It’s no surprise to anyone with an eye on the financial landscape that games are big business. In fact in July 2007, on the back of the release of the PlayStation 3 and the Xbox 360 gaming consoles, revenue for the Australian games industry cracked the $1bn mark – surpassing the cinema box office by nearly $200m.
However, it’s a very different industry from just a few years ago. The increasing popularity of online gaming, the creation of pervasive online gaming environments – such as World of Warcraft – and the network capabilities of the latest generation of consoles have changed traditional revenue models from a standard game purchase to the more common ongoing subscription payments. The average gamer has also changed, and is quite a different proposition from the classic stereotype of the cola-fueled school kid hammering away on a gamepad in front of the TV.
Internationally, research company The NPD Group has noted that in the United States 70% of all males 18-34 are gamers and that gamers will spend a staggering 41.7 hours playing a recently purchased game. Locally, the Interactive Entertainment Association of Australia (IEAA) says that the average gamer is 28 years old. 60% will be male, 8% will be over 60 and, most interestingly, gaming competes with other media (such as TV or movies) for a gamer’s attention but does not impact on outdoor leisure activities.
Tony Thomas, director of marketing at Ninemsn, says it’s important to understand just how big the games industry is. “I like to use this example,” he says. “When Spider-Man 3 opened in cinemas it did $150m in its first weekend. When Halo 3 launched, it did $170m in 24 hours.”
Thomas works across the Australian arm of Massive, an in-game advertising company recently purchased by Microsoft. Massive works with gaming companies to provide a platform for advertisers to easily reach gamers during gameplay. The online aspect of these games means that the ads are served “fresh” – updated constantly for currency and appeal.
“The best example is probably rally games,” explains Thomas. “When you drive past billboards, our technology means those boards are advertising actual products. Or if you walk past a TV shop in a first person shooter game, the TV might be playing actual TV ads. Or you might walk past a vending machine and it’s for an actual product. We work in 2D, 3D, video format – provided it fits the environment, we can work it into the game.”
This seamless “fit” is the key to this style of advertising being effective, says Thomas. “If you’re killing a dinosaur and then see a Pepsi vending machine in the jungle it’s jarring. Gamers are canny and don’t want to be too obviously pitched to. In fact, if we get this right then the game environment becomes even realer – real world products in an unreal environment. It can actually increase the players suspension of disbelief.”
While it’s too early to tell how effective in-game advertising will be locally, internationally the technology is producing some impressive results. Massive headquarters in the US recently released some figures from Nielsen Entertainment on the effectiveness of video game advertising. The study found that average brand familiarity increased by 64% and the average purchase consideration increased by 41%. Ad retention was also up by 41%. These results were found across a wide variety of advertisers, from automotive, to consumer packaged goods, through to technology and fast food restaurants.
“The appeal of in-game advertising is obvious,” says Thomas. “You’ve got a captive audience – and an audience that is becoming harder and harder to reach. Locally, gamers will spend 1–3 hours on each game they play, playing at least three times a week. There’s no risk of channel hopping – you’ve got a super engaged audience with their bums on a seat, looking at your product.
“Currently there are 43 games on the market that have in-game advertising functionality and that will only increase. Advertisers are realising that this is a big market and I think we’re going to see some truly amazing campaigns produced locally in the near future.”
Two things have contributed most to the impressive increase in gaming around the world. The first is the steady rollout of stable and affordable broadband, meaning that gaming online became both faster and more reliable. The second is the increase in Massively Multiplayer Online Games (MMOs or MMOGs) – that is, games that support a large number of players, often in a pervasive world with an emphasis on building ad hoc communities. If any game can be held forth as the king of the hill for MMOs it would be World of Warcraft, better known as WoW to its fans and World of Warcrack to its detractors.
Warcraft has been a phenomenal success – in July 2007, less than three years after its launch, the games creator Blizzard announced that it has surpassed 9 million subscribers worldwide. The impact of the game cannot be underestimated. As Internet satirist David Wong (of www.pointlesswasteoftime.com and currently features editor of cracked.com) has pointed out, the imaginary currency of WoW Gold has a better exchange rate against the US dollar than many real world currencies. It’s a fact that has seen the creation of a whole new industry of “gold farming”, where warehouses filled with gamers (often based in poorer Asian countries) trawl through the game collecting treasure and currency, which is then sold online. While the concept sounds ludicrous, it’s an industry that has been estimated to be worth $1.8bn worldwide.
A great deal of WoWs addictive nature is attributed to its “levelling” system. The game encourages gamers to play by letting them collect gold, items and experience points that make the characters more powerful, opening up new areas for players to explore.
