CSD5038 ASSESSMENT
Free Online Game in China
TIAN ZHE
1. Introduction
2. History of free online game
3. Reasons of free game strategy
Technology problem
Many similar content game appear
Impact of new games (Wow)
Losing online players
Against private server
4. New Direction
Profits from extra serves
Profits from Virtual AD
Profits from Circumjacent Productions
Share Income with ISP Company
5. Conclusion
1. Introduction
In china online game industry has created a significant market; however, under the surface of flourishing virtual industry, the high risk and competition exist. With the impact of some excellence charging online game, World of Warcraft, Lineage 2, other games have to face losing of enormous of customers. Furthermore, some of most famous Chinese online game operation companies start their free game policy; because of this, the revolution of online game industry has been launched in china. The normal business model, which depends on the persistent charge, cannot be adapted drastic market competitions. In order to keep market share, many online game operator companies decide to change their strategy to free online game.
2. History of free online game
The free online game could be traced to private severs (game severs which has been accredited by game developer or operator) 1 which allow players enjoy online game illegally; however, this idea was developed to legal management which is free online game. The free online game means the entry charge and persistent charge have been cancelled. It is not necessary to pay money to obtain the client software or playing time.
The earliest free online games in China are <hunter MM> and <huge trader> which started exercising in 2003. At that time, it is true that free online game bring some new business attempts to virtual market. However, it is obvious that the many issues of free online game also exist, which are low quality serves of operators and low stabilization of game servers. The players usually complain the disconnection of servers and lack of activities. The free online game model was theoretic attempts in 2003; nevertheless the beginning of “free cake” stimulates the business model transformations.
After the free online game trailblazers, the free trend extends to the whole China online game market. More operators start to claim their online games are free charge running, specially the <Legend of mir2: THE THREE HEROES>, <The World of Legend> which once created significant fortune for Shanda Interactive Entertainment Limited. Shanda is one of the biggest online game operator company which brought Legend of mir II to China market and create the online game legend in online game industury. The Peak concurrent users for The Legend of Mir II exceeded 600,000 ar Oct 2002.2 Meanwhile, the RMT( real money trade) in the virtual world was very popular. After Shanda claimed that <Legend of mir2:THE THREE HEROES> and <The World of Legend> started free running from Nov 28 2005, the compitition in China online game market reache high tide. Many online game operators companies begin to use free model to adapt the changes market.
From the year of 2005 to 2006, a series of changes have taken place in China's online game industry. Traditional profit model (point-card charges) has already been stricken by new models.(free playtime and game value-added charges). Meanwhile, casual online games are becoming popular gradually.3
3. Reasons of free game strategy
Technology problem
Most of Chinese games running companies are not original developers which means they do not have abilities to exploit game and update game version. Because of this reason, the communication between developers and operators could decide the fate of a game. Most of Chinese games running companies act as agents which buy the usufruct from Korean game developer, but the technology of game belong to Korean company. As a main resource of economy, Korean game companies nearly block all technology communication channels, which lead to the serious problems. Such as number of bugs in export game cannot be solved, games cannot be regularly updated. The direct results of this for China market are losing of online players and Chinese operators companies’ negative profits. Some of operators companies choose free game in order to keep number of customers and avoid real money losing cased by game bugs.
Many similar content game appear
In China online game market, several new games begin to test the beta version game or open test version every month. However, the content of online games are similar which are fantasy or community. The lack of the characteristic has become a big issue for game running companies. Without the characteristic, and the content of game are similar, the free charge has become the only way to attract customers’ interest. In the serious competition, it is believed that the free strategy many be the only effective way to keep customers for small online game operators companies.
Impact of new games (Wow)
It is undoubted that WoW (World of Warcraft) successfully lands at China market and share the huge profits. The impact of new games must cause losing of other old online game’s customers. Normally, there is 3 or 4 new game released every month.
Losing online players
Basically, after the game company begin to running game formally, which means start to charge players’ money, the number of players will sharply decrease. Free game model increases the basic number of players who have chance to enjoy the free online game. Also, it is a very effective artifice to keep players online and prevent the lost of players. Meanwhile, as a result of increase of number of basic players, the potential paying game players also will arise. In China, there are about 5-7 online games are published each month, and nearly hundred of online games, such as “Knight II”, “the World of Legend”, “Adventure island” all claimed that games are free for life. 4Some online game open several free servers for players in order keep players concentrate on game without money regard.
Against private server
Private server means to set up illegal game server without permission of lawfulness authorizing or game developers. Normally, the private server has the similar setting up with legal server; however, for increase the delight of game, some private severs can modify some options, such more experience, more gold, in order to attract more players. The private server always appears with charge of legal game server. The main reasons of build a private server is to attract players who want to play game without any charge. Sometimes, the outlay for advertisement also brings profits for private server running company. Of course, the private server is against the intellectual property; nevertheless, there are still many private severs published in China. (Wow, The World of Legend all have private server download website) Free game policy blocks the split stream from private servers, effectively strikes illegal private server and protects game companies’ valuable customer resource.
