Three things I have to say on this:

1. Mainstream games industry people question it’s value
2. Yes, of course it was worth it
3. What Would Zynga Do?

Mainstream games industry people question it’s value

I’ve seen a lot of people from the mainstream industry (i.e. consoles, PC games, handheld etc – eerything EXCEPT iPhone and Facebook) incredulous, unconvinced it was worth it. This was the case even with the rumoured $250 million valuation from a month ago (c.f. Nicholas Lovell’s post on that).

There’s also some discussion over at TheChaosEngine (private forum for professionals in the games industry) on the same topic, with similar levels of scepticism about the value.

The main reference points are traditional games companies and their sale prices. That’s where this goes wrong – and it’s symptomatic of something that hampers the games industry: a lack of understanding of the business side of games. For most people in the industry, this doesn’t matter – they’re making games, not selling or funding them. But for the people managing games companies, far too many of them need to get an MBA and learn the essentials of sales, marketing, revenue, and shareholder-value – and how that applies to their own day-jobs.

Yes, of course it was worth it

Reproducing some of what I’ve already written on TCE, since it’s non-public:

There’s three things driving the valuation of PF:

1. A solid business, in business-terms (c.f. Nicholas Lovell’s “6 reasons why Playfish is a steal at $400m”)
2. Quality content-producer, in games / media terms
3. Consistent success, in comparitive terms

Playfish is in the top 3 companies dominating the Social Games sector. They are the ONLY one of those companies that set out to dominate the SG sector – the other two happened purely by accident. PF was architected to take over this sector, and is succeeding at it.

From a game-design perspective, the entire business model for Zynga and SGN has been “keep bailing!”, and they’ve so far bailed faster than they were sinking (where “bailing” means “using marketing and sales ability to make up for severe product deficiency”). That might sound like I’m being derogatory – but compare it to all the “worthy” games companies who bailed *slower* than they were sinking; at the end of the day, who’s the smart one?

But good sales/marketing strategies are easy to dissect and clone, in a way that good content is not.

Part of the demand for PF is that a lot of people look at it and say: this is SGN/Zynga, except they make good games. Yes, they’re not 1st – but any idiot could take PF’s current position, throw $50m of marketing budget at it, and easily surpass Zynga. They will own this market, sooner or later – PF is fundamentally strong where Z is fundamentally fragile. (although Z’s “fragile” is still an order of magnitude stronger than most traditional games companies).

Just to be clear: I have a lot of respect for Zynga and SGN, they’ve achieved a heck of a lot. But they’re sharks. They’ve always been sharks. Comparing to modern standards of game-design, they’ve never had great product. Instead, they’ve been extremely canny, aggressive, vicious, and cash-driven – and they’ve shown how successful and profitable you can be with those things. If someone had asked “how well can you do with a weak content company if you’re exceptional on the business-side?” then these companies boldly step forth and demonstrate that the answer is: “very well indeed”.

But this is a new, novel market. Maybe there’s nothing special about PlayFish?

Well, apart from thriving in a new market against some of the toughest competition in the world, look at the comparitives. Compare PF with – say – Kongregate. That was founded by the ex TD of Pogo after years at Pogo/EA, and was expected to recreate the success of Pogo and expand on it (hundreds of millions of dollars revenue). They’ve fallen a long, long way short. PF was founded years later and is now doing perhaps 20 times the revenue (just guessing based on Kong’s last funding round and how long ago it was).

PF’s success *looks like* it’s “probably” no accident. IIRC (and I haven’t checked, I’m going from memory here, so I might be very wrong) this is the same management team that built and later floated GluMobile. Putting that into perspective:

1. these guys have ridden the wave of an emerging market to create on of the big successes
2. these guys started from nothing and ended up with an IPO
3. these guys then started all over again, from scratch, in a new market … and succeeded AGAIN.
4. …and they did it very quickly

What Would Zynga Do?

This, then, is the million-dollar question: who’s going to buy Zynga?

Zynga have followed a strategy of buying-or-burying every small competitor who came along. As I noted above, despite being rich, hugely successful, and growing fast, they have some internal fragility that PF has never had. Where PF *could*, in theory, get more aggressive, Zynga is already barrelling along flat-out on that front. Where PF has a good reptuation they can trade on, Zynga has a poor one that’s not worth much now PF is part of EA.