This love of levelling was recently harnessed by a game called Chore Wars (www.chorewars.com). The game lets you gain experience points for doing real world tasks, such as washing up or vacuuming. Chore Wars pitches itself as a productivity manager suggesting that it’s an excellent way to see if someone in the household isn’t pulling their weight with the housework, or encouraging children to get more involved by providing an online reward system for doing their chores.
Second Life is another online reality that has received a great deal of media attention in recent years – in many cases because of claims of child pornography distribution and other darker elements of the web. Second Life itself kicked off in 2003 and can be regarded as the “quiet achiever” of online communities, with 11.5 million accounts registered in the four years of its existence.
Although often called a game, Second Life is a difficult beast to quantify. It is a pervasive online world where players – known as Residents – create avatars (digital representations of themselves) to interact with other Residents. None of the traditional gaming aspects – scores, winners, losers, any form of levelling – are present. What it does allow is literally a second life. Second Life’s creators Linden Labs has imbued the world with a functioning economy using a currency called Linden Dollars (L$). Residents can buy and own virtual real estate and a large number of in-world companies exist selling virtual products and services. In addition, a vast number of “real word” companies have a presence or even virtual offices in Second Life, from tech companies such as CNET and Sun Microsystems, right through to Reebok, the BBC, the ABC and even Mazda.
Companies hold virtual press conferences, even meetings and product launches. MTV has held a fashion show in Second Life, the Harvard Law School offers a course and – perhaps strangest of all – The Maldives has a virtual embassy in the game, with Estonia, Malta, Macedonia and the Philippines reportedly opening similar embassies in the near future.
David Holloway runs SLOZ (www.sloz.com.au) a news service for Australian Second Life residents and he also consults with business and other groups on using virtual worlds to reach a broader audience or even enhance their business practices. Holloway says that the appeal of Second Life is definitely in its broad and dedicated audience. And they are indeed dedicated – in August 2007, residents spent 23.5 million hours in the virtual world according to figures from Linden Labs, a number that actually represents a decline of 1% from previous figures. “Above all else, it’s a unique way to have customers directly interact with a brand,” says Holloway. “It’s also a new way of getting customer feedback – and you’ll certainly get it, particularly if you turn up in Second Life and don’t do your research beforehand. There’s a long list of businesses who have treated Second Life as purely a marketing activity and then wondered why no one visits their neck of the virtual woods.”
The question, of course, is how valuable this customer interaction genuinely is. Australian-based digital services company Hyro (www.hyro.com) was one of the first companies to study the both the viability and reliability of research conducted in a virtual world.
“We have a mandate from out clients to remain informed about all new platforms,” says Richard Lord, chief marketing and strategy officer for Hyro. “We began researching Second Life around 18 months ago, seeing it as a shift from the traditional print paradigm used when presenting data online and a move into more immersive worlds.”
Hyro purchased an island in the game world and built a useability research space on the virtual real estate.
“We essentially wanted to know what techniques would work in Second Life when engaging with users and how those users would interact with our clients,” says Lord. “What we saw was that the data collected online mirrored offline data, with an obvious need to consider the context of the online environment.
“We definitely take the view that these immersive-style of environments are a portent of things to come.”
Unlike in game advertising, the success of Second Life for businesses both virtual and real is based on the creation of fiercely loyal communities, says Holloway.
“Community building is key. Even voracious self-promoters like Telstra realised pretty early on in Second Life that it needed to build a community and it’s done it quite successfully through varied activities” he says.
“The ABC has also been successful through regular and varied events including tie-ins with TV shows. Advertising will work but it needs to be subtle and not the only feature. In the real world would you spend time walking around a block of land with nothing to do but look at advertising?”
Telstra were extremely canny with their use of Second Life to market their BigPond broadband offerings, says Lord: “By letting its customers use Second Life as unmetered bandwidth, it not only set up a strong BigPond community for SL, it also turned people on to its broadband products.”
More than just a cute marketing toy, Holloway thinks that the Second Life style of online world will become an increasingly important market for businesses.
“Most businesses are struggling to come to terms with Facebook let alone virtual worlds. Those companies that do ‘get it’ are likely to have a significant advantage as virtual worlds grow market share.
“Second Life may not be the dominant virtual world in coming years but you can be sure that the ‘3D internet’ phenomenon is only going to grow.”
Lord agrees: “There are a lot of companies who need to be involved with these virtual brands.
“For the right product or service, you can’t underestimate the appeal for people to be able to engage with real world brands in an online environment.
“It won’t work for everyone, but the right company will find this an excellent if not essential part of its marketing mix.”
This mentality that businesses need to shift up or ship out is echoed by industry analysts who suggest that in game advertising might reach $700m by 2010 – a figure that Massive founder Mitch Davis (see box on previous page) thinks is conservative, suggesting $2bn might be more likely. No matter what the final figures it’s clear that, after being forced to embrace the “e-business” concepts of the late 1990s, the online world is far from conquered for today’s businesses.