4. New Direction
With rise of competition of china online game market, game running companies have to make their correct decision or gambling to adapt the changes. Free charge model as new attempt in the virtual economy has been used in many companies; also many new ways to obtain profits from free model game have been introduced.
Profits from extra serves
Charge money from extra serve is one of method to keep game companies running. The operators offer extra serves to customers such as selling virtual special item, start special activities. For example, in <re xue jiang hu>, company actually sell two kind of virtual items to customer. One is consumptive items which customers have to purchase; however, these items normally are very cheap. Another one is fixedness items which customers do not change regularly. Such as virtual sword or armour are fixedness items. Furthermore, in another free online game < The World of Legend >, an activity named “ robbing prison “ is using this kind of charge model. Through giving players more chances to obtain rare items, the activity stimulate customers to join in not free actions of free game.
According to Shanda Reports First Quarter 2006 Financial Results, From Shanda claimed their MMORPGs are free, average concurrent users for Shanda's MMORPGs in commercial service increased to 724,000 in the second quarter of 2006 from 706,000 in the first quarter of 2006. At the same time, revenues from MMORPGs in the first quarter of 2006 decreased 32.0% year-over-year and 2.4% quarter-over-quarter to RMB225.2 million (US$28.1 million).5 This report displays the decrease profits of the first quarter after Shanda start their new charge model. However, the in the second quarter, the revenues from MMORPGs of 2006 increased 35.3% quarter-over-quarter to RMB304.7 million (US$38.1 million). The sequential growth in MMOPRG revenues is primarily due to increased revenues from Mir II and Woool as a result of releasing new expansion packs as well as more in-game virtual items and value added service.6 Shanda used new charge model to successfully promote the increase of number concurrent users and leaded to the revenues increase.
It is unproved whether this kind of charge model is effective; however, under the enormous market pressure, most game operator companies have to take risks to transfer their business model.
Profits from Virtual AD
Chinese game operators struggle for finding channel of earning money. Not only extra serves, it is also available to put advertisements in to virtual world in order to obtain income. Meanwhile, using brand to name special activities is another way to increase income. Some operators companies have start-up this project. T2CN Information Technology (an online game operator company) claimed that Coca-Cola Company has sign a one-year advertisement contract that cost 100,000,000 Yuan. In the following year, Coca-Cola Company has right to display brand advertisement in <free style>, which is an online basketball game. 7
Profits from Circumjacent Productions
It is believed that the online game industry not only can obtain benefits from virtual world, the game’s circumjacent productions also can bring fortune to game running companies. For example, in the football markets, business is not just tickets profits, the football shirt, football star’s poster, toy, collection; all of these are also a significant market. So the online game companies should not just focus on the virtual world, the game related books, game character models, clothes, even collection cards can recover losses of free game. From 2004, the Chinese companies start to realize this kind of trend. At before, most of productions are present with game in China online game industry, this market has not been regarded enough. However, this market start been exploited by game running companies. For example, Shanda published a book named “the world of legend’s official directory” in 2002; the book had been reprinted 3 times, and the totally number reached more than 300,000,000. On May 28, 2003, the first online game series postage stamps in Chinese postal service history, The World of Legend, had been published. The price of these limited number stamps increase sharply from real price ￥98 to ￥180; the highest price reached ￥300(nearly £20).8 It is proved that the exploitation of online game’s circumjacent productions could be another profits increasing point for Chinese free game running companies.
Share income with ISP Company
Because the online games have to keep players online, the ISP Company gain number of benefits from online game industry. So it is possible way that ISP Companies share the profits with online game companies.
5. Conclusion
Online game market still can create huge money for many game companies; however, impact of new business model forces them to adjust their strategy. Free model is a production of market competitions and its appearance effectively restrains disserves of using illegal software and private severs. It also creates more changes to increase online game market and attract more customers to join in this industry. It is reasonable believed that in the near future some huge companies will control the most of market, and the other market will be shared by free online game; however, more charge models or strategies will be attempted to transform to free online game model. With the improvement of free game model and creation of more profits increasing points, this new model will become the main stream in the future market because of its advantages.
Reference:
1.http://zh.wikipedia.org/w/index.php?title=%E7%A7%81%E4%BA%BA%E4%BC%BA%E6%9C%8D%E5%99%A8&oldid=2554869, viewed at 2006-12-6
2. http://www.snda.com/en/about/history.htm, viewed at 2006-12-6
3. China Online Game Industry Report 2005-2006, http://www.researchinchina.com/report/CyberEconomy/1944.html, viewed at 2006-12-06
4. http://games.sina.com.cn/info/netgames/gratis/1.shtml, viewed at 2006-12-6
5. http://www.snda.com/en/news/news.jsp?id=349, viewed at 2006-12-6
6. http://www.snda.com/en/news/news.jsp?id=368, viewed at 2006-12-6
7. Manager Daily Newspaper, www.cnki.net, published at 2006-3-28, page A04, view at 2006-12-7
8. http://news.xinhuanet.com/newmedia/2004-10/22/content_2126404.htm, published at 2004-10-22 16:05:12, viewed at 2006-12-14