If it had been a smaller company that bought PF, maybe – maybe – Zynga could have afforded to try a reverse-takeover to hoist themselves up, and hold on to their top spot in Social Games.

But EA/PF is too complementary a pairing; together, they’re too effective for Zynga to get away with that. Zynga *might* have hoped, with a different competitor, that acquisition by EA would lead to a breaking-up of the company’s value. EA has done this many a time to other acquisitions: small companies vanish when eaten by big ones. But as I noted above (and as Nicholas referred to when claiming that PF’s team could “turn around the tanker” that is EA), PF’s team have enough experience and personal wealth that it is very unlikely they’d disappear inside EA. They *might* retire (despite the golden handcuffs, many EA acquisitions have lead to de-facto retirement of their founders) – but PF is so young as a company that I doubt they’re tired of it just yet.

Looking back at Zynga, this seems to be a company that sees itself as the Alpha Male. I can’t believe they’d settle for second place. So, Zynga needs to be bought. And, unlike PF, Zynga may actually benefit from being dominated by their acquirer (try and wipe out some of that bad reputation; perhaps fundamentally alter the internals of the business, make it into a good content-generator? Where PF is adding Zynga-esque marketing and sales ability, could Zynga add PF-esque content-creation/content-quality ability?).

Who?

I’ve no idea :).

But, looking around, Zynga has greatly underperformed on iPhone. There are a lot of media and consumer giants around that expect to have no problems making lots of money on iPhone. Maybe that would make a good deal, someone already exploring, or set to explore, iPhone, who doesn’t need Zynga, but who could expand Zynga on to iPhone in a huge way. That could even let Zynga save some face in the deal (”there’s nothing about our business approach we wanted to change, it’s just that this was an opportunity to dominate TWO platforms instead of ONE”).

(this is rather the opposite end of interpretation to “Over 1 billion people play online games” – and make sure you read Raph Koster’s thoughts before trying to interpret these figures)

What are these used for

Even though there is NO audited, trustable source for these figures, we already know that the public “guesstimates” like MMOGchart.com are routinely used:

• in audited (!) company annual reports as a reference point (especially in China and South Korea)
• by publishers, when deciding which game projects to fund (used directly in projections of potential market-size – and hence how much cash funding to provide!)

These numbers are *seriously important* to the industry (like it or not!).

What’s out there – official figures

There are three types of official figures for player numbers for online games:

1. Very precise figures included in the quarterly or annual audited company accounts, and legally-required to be accurate
2. Detailed figures included in press-releases and/or conference presentations
3. Vague figures cited in public interviews

Public companies whose primary business is online games are often expected (required, perhaps?) to publish precise figures (a side-effect of the rules on what they have to stick in their annual reports). Not all do (?), but noteworthy examples include:

• NCsoft (one of the best-known publishers to do this, and the one with most “global” data, covering USA, Europe, and Asia)
• CJ Internet (South-Korea + Asia only)
• Giant Interactive (China only)
• NetEase (China only)
• Shanda (China only)

You … may well note a trend there. These figures are useful, and aid businesses operating in Asia, but by comparison life is somewhat harder for anyone wanting to sell into America or Europe. In all fairness, there are American and European companies that chose to (usually irregularly) make official statements via Press Releases, but this is an order of magnitude less detailed and usually less accurate than what would go in an annual report for a public company.

(NB: IMHO, the American and European economies and industries suffer for this lack of transparency – business models are more fragile, staff are less well-informed, decision-making is weaker, etc).

What’s out there – estimated figures

1. Bruce Woodcock’s MMOGchart.com – guestimates extrapolated from superficially similar games with official figres
2. mmogdata.voig.com – guestimates from a private methodology
3. Vague figures cited in public interviews
4. Independently measured figures

Bruce started out by taking as many of the official figures as he could find, modelling graph-based trends, and then re-applying those trends to missing data to try and extrapolate or interpolate the missing items. Where a game has never had ANY official figures, he took estimates based on a wide variety of inputs, everything from unsubstantiated rumours through to unofficial figures “leaked” by employees of the companies that were running the games.

Good points: (mostly) documented estimation process, started with accurate data, includes data for many games, includes detailed writeups explaining which figures are “accuate” and which are “guesses”, and ascribes an estimate of the amount of error in each individual estimate
Criticisms: assumes all games behave similarly in growth/shrinkage, updated very infrequently (every 4-12 months)

Phil’s VOIG was started apparently in frustration with the slowness of updates to Bruce’s figures (originally he updated frequently, but over time updates got less and less frequent). Phil doesn’t divulge his methodology, and you cannot download their figures (although you could read the website visually and type down each individual number. Umm. No, thanks).

