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6 Reasons Why Activision Blizzard Will Beat Zynga & Electronic Arts

May 03, 2012

Screen shot 2012-04-18 at 9.47.23 AMby Chris Holt, Marketing

 

Call of Duty. Starcraft. World of Warcraft. Prototype. These are some of the biggest gaming franchises out there, and they are all under the umbrella of mega-game publisher Activision Blizzard. Arguably one of the largest traditional gaming publishers left, Activision Blizzard owns the rights to many sought after properties, offers games across virtually every platform (mobile, console, and computer) and might be in the best position to move its products towards a new business model. Already, the company has begun to experiment with new revenue streams through in-app purchases and subscription models.

For the next generation of game developers, monetizing relationships with players over time will be the key. It’s no longer going to be about how many games you’ll ship, but how many customers you have. So the companies that best understand their customer and create the best relationship are the ones that will monetize those relationships the most successfully. Blizzard-05-03 at 1.55.35 PM

Despite fierce competition from traditional powers like Electronic Arts and upstart companies like Zynga, Activision Blizzard may be the company that wins out in the next generation of gaming.

1) Early Adopters of Subscriptions

Compared to many of their competitors, Activision Blizzard caught onto the importance of subscriptions early on. They broke through into the Massive Multiplayer Online (MMO) genre in the early 2000s, far before the term “social game” became popularized. Everyone else has been playing catch-up since.

And if you think that Activision Blizzard didn’t learn a thing or two about customer relationships, flexibility, and monetization through these experiences, think again: World of Warcraft has been the top of the MMO heap for nearly 8 years. The game has gone from a simple subscription model ($15 a month) to offering additional revenue streams such as in-app purchases.

2) The Most Profitable Subscription Game is Activision Blizzard’s

World of Warcraft has 10.2 million subscribers as of December 2011, a world record. In April of 2008, World of Warcraft was rumored to hold 62% of the MMO market. To say that World of Warcraft is a colossus is a bit of an understatement. Published by Blizzard, WoW wasn’t just a groundbreaking game achievement, but a groundbreaking business achievement. Like many MMO games, WoW is subscription based. But with multiple pricing tiers and now a freemium model to draw in new customers, WoW is often cited as the future of video game monetization.

While WoW’s monthly-subscriber base has declined (many point to its height at 12 million and its recent low at around 10), its impact on the industry hasn’t waned. Many, many massively-multiplayer online role-playing games (MMORPGs) have sought to replicate WoW’s success since the game’s 2004 launch partly because people recognize the potential of its business model for future successes. Blizzard is able to lock in revenue every month, has a vibrant and vocal community, and a huge database of knowledge of its customers. With this information, Activision Blizzard is better equipped than any of its competitors to replicate its success with future offerings.

3) Activision Blizzard’s Games are Built for Longer Life Cycles

In order to have a recurring revenue, you need a product or service that players will want to return to time and time again. The issue that casual games run into is one of depth: since the gameplay experiences are shallow, the lifecycle of a game is ultimately short. That’s not a problem for games like Call of Duty: Modern Warfare 3 and Starcraft II which take hours to complete their single player campaign and have an even longer lifecycle thanks to their multiplayer components which are then constantly updated with downloadable content.

True, very few of Activision Blizzard’s games are built for subscriptions or in-app purchases. But they are built for longer play sessions and longer life cycles. With this content, it’s all a matter of monetizing the continued relationship with the player.

4) Refined Sales Cycle

One issue that nearly every business insider highlighted in their dissection of Zynga’s failings: Zynga didn’t create enough new games last year. Activision Blizzard doesn’t have that problem. One advantage of being part of the “old guard” is that you get accustomed to churning out titles on a regular basis despite delays, budget issues, and other development problems. You can count on Activision Blizzard putting out a headline-grabbing, million plus seller first person shooter every Fall. You can set your watch to Holiday releases, announcements at E3, and early fall launches. These are standards of the “core” industry, and while new competition from places like Zynga have challenged them on many fronts, understanding the development cycle is something that Activision Blizzard, Electronic Arts, and others simply know better. Zynga and casual developers may have shorter development cycles, but so far they’ve mastered their calendars the same way the old guard has.

5) Call of Duty, Other AAA Titles Can Be Further Monetized

The Call of Duty franchise are some of the biggest money makers in entertainment media. Every title has topped the previous; Modern Warfare 3 had sales in excess of 6.5 million copies on launch day alone and grossed $400 million in the US and UK alone in its first 24 hours... making it the biggest entertainment launch of all time. Millions of people bought pre-sales or premium offerings. And this is only one game in Activision Blizzard’s quiver.

Activision Blizzard has the benefit of owning some of gaming’s biggest names. And while most of its revenue comes from a single-purchase approach to business, Activision Blizzard has already begun to convert some of its most popular multiplayer games to subscriptions and in-app purchases. By locking in customers for longer commitments and monetizing their services, Activision Blizzard is moving to more flexibly react to customer demands with downloadable content (DLC), updates, and fixes. The best example of this is Call of Duty: Elite, a paid annual subscription with DLC available to the most dedicated of Modern Warfare 3 players. Activision Blizzard has stated that 7 million people have signed up for the service and there are 1.5 million paying subscribers as of February 2012. We’ll likely see more programs monetizing dedicated fans of certain games in the future. CoD: Elite is only the beginning.

6) Project Titan

While World of Warcraft is on the decline and many other MMOs have sought, somewhat successfully, to replicate WoW’s monetization strategy, that doesn’t mean Activision Blizzard will be left out in the cold in a few years. Long rumored Project Titan is in development and about the only thing we have confirmed about it is that it’s supposed to be a next generation MMO. Rumors have swirled about it being free to play, being more casual-focused, and even whether it’s a continuation of another Blizzard franchise (likely Starcraft). All of these rumors could be so much hot air, but when Blizzard puts out a new game, you’re automatically looking at a blockbuster. Virtually all of Blizzard’s franchises are big players in the market, and so far they’re one of the only developers capable of creating compelling subscription-based best-selling games.

If there’s ever a game that might actually be the “next World of Warcraft,” it’s likely Project Titan.

 

[To see our discussion on Zynga's future, check out our previous posts.]

 

Comments

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Joey N

Chris-
I think this is a good analysis of the advantage(s) Activation Blizzard has over Zynga and EA. Their business model certainly appears to be a more sustainable and mature. However, I believe this piece is very "as things are now". Flush with post IPO cash Zynga is more of a wildcard, I could see them going in a variety of different directions in the coming years that could disrupt their current stance in the gaming market. I think one such direction that must be considered is Zynga's interest in online gambling. There is no secret they are interested in gambling, CEO Mark Pincus has been quoted numerous times declaring such interest, a quick Google search will reveal dozens of articles.

I think in this post black Friday era, leaving a huge void in the (poker) market, as well as the notion that many state's and local governments are looking for new revenue streams to ease ballooning deficits, online gambling could be on the front burner very very soon. If Zynga were to explore various M&A's, and they have the cash, that could position themselves as a leader, ready to capture the typical endless stream of capital associated with online gambling (servers on, revenue on). While I realize there are several steps before we see legal online gambling, at least in the United States, it wouldn't shock me at all to see Zynga a few years down the line dwarf Activision Blizzard in revenue if their interest in gambling, both foreign and domestic, is sincere.

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These reasons are considerable enough to justify what Blizzars can beat Zynga & Electronic Arts.

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And yes, don’t worry, there’s always wine. And more wine. And of course there are LOTS of choices for wine by subscription, including: New York Times Wine Club, Wine of the Month Club and the Amazing Wine Club just to name a few

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