy in that race?

Why Not Create a Marketplace in Other Games?

Competition with the wider gaming industry does not explain why Blizzard are so unwilling to adopt a similar approach within their other games. Some of us (and I include myself) would like to do this within World of Warcraft. I have previously demonstrated that WoW has a huge pool of talent among its players, and that pool of talent is increasingly reluctant to work within WoW because it has become afraid to make money. Something which we now all seem agree is required to support major (time-consuming) projects.

It is possible to create original IP within WoW. Technically this would be more difficult within a MMOG, because players that don’t buy your content, still need to interact with those that do. But there are creative methods of working round those limitations.

One possibility is that Starcraft 2 is a new product, which is politically (within Blizzard’s decision-making process) and technically (programmed to be supported from the outset) far easier to impose a new strategy on. And we might eventually see a more relaxed approach in Azeroth.

My fear is that World of Warcraft is being treated differently because its brand is to valuable at this stage in its life-cycle.

Shrewd observers will note that Blizzard have started “doing the Star Wars thing” with the WoW brand: The revenue directly from the game gradually becomes less important than all the merchandise and franchise opportunities. Soft drinks and Trading Card Games were just the beginning…

The problem for “fan-based” projects is:

1. Franchise and license opportunities are not available to “the little guy”. They’re not the large businesses Blizzard look for.
2. If you sell a license it has to be worth something. So a “fan project” cannot co-exist with a franchised project that it (often inadvertently) conflicts with.

There have been several examples over the last year where conflict has arisen. Unfortunately, I’m not able to publicly discuss all of them. Suffice to say the legal threats are very real: Suddenly one finds one’s self liable for lost earnings of the franchisee and Blizzard. That’s almost certainly more money than you have – few people are prepared to risk bankruptcy.

On the Road to Damascus

If Blizzard have had a change of heart, will anyone trust them? Sadly the answer is yes. Not least because individuals tend to confuse the company with its products. And the corpses of all those fallen add-on developers decay fast.

A marketplace doesn’t fit Blizzard’s culture – somewhat secretive, protective, and controlling of its work. But Blizzard seem very similar to Apple. And Apple have managed to sustain a very successful iPhone store, full of applications created by independant developers. If both parties benefit, these uncomfortable partnerships can thrive.

Perhaps there is hope after all?

Postscript

The following day, in an interview with DirectTV, Rob Pardo was asked this question directly: Why Blizzard are endorsing commercial SC2 mods, while they have just outlawed commercial WoW mods? His reply was:

“We’re not making money from the people that are doing third party things for WoW. It’s not really allowed to go out and make stuff around WoW without licensing it from us. It’s really us just protecting our Intellectual Property.”