Good points: *still* more frequently updated than Bruce even though Bruce has tried to speed up again
Criticisms: unknown methodology, unknown error-margins, poor data format, no download of figures available

Lots of games industry staff believe in sharing their figures more openly than their managers are willing to. On top of that, it’s often difficult or very difficult to answer a journalist’s question in an interview – or to explain a decision made during a post-mortem or conference talk – whent the audience have no idea what the underlying figures are. So, we often see individuals from games companies making public statements as to player figures for various of their games.

Good points: effectively these are “official” figures
Criticisms: not just vague as to numbers (usually they are only quoted to 2 sig.figs) but also vague as to *meaning* (registered players? active? paying?), very irregular publication times, often non-specific about what *date* they apply to (and people often quote figures that are a year or more out of date!)

A few organizations try to independently measure figures. It has long (ten years) been a complaint in the industry that no organization of high reputation in the traditional Media sphere (e.g. ABC for printed publication circulations) has started auditing online games. Recently, there have been huge efforts by a handful of companies to measure website traffic specifically – e.g. Quantcast, Compete, comScore – and for some online games those figures are often extremely good (games where people have to use a website each time they play the game, for instance).

Good points: stringent accounting standards (they hope to become ABC equivalents), strong expertise with web properties generally (so accustomed to the many tricks that black-hat website owners use to try and inflate their figures), very frequently updated (in some cases as frequently as per-day, taking them almost into real-time status)
Criticisms: mostly useless for non-web games

…but this final type – independently-measured figures – is the one we need more of. Because we need something that:

• updates frequently, giving us “up to date” figures whenever we consult the source
• uses a common reporting standard across ALL games (doesn’t compare “registered” from one game against “active” from another)
• requires little effort to maintain (likely to stick around long term and become a reliable resource)
• uses an open algorithm that is easily verfiable by anyone (the maintainers cannot deliberately write-up or write-down individual games without detection)

Xfire

Xfire is one of several companies trying to make “a social network for video game players” by creating a custom chat client that you keep open while playing the game. This allows them to track who is playing what games, when, for how long. For some time now they’ve been publishing (openly, for free), stats on how many hours each game is being played for per day in total. That figure gives some idea of the total “attention” that particular games are receiving, both individually and comparitively, but it’s useless for anything else.

I’d looked at the Xfire stats before, but only used them for very high-level comparitive judgements, since in most cases I work with games that have wildly varying “average number of hours of play per player per month”, and so the Xfire stats could not be used to judge games.

I had an email from one of the Xfire guys, suggesting I look at the stats again, and I noticed that they currently have a “number of Xfire users playing each game” stat too. Interesting…

A stupidly simple Methodology

Xfire has far too few users for those users-playing-today figures to be even close to the actual Concurrent Users figures, let alone number of players.

But I have a lot of high quality data on a wide variety of games (through official and unofficial channels), and I have most of the “official” figures, so I wondered what would happen if I tried using some well-known and accurate figures to look for a correlation with the daily users figures on Xfire. Pretty obvious. NCsoft sells directly into US and Europe and has established subs games in both western-developed MMORPG (City of Heroes/Villains (CoH/CoV) – known as “CoX”) and eastern-developed MMORPG imported into USA/Europe (Lineage 2 – known as L2).

I chose these two games because:

• They’re from the same publisher, so counting algorithm OUGHT to be about as similar as we’ll ever get for different games
• They’re both subscription based, so we get a relatively non-ambiguous figure
• (most important of all) NCsoft releases precise figures for both these games *every single quarter*

The ratio of “Xfire activity” : “actual subs” is very different for those two games – but I wondered how well they predict the ratios for other games I had the figures for? I tried classifying each game simple as “eastern import” or “western”.

In each case, I looked for the following success / fail / anomaly criteria:

• (any game), L2 and CoX are approximately equal multiples of known figures = fail
• (any game, true figure unknown), L2 and CoX are both much bigger or much smaller than the estimated figure = anomaly
• Eastern game, L2 is a smaller multiple of the known figure than CoX = success
• Western game, CoX is a smaller multiple of the known figure than L2 = success

The “anomaly” result allowed me to run this against all the games where we only have “generally-accepted estimates”, and then decide in each case whether it was a breakdown in the methodology, or if it pointed to the “generally-accepted estimate” being wrong.

