Has Web Based Gaming Surpassed Boxed Retail Gaming?

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Includes: MSFT, NTDOY, SNE
by: Bruce Everiss

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.

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 (NASDAQ: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.