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Item Model: The Future Online Business Model? Yes.

Erik Bethke CEO GoPets, Ltd. Seoul, Korea www.gopets.net erik@gopets.net. Item Model: The Future Online Business Model? Yes. Overview. Korea the Front line in the Business Models Time line of Business Models Inefficiencies of the Packaged Goods Model

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Item Model: The Future Online Business Model? Yes.

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  1. Erik Bethke CEO GoPets, Ltd. Seoul, Korea www.gopets.net erik@gopets.net Item Model: The Future Online Business Model?Yes.

  2. Overview • Korea the Front line in the Business Models • Time line of Business Models • Inefficiencies of the Packaged Goods Model • Subscriptions Solve most Problems of the Packaged Goods Model • Advantages of the Item Model • Types of Items • Fairness, Gameplay, Communism and Capitalism • GoPets Premium Subscription

  3. Korea: The Battlefront • Due to piracy packaged goods model died out circa 1997 • Large North American publishers still put up sales offices from time to time and make noise about combating piracy • Blizzard and a few other special titles make some sales – never in ratio to the hit levels if it were to be sold in a low piracy territory like Japan or the USA

  4. First Generation Korean MMOs 1997 - 2000 • NC Soft – Lineage I • Nexon – Param e Nara • PC Cafe IP-based sales, very low end-consumer payment collection

  5. Rise of Casual Content 2000 – 2003 • NetMarble – Multiplayer Parlor & Arcade Games • Hangame – Multiplayer Card Games • Cyworld is launched – online community • 3D MMOs become crowded with Lineage and MU clones • Prepaid Cards begin to become important

  6. Advanced Casual Games 2004 - Current • Nexon's Kartrider – definition of the category • Pangya Golf • Freestyle Basketball • Now these games command the highest attention from the rest of APAC for licensing • Mobile Payment, bank wire, landlines – Payments are now fully commoditized, cheap and convenient for content providers and consumers

  7. Rippling Ponds • Taiwan – 18 months behind • Philippines – 18 months • China – 2 years behind • Thailand – 2-3 years behind • Japan – 5+ years • USA – 5+ years • All Territories Catching up Fast

  8. Kartrider Pangya Freestyle Developer Nexon Ntreev soft JC Entertainment Publisher Nexon (GSP) Hanbitsoft (GSP) KTH-Paran (Portal) Platform PC-Online/Mobile PC-Online/Mobile PC-Online Release Date 2Q, 2004 1Q, 2004 1Q, 2005 Av. User Age 13~18 yrs old (Children) 15~25yrs old (50% Female) 13~25yrs old (Male dominant) Paid User Group Over 20 yrs old Over 20 yrs. Old Over 20 yrs. Old Types of Payments PPC, CC, Mobile, Phonebill PPC, CC, Mobile, Phonebill PPC, CC, Mobile, Phonebill # of Members (Korea Only) 14,500,000 (As of 2Q2005) 4,000,000 (As of 3Q2005) N/A (Paran is 4th Portal) Concurrent Users (Korea Only) 120,000~150,000 20,000~30,000 50,000~80,000 Average Monthly Revenue (Korea Only) 40uk~50uk ($3.7M~$4.7M) 8uk~10uk ($750K~$950K) 15uk~24uk ($1.3M~$2.2M) Revenue Model Item Sales/ PC Café Premium Item Sales/ PC Café Premium Item Sales/ PC Café Premium Servicing Countries Korea Korea, Japan, Thailand, Taiwan, Philippines, China, Indonesia, US, Canada, Brazil Korea

  9. Inefficiencies of Packaged Goods • Retail markup • Shelf space limitations • Physical Cost of Goods • Inventory and transportation management • Cartel-like distribution bottlenecks • High price point puts off consumers • Propriety formats • Sales tax • Loss of connection between content creator and content consumer • Lack of a free play experience

  10. Advantages of Packaged Goods • Expensive to market • Expensive to distribute • Shelf space only to the top 10 or top 5 titles • In short, if you are the monster publisher with the monster licenses, you like the packaged goods model • Only long-term piracy as seen in the music and PC game categories will kill your business – as true in most countries

  11. Subscription Model • Allows for Electronic Distribution • Retail package for axillary sales • Neatly solves piracy (note: pirate servers) • Allows limited demo experience • Enjoy pre-payment of services from your customers • Organization thinks like a service company not like a goods company • Perfect right?

  12. War on Money Korea: 2003 - 2004 • Dozens and dozens of 3D MMORPGs from Western Fantasy to Eastern Fantasy to Cartoon styled, female and/or children's focused • Classic Over Supply • Prices → zero → Free! • Open Beta periods were extended from 2 months to 4 months, to 6 months to a year!

  13. Birth of the Item Model • Play my 3D MMO for Free! • Forever Free! • Well not really... • (instant reincarnation only $2) • (swords that actually do damage only $5) • (spiffy armor $6)

  14. Advantages of the Item Model • Invisible transition from beta to commercial • Eliminates the Beta Tribe phenomena of users fleeing en mass from one open beta to the next as companies pitifully attempt to monetize their investment • Allows users to gracefully transition from freeloader to nibbler to active consumer to great fat happy customer!

  15. Types of Items • Appearance Changing • Gameplay Effective • Permanent • Consumable • Rarity • Least valuable: Common Temporary Appearance • Most Valuable: Unique Permanent Gameplay

  16. That's not Fair! • Item model allows users to have differentiated play advantages based on their individual spending patterns • Last time we saw this big time in the USA was Magic the Gathering! (groan or cheers?) • Sony is inching their way in • MUD-Dev quote from a whiner

  17. Communism vs. Capitalism • Traditionally in sports it is okay to buy better equipment • Traditionally in games you should compete on skill, luck, or time – not money for some reason • MMOs are not really games – they are worlds • The 20th century consumed say 60 million people to establish that Communism does not work in the real world – nor does it work in online worlds

  18. Premium Subscriptions • What!? I thought you said subscriptions suck? • Allows for a differentiated level of services to further help your users feel a sense of status and recognition • Robust and flexible services will slice up the offerings to best suit the tastes of various markets

  19. GoPets Premium Subscriptions • Bonus Gold Shells at Purchase • Bonus Gold Shells during the term for additional gold shells • Limited Edition super item never for sale in our stores, never to be duplicated (usually sells for $25+ • User Customizable Texture Tool • Ring-tone like sound triggers for your pets • Premium Subscription supports further Item Sales

  20. Why did I talk about this? • Big NA console publishers – not listening to the beat of future drums – they will get smashed by open format online games • The fairness (righteous) independent game developers that are in it for the love of creation will vilify the crass monetization of significant gameplay actions • Only people that will appreciate will be shrewed new competition for GoPets in the advanced casual game space ;-)

  21. Hey great, I believe! • So how long will it take for me to turn my online subscription game into an item-based game? • Creating item-based games requires higher skill in game balance and needs to be built directly from the beginning

  22. Homework • What is the next business model in the Korean Online space? • If you turn in your homework early you will get a bonus

  23. Thank you! Thank you! Questions? Contact: erik@gopets.net

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