I had 4 types of number to compare against, FYI:

• Official figures
• Personal estimate (sometimes based on insider-knowledge, sometimes based on industry “common knowledge”, sometimes on odd bits of public data that indirectly confirms or predicts for a particular game)
• Public estimates
• Private official figures

Because Bruce gives you a downloadable spreadsheet of his data – and because you can read his own commentary on how (in)accurate each individual figure is – I used his data as the “public estimate” figures.

East vs West – Some example data

East vs West – Does this work?

It’s not as bad as I thought it would be – there’s at least *some* correlation here :). It’s good enough that if you assume an inherent error margin of +/- 20% you can feel confident you’re getting good numbers.

It also works quite well with the private figures I have which (because of their sources) I consider to be pretty good.

Ah, but … statistically, does it work?

Well, running some simple Pearson correlation tests over the public numbers, I get a small increase in correlation (about 0.6 instead of 0.53) for using this method instead of just using a single comparator. That’s actually pretty good although I’d hoped for better. It does get a little better if I add in some private figures and/or replace some of the public estimates with private info I have.

I’d like to get hold of more data, either more things tracked by Xfire or more “public, official” figures, to check the correlation better. At the moment, there are a *lot* of holes in the public “Best Guess” column :(.

East vs. West: Interesting correlations and anomalies

9Dragons, 2Moons, Dance Online – The L2 predictor would put these at 150k, 310k, and 75k respectively. Acclaim has announced that they have a total of 750k active players across their 9 games, of which these three have been running for Acclaim longest and are the most mainstream of their games. At a total of 535k between them via L2 predictor, that fits reasonably well with the published figure.

Age of Conan – methodology breaks here. CoX predicts a mere 40% of the figure that Funcom has “officially unofficially officially” released recently. Sorry.

Anarchy Online – my estimate is 27k players; Bruce’s estimate is probably only counting subscribers, whereas the game has been F2P for several years now.

Archlord – L2 predicts a whopping 1 million players. Unless this is a truly huge hit in Asia, this has got to be wrong: even though the game has gone F2P in the west, the number of players in the west are generally thought to be in the region of less than 25k.

Audition Online – L2 predicts 300k, I believe it’s more like 3 million. c.f. the Maple Story notes.

DAoC – I’m happy with the CoX estimate of 25k players

Dofus – RS prediction is 1/3 of the reported number by Ankama. However … Ankama’s number *appears* to be “registered accounts” (the number I’ve used for RS is an estimate of active monthlys – the RS registered accounts figure is twice as big).

Also, Dofus is very much a French-language product. Although they’ve internationalized, their French start is still clear in that 30% of the playerbase is French (according to Ankama).

Therefore, I suspect that this may ALSO be being negatively affected by Xfire’s bias against non-English-language users (non English speakers tend to avoid English products if they can get equivalent native products).

Proportion of French users for internationalized American MMOs normally runs to around 30% of the European players, who normally represent around 50%-100% of the American players, which would suggest that Dofus has between twice as many and four times as many French players as an English-language MMO. Given the relative lack of interest advertising it in America, I’ll go for the four times.

Therefore, Xfire would only be counting around 75% of the playerbase it ought to be counting, and we’d get (via the RS predictor) around 4.5m players. I’m happy with that (until I get a phone call from Ankama. Salut?)

Dungeons and Dragons Online – again, a big drop, not so big as EQ2, but then I’ve heard that D&DO has had some uptick thanks to cross-selling to Lord of the Rings Online players.

Who knows? I can certainly *believe* the 25k predicted by CoX, but I’d ask some Turbine people if I were you, see if you can ferret out some more precise info…

EVE Online – methodology breaks here. The 250k figure comes from CCP themselves (give or take up to 10k). Based on the unique game-design and marketing, maybe EVE is just special (yeah, I know – I’m just making excuses here :)).

Everquest 2 – it’s a big drop from Bruce’s last-reported figure, but I think the CoX predictor of around 80k players is probably closer than Bruce’s.

FF XI – A while back I’d have thought the L2 estimate of 350k players was about right – nowadays I’m not sure, it’s been a long time since I looked into FF XI numbers in detail?

