Has Web Based Gaming Surpassed Boxed Retail Gaming?

The game industry has been wedded to the boxed cardboard and plastic retail game product for over 20 years, to the point that many people think that this is the industry. Everybody also knows that web gaming is growing and will be important in the future. But this is not the reality. The reality is that web based gaming is already bigger in terms of number of players and hours played. That advantage is increasing at a phenomenal rate. Boxed games will soon be insignificant in comparison. Here are some of the numbers.

• Steam by Valve. This online gaming content delivery (and much more) service had 15 million members at the last count. It has grown at a phenomenal rate since 2002 and is headed towards being the main distribution model for PC games. Any PC publisher not using it is being very remiss.
• World of Warcraft has over 10 million subscribers. This must make it a bigger earner than any other gaming brand. Very few boxed brands have reached this number of players and they don’t have the regular monthly income of an MMO.
• Habbo Hotel has over 86 million avatars with 75,000 new ones created every day. This is a brilliantly successful business model, and it is not the only one. MapleStory has over 50 million players and Runescape over 9 million.
• Microsoft’s (MSFT) Xbox Live has over 10 million members and offers them an ever increasing range of facilities. Sony (SNE) and Nintendo (NTDOY.PK) are also rapidly ramping up their online offerings. All three platform holders have found that online is vastly more popular that their most optimistic predictions. All three are in a position to move to an online only business model.
• Pogo is one of a huge myriad of casual gaming portals. It is one of the top ten websites in the USA in terms of time spent on it and it has an average of well over 2 million visitors per day.
• FaceBook has more than 64 million active users. Games are an increasing feature of this site with successes like Zombies and Scrabulous. MySpace has over 300 million accounts and has followed FaceBook in opening itself up to gaming.

These numbers are simply staggering and are a reflection of the huge business advantages of online games.

• No piracy. This is incredibly important. People will steal games instead of paying for them. This has killed the PSP as a platform to develop for and has destroyed PC boxed games. It could just as easily invalidate the business model of any console that relies on boxed games.
• Instant distribution. When you launch a new game it is available straight away worldwide.
• Far lower costs. No manufacturing or distribution costs. No retailer’s margin. At a given price point your earnings can easily be double.
• Servicing niches. A boxed game has to be mainstream to get shelf space, this holds back innovation. Online you can try anything and reach your customers worldwide with it.
• No publisher advantages of scale. Conventional product favours massive global publishers as has been proved by music and film. Online removes these advantages of size. Small publishers can enter the market and thrive.
• Long sales window. Traditional boxed games can stay on a retailer’s shelf for just a matter of weeks. Online games can continue to generate revenue for years. This makes niche products far more viable.
• Added power of online marketing. All anyone has to do is click your marketing and they can buy your game without leaving their seat. If they want to buy a boxed game they have to make a trip to a retailer or wait for Amazon (AMZN) to deliver, both of which are obstacles to purchase.

So if I were investing in games just now you can see where my money would be going.