Fear and greed in the World of Warcraft.

Posted on Posted in Revenue Models
world-of-warcraft-worst-enemyAs the latest battle in the World of Warcraft saga has spills over into the realms of reality, it should provide a warning to any SaaS or subscription-based business.

A bitter conflict has erupted involving a very tangible fight for virtual territories. In a highly questionably response, WoW's publishers have resorted to legal means in an attempt to shut down an unofficial version of its online game.

From the corporate lawyer's perspective,  this might look like an open and shut case. But if we take a wider view, it seems like WoW's owners are missing something essential. I wonder if in reality the gaming giant has lost touch with its consumers? 

A quick sit rep: World of Warcraft had undergone various upgrades and improvements over the years, many of which were designed to generate in-game revenues. The aggregate of these changes resulted in some fans establishing their own platform to play what many considered to be the 'classic' older version.

On a private server,  a co-operative going by the name of Nostalrius provided die hard followers with the ability to play the original game. it was maintained and funded by enthusiasts and unhindered by commercial improvements or pressures from shareholders .

This fandom was illegal; a demonstrable breach of current copyright laws. It used intellectual property owned by Blizzard Entertainment without consent or payment. So, a cease-and-desist order was issued.

And yet this 'vanilla' service boasted over 120,000 active subscribers and regularly attracted over 10,000 concurrent players. While even generous estimates suggest that this fringe group represents less than 3% of the overall constituency of WoW fans, it is a significant number. In any volatile market - and gaming is certainly a dynamic sector - what business can afford to ignore such demands, particularly from such motivated consumers?

WoW, you might argue, has had its day and nostalgic fans should let it go, move on and embrace new games. It's true that by the Fall of 2015, WoW's subscriber base had fallen to around 5 million. Although a not insubstantial audience, this number is less than half of what it had been during the same period in 2010. Notably, WoW's peak in popularity was preceded by five years of constant growth following its launch in 2004. That's five years of growth, followed by five years of decline. 

Of course, the decline of WoW should be viewed today against the backdrop of 5 years of growth in the holding group's share price. However, Activision - who own Blizzard - have grown in scale and value largely due to corporate acquisitions rather than organic growth in subscribers. Their focus is twofold: Buying new businesses that are in a rapid growth phase and launching new versions of existing games. Products are expected to have a fixed shelf life beyond which they're dropped like a stone. 

Blizzard's representatives emphasised the commercial imperative to shut down services like Nostalrius, saying that they can't afford to allow pirates to undermine their business. But the logic here is flawed. This was not a knock-off, pirated version of the current commercial offering. Players were not choosing to avoid paying for the product, they were simply eschewing the latest version.

The truth is that Blizzard were unable or unwilling to sell and manage the 'older, superseded model' and so loyal customers created their own.

Comparisons with the TV and movie sector are useful. In the era of streaming, there's a pressing need for key players to consider the basis on which they should compete. In simplistic terms, 'New vs. vintage' and 'Mainstream vs. specialist'. Netflix is focusing on a smaller library of newer products, growing a mainstream subscriber base with the promise of only the latest, biggest titles. In contrast, the HBOs and Hulus of the world are exploring strategies to build more niche offerings including merchandising deeper archives.

Perhaps an even more pertinent parallel is in the automotive industry. Manufacturers like Volkswagen still recognise the value of heritage brands such as their defunct camper vans and beetles. What's more, maintaining a healthy used car market is acknowledged to be essential for promoting sales of new models. 

But during the period of decline for WoW, the leadership team at Blizzard seem to have written off the property. With a corporate shrug, senior spokespeople have suggested that the demise of World of Warcraft is both inevitable and out of their control.

Blizzard's CEO Mike Morhaime said that the reason was probably due to a drop-off in the Eastern markets.[wiki!] In 2012, senior producer John Lagrave told Eurogamer that the drop in subscriptions may have also been attributed to the recent release of BioWare's Star Wars: The Old Republic.[more wiki!]

Is Activision really disinterested in the long tail opportunities? And if they don't have the inclination or skills to monetise older games, why don't they license them to people who do? They have implied that it's not viable to manage their back catalogue but I wonder if they can really afford to ignore it.