Horizons – CoX predictor says twice Bruce’s last estimate. Believable, but unconvincing.

Lineage – Epic fail. I can only guess: Xfire isn’t tracking Lineage 1 players. Off the top of my head, it’s hardly played outside Asia – Lineage 2 gets all the marketing love etc in the west. c.f. notes on other Asia-only games.

Lord of the Rings Online – CoX predicts a HUGE increase vs. Bruce’s estimate here. Turbine have never officially released figures IIRC, so maybe Bruce’s estimate should be treated as a shot in the dark anyway. Given that there’s been no new servers added to LOTRO since they were making noises about hoping to reach circa 500k – but also no server-merges – I could accept the 380k estimate from CoX predictor. But it’s just a guess.

Maple Story – L2 predictor breaks, suggesting just 2.8m players, less than a fifth of the best estimate I could find. This leads to a suggestion for a more precise prediction routine, see below…

Perfect World – L2 predicts 1m. Looking at companies with similar revenues to Perfect World, “active players” come in at approximately 1m-3m. Thoughts?

Pirates of the Burning Sea – CoX is predicting a mere 10k players – one sixth of the Bruce estimate. I believe it, because 7 months ago they shut down 7 of their 11 servers, leaving only 4 servers with a maximum concurrent playerbase of around 8k between them. In practice, I would have estimated around 15k-20k players based simply on the number of servers they’re running, but I suspect they may have kept extra around to keep some variety in the server populations, and because running just 1 or 2 extra servers is not that expensive, but gives you good fast response for all players.

Pirates of the Caribbean Online – Again, CoX predicts a whopping 7 times as many players as Bruce’s estimates. But then this game is one of those that went F2P, so, again, I can believe the CoX predictor when it says 75k players.

Seafight – CoX predicts 25k players, but this is way short of my own estimates based on the publisher’s aggregate player numbers. c.f. the notes on Maple Story, and the new analysis below.

Silkroad Online – L2 predictor comes close to my personal rough estimate based on taking their quoted number of registered players and dividing by 4, but its still short by about 30%. Again, see notes on MapleStory.

SL – isn’t a game, I’ve included it simply because both sources were counting it. The fact that it bears no resemblance to ANY of the games is no surprise considering it really has very little in common with them.

Star Wars: Galaxies – CoX’s predictor is within 10% of Bruce’s number. Cool.

Tabula Rasa – CoX predicts 30k. Estimates by industry consultants like Jessica Mulligan (see the comments) put it at around 30k.

Toontown Online – methodology broken; I’m sure the CoX estimate is wrong, and that TTO’s audience (young children) doesn’t overlap with Xfire’s audience.

Vanguard – The CoX predictor is suggesting more than twice the number of players that Bruce estimates. I have no idea what the correct number is – I haven’t bothered tracking Vanguard since its inexcusably poor launch. I’d love some independent confirmation of one number or the other being closer?

Warhammer Online / WAR – CoX predicts 935k, EA recently stated 800k. Not bad…

World of Warcraft – CoX predictor gets it wrong by a factor of 1.5 … you could take that as an indicator of the amount of error in the predictor :).

WW2 Online – I’m happy with the CoX estimate of 8k players

Some notable MIA games

Habbo Hotel – definitely millions of active players, but not tracked by Xfire. c.f. notes on ToonTown Online w.r.t. Xfire’s poor demographic tracking.

Neopets – definitely millions of active players, but not tracked by Xfire. c.f. notes on ToonTown Online w.r.t. Xfire’s poor demographic tracking.

Puzzle Pirates – 200k active players from the last number they put out publically, IIRC, but not tracked by Xfire.

Secret Online – 10 million players (”active”, IIRC) in China, announced in US/EU 7 months ago, not tracked by Xfire.

Special Force – not tracked by Xfire.

East vs. West – Problems

So we see three major problems here:

• Xfire doesn’t appear to track non-western players at all, tracks European-but-primarily-non-English players (Dofus, Seafight) noticeably poorly
• Xfire doesn’t appear to track younger users at all (all the games for young children / parents come out “untracked”)
• Basing all eastern game estimates off a subscription-only game (L2) works for a lot of things, but for the few really massive F2P (free to play) eastern games it fails

Can’t do anything about the first two problems, since those are flaws in Xfire itself, but I thought I’d have a quick look at the third problem and see if adding additional predictors (specifically for F2P games, both east and west) would help.

Analysis: Subscription vs F2P (Free to play)

The eastern F2P games fail dramatically when judged purely by the sucess of Lineage 2. Unfortunately, the mighty NCsoft “doesn’t do” F2P games, so we’re going to have to look at other sources of comparison.

Maple Story (eastern, localized), Runescape (Western) seem like good starting points, although in both cases there is only mediocre “official” data.

Subs vs. F2P: notable failures from East vs. West

Seafight – RS gets only 25% over my guesstimate based on the number of games Bigpoint publishes and the total number of active users they have. Serious guesswork – although Seafight is one of the slightly more popular of the BP games, so I would expect it to have more than that many users, closer to the RS predictor. But I suspect it could be MUCH higher, as much as 3-5 times higher, since we have no data on how much overlap there is between BP players of different games, and this assumes zero overlap.

Audition – Even using MS as a predictor, we get barely half of my last estimate for Audition’s playerbase. I’ve heard rumours it has been eroding a great deal in the past few years (it is an old game now – and with little or no design updates, it shows!), so I guess this is possible?

Subs vs. F2P – Does this work?

I’d have to say … no. And at that point, you start getting into using dozens of different predictors, split by genre + revenue model + country of origin + age of game, etc … and there aren’t enough MMOs in the world for that level of detail to be worth it (you’re into fantasy land by that point – and it’s too much effort :)).

Analysis: WoW

NB: this one I don’t take seriously, it’s just for fun; I think it’s meaningless until/unless I get hold of an Asian equivalent of Xfire, and come up with a WoW equivalent from Asia (probably Maple Story – huge locally, and large globally), and we can do the WoW-western-based-global vs. MapleStory-eastern-based-global comparison.

It would be interesting to see how well that worked as a predictor – does the “global success” dominate, or does the “subscription vs. F2P” dominate?

Follow-up ideas

1: Correlate “hours played”

Xfire’s preferred stat is “hours played per day” not “number of people playing per day”. This stat varies massively by Genre in fairly obvious ways. Doing a similar correlation to the above one for mapping “hours played + genre” to “number of people playing per day” would be relatively easy and possibly even more valuable.

2: Cross-correlate “hours played” with the above-inferred “number of players”

Especially useful would be to take the results of 1 above, and combine them with the work done in this article.

That would give you a basis for inferring “number of players” directly from Xfire’s primary free published-statistic.

3: Xfire to penetrate Asia

Well, we can wish…

4: Xfire to track younger children / older parents

My guess is that they too would love it if they could do this…

Exclusions

Kart Rider got closed down in USA, and although it’s still one of the most played games in the world, Xfire shows a mere “10 people playing” – so I guess those are the few who’ve braved non-localized versions?

Legend of Mir – Xfire is tracking it, but saying 0 for all games. IIRC they shut down the old LoM games as they open new ones – has a LoM 4 just come out?

PS….

Wordpress is *still* corrupting raw HTML source – if you see big blocks of whitespace in this blog, it’s something odd in WP not liking inline style declarations. Sorry.

How many people play online games globally in 2008?

A simple answer

…and with a quick mental calculation I estimated 1 billion *unique registered accounts*. (I’ve been tracking and calculating this stuff a lot recently). That wasn’t good enough – they wanted something to put in a press release, so they wanted a methodology and verifiable data.

So, I went and did the calculations properly, and found:

There are approximately 1.5 billion unique registered accounts (virtual players) of online games around the world in 2008.

They still needed to see the methodology and the figures, of course … here goes!

Some … wrong … answers

Someone at Techcrunch claimed last year that “217 Million People Play Online Games”, by misusing the research that they were referring to. You only have to follow the link to the *press release* of the actual research to see how wrong that is.

The research merely claimed that 217 million people visit a selection of American and European websites that have content that talks about online games, and which *in some cases* actually have some web-games on their site.

The majority of online games were not included in the research. The figure isn’t particularly useful on its own.

A simple question?

The first thing to realise is that there’s no sensible way of answering the question literally. A couple of years ago, Raph Koster did an updated version of the explanation for this problem (it needs updating again by now to take account of how the industry has continued to evolve since he wrote that last version). If you haven’t read it, and want to understand the details of why people argue this stuff endlessly, go have a quick look at his post.

But there is a sensible way we can re-phrase the question to become one that we CAN answer:

How many unique virtual identities are there that are playing online games this month?

Virtual Identity … what? No, that’s not what I wanted to know about

Actually, maybe it *is* what you wanted to know about.

In the real world, we never actually count people for anything (except if we’re physically smuggling them past Border Control, I guess); instead, we count Identities: verifiably unique records that each correspond to no more than one person.

In the real world, one ID does not equal one physical person, even though it is “approximately” that way (bear in mind that even governments have so far proved incapable of legislating + enforcing that concept, despite having tried for the last few thousand years).

In the online world, the concept of Identity is abstracted. This is all the fault of “computers” and especially “programmers” and “database vendors”, who couldn’t cope with the amount of info required to fully represent a single Identity (and as time went on many realised that they did not want to). They cheated. And so, from the earliest days of the internet (and before – back in the days of BBS’s), everyone has had multiple ID’s.

On average, each of you reading this probably has something like 200-300 separate online identities. On average, each of you reading this probably BELIEVES you have something like 2-3 separate online identities. Factor of 100 difference (have fun counting them…).

Those virtual identities are the lifeblood of online services. They are countable, they are serviceable – and they are uniquely and individually chargeable (even when several of these identities may represent just one real-world human: if the identities are separate, then you can charge multiple times, and many people really do willingly pay several times over!)

Many of those identities are “inactive”, and unlike people, the corpses of Virtual Identities do not naturally rot and disappear, they live forever – and can be brought back to life at any moment by the owners. They’re all real – they are still verifiably there – so for now we’re going to count all of them.

(personally I prefer counting “active identities within the past month”, but more on that in a later post. Counting in billions is fun for now…)

How many virtual identities play online games?

Start with the big guns, going from their own official announcements.

Individual games: 400m

Kart Rider = 160 million
Habbo Hotel = 100 million
Neopets = 65 million
Maple Story = 57 million
Club Penguin = 20 million
Runescape = 10 million

+ others I didn’t bother looking up

Subtotal: 412m

Publishers who declare registered directly: 1200m (or 800m)

Then add in the big publishers, going from their official announcements

9You = 120m
Acclaim = 3m
Bigpoint = 30m
CDC Games = 140m
CJ Internet = 23m
Disney = 12m
Gameforge = 60m
Gamania = 10m
GigaMedia = 9m
Gpotato = 2m
HanbitSoft = 8m
K2 Network = 16m
Mattel = 11m
Moliyo = 7m
NCsoft = 2m
NeoWiz = 7.5m
Shanda = 700m (*)

(*) (note: using the active and paying ratios below, this would be approx 150m or 300m, which is such a huge difference (and stands out as massively anomalous compared to industry standard – even for other Chinese operators) that I’m going to treat it with extreme suspicion and go with 300m instead)

Subtotal: 1158m (or approx 800m if we downgrade Shanda by 400m)

Publishers who declare active or paying: 100m

Then add in the big publishers who declare “active” or “paying” accounts instead of “registered”:

As well as just general industry knowledge on this stuff, I have official figures from half a dozen publishers that let me calculate Registered:active or Registered:Paying ratios, so from averaging those I get conservative multipliers of approx:

Registered / Active = 4
Registered / Paying = 40

Gaia = 24m (6m active)
Giant Interactive = 68m (1.7m paying)
NetDragon = 14m (3.5m active)

Subtotal: 106m

Facebook + Web gaming = 200m

Then look at the big Facebook games-publishers, and the online gaming sites from the comScore study:

Yahoo Games = 53m
MSN Games = 40m
Miniclip = 30m
EA Online (inc. POGO ?) = 21m
SGN = 40m
Zynga = 55m
…
Others (from comScore report) = 78m

Subtotal: 173m

Final tally

There are approximately 1.5 billion registered identities in online games in 2008

How many “real people” is that? Well, as noted above, the percent of registered accounts that are active is around 25%, so I would guesstimate (really really rough figures now!):

There are approximately 375 million people in the world who play online games.

The theoretical current maximum playerbase for a subscription MMO would be somewhere in between those two figures (plenty of people pay for 2, 3 – or as many as 10 – accounts, as Raph noted).

The theoretical current maximum playerbase for an F2P game would be the bigger of the two figures, obviously.

WoW (World of Warcraft) still has a long way to go, people…

Exclusions – what did I miss?

There are plenty of operators that are not counted in the above which run games in countries not often associated with online gaming (e.g. Vietnam, Russia, etc) – and yet their figures are significant (I’ve been tracking them for a while and they’re growing very fast).

I didn’t bother including them because even in aggregate right now they probably wouldn’t be able to shift that 1.5b figure any higher.

There are also some who are using a combined service only part of which is games, e.g.

Tencent = 350m users of the IM client which integrates many online games

…which I haven’t included at all. Feel free to take my headline figure and add that on! (and add back in the 400m accounts from Shanda that I discounted / didn’t believe)

Background

Roughly a month ago Jussi Laakkonen published a list of $350 million invested in year 2008 into virtual worlds, casual MMOs, and casual & social games. Based on US-centric sites, it missed out the majority of European deals. So, inspired by Jussi’s excellent idea, I then posted my own list of European deals I’d been tracking (which also included some extra things on the fringes of Jussi’s initial set). We decided that the right thing to do would be to put those lists together.

The extra things I’d been tracking were mainly in MMO investments, technology vendors, and support services (e.g. payment providers). I also wanted to add in mobile gaming (especially in light of what’s happening with the iPhone, the iPhone investment fund, and the Blackberry investment fund). These are the areas I’ll be looking into more in the future.

Analysis on T=Machine

I’ll be doing some followup posts over the next couple of days, Jussi’s zooming ahead with his – check out his blog to keep up with his comments too.

Followup posts will all be tagged under “jussi vc deals europe”

Jussi’s Analysis

Jussi’s posted a great summary of the core data.

The data

The data on VC investments has been collected from publicly available sources including but not limited to

* VentureBeat
* PaidContent
* Virtual World’s Management
* Avista Partners’ video game briefing
* TechCrunch
* CrunchBase

The data was gathered by Jussi Laakkonen and Adam Martin. The data is most accurate for year 2008. Year 2006 and earlier years have been only covered sporadically and typically only for companies that have received follow-up funding in years 2007-2008 (IIRC the European data is complete from the end of 2005 onwards, as it started from around the time of Mind Candy’s first announced funding). The data is provided AS IS and the authors make no warranties or guarantees about its accuracy.

Download the spreadsheet:

* Excel format
* CSV format
* HTML format

But I’ve been tracking the European side for a while, and since I’m preparing a new MMO / Education startup at the moment, I’ve recently been refreshing my data.

So, here it is: my version of Jussi’s post, but the EU-only version :)

The Deals

Venture capital funding for social games, virtual world, casual MMO and casual games

[Time span covered: Q4 2006 - Q3 2008 (present); see NOTES at bottom]

Notes: How this was compiled

This comes from my personal collation of companies related to online games, social worlds, support services (billing, outsourcing, mobile, etc) – which is an eclectic mix of things that I’ve tracked over the years relating to my own interests and plans. I only really started paying attention in 2005/2006 when I was at MindCandy. For this blog post, I re-checked every single company via Google before adding it above, and then cross-referenced against good sources such as Calibre-One’s quarterly deal reports to see if I’d made any stupid mistakes. There were discrepencies, some of which I’d clearly made a typo (which I corrected), and others that were only subtly different, so there’s probably some mistakes in the above.

Notes: Rate of investment in games companies is increasing

How it’s arranged here it’s maybe not so obvious, but when looking through my spreadsheets it’s more obvious that there 2005-mid 2007 wasn’t a great time for these investments (especially in monetary value), but late 2007-mid 2008 has been a lot better.

Maybe that’s the effect of the Global Philip Rosedale Reality-Distortion Field? (aka “Second Life convincing people that Virtual Worlds are viable, commericalisable, and investable”) :).

Notes: German Companies really don’t like talking about money

I tried – really hard – to get info for the companies who didn’t announce how much investment they’d taken on when they announced they’d received it, but in most cases I failed.

I noticed that most countries privately owned companies are quite open about how much money they’ve raised (American ones especially), and quiet about how much they’re making. The Germans are strangely quiet, generally, on both. I believe that means that people:

• talk less about German companies
• know fewer German service providers
• consider fewer tactical partnerships with German companies

Maybe I only notice this because I’m English, and business people in the UK have long obsessed about how our inability to be brash in business (as a nation) has hampered us compared to the Americans. IMHO this silence is an ill-advised strategy, but them I’m a huge fan of transparency in all aspects of business :).