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| By Hanna Hurley |
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| December, 2002 |
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Major operators are overhauling their game
selections, replacing the old guard of Snake and Memory with a pack
of new casino, action, adventure and sport entertainment packages.
Operators recognize that people want to do more than talk on their
phone.
“Our consumers have spare time at the bus stop, in
between meetings, in the bank line, or before a movie starts,” says
Jeff Hallock, senior director of marketing in Sprint PCS’ consumer
business division. “They see a game as a way to kill five minutes or
more a couple of times a day.”
Forecasts from In-Stat/MDR put
the worldwide value of online mobile gaming at $2.8 billion by 2006.
Analysts also see this audience mushrooming. DataMonitor predicts
that the worldwide gaming population will grow from the current 157
million players to 500 million by 2006, and that revenue from these
gamers by then will reach $17.5 billion.
With this type of
revenue on the horizon, what is slowing down the deployment of games
to consumer launch pads? According to game developers, billing
systems aren’t the only obstacle; they tick off a long list of
culprits, including slow handset rollouts, minimal revenue sharing
incentives and haphazard procedures for quality assurance
testing.
Paying to Play
For the game developers, the
operator’s billing system is not a major sticking point. “We have
complete confidence that carriers will handle billing,” says Mark
Weber, executive vice president at gaming company PaletSoft. “They
have been doing billing for years. They’re experts.”
Weber
regards his experience with Nextel’s billing system as “ideal.”
PaletSoft set the price point, and Nextel sent a regular check with
a statement outlining the transactions. PaletSoft could also access
reports to get updates on the number of games
downloaded.
Frederick Ghahramani, managing director at Air
Games Wireless, agrees that operators have made incredible
improvements to their billing systems. “Two years ago, there was
lots of discussion about inflexible systems,” he says, “but now the
carriers are up to speed.”
For the game developers, who just
want a simple check at the end of the month, shared revenue based on
downloads is better than they ever expected.
But QPass, which
counts Cingular and AT&T Wireless as its customers, sees a much
different picture. “Carriers are facing the issues of real-time
billing, as well as a much larger product offering from thousands of
content providers,” says Tom Trinneer, vice president of products.
“Thousands of content providers and products must be mapped to the
subscribers. It’s unlike anything the operators have ever
faced.”
Another major billing factor is the development
language. BREW and J2ME, the two most popular gaming platforms, take
different approaches to billing. “BREW does billing extremely well,”
says Brian Levin, president at Mobiliss. “J2ME is getting
there.”
BREW uses an end-to-end model. Qualcomm, the
platform’s developer, sits in the middle between the application
developer and the carrier and takes a certain percentage of the
price charged for the game. The game developer negotiates a
“wholesale” price with Qualcomm, and the carrier is free to charge
any “retail” price to its users.
Under J2ME the carrier
negotiates directly with application developers on pricing and
revenue sharing for an application. Since no entity like Qualcomm
provides financial settlement and reporting, the carrier must handle
those activities itself.
With this exceptionally different
service that has so many variables, the bigger off-the-shelf billing
companies are having difficulty breaking into the market. Air Games’
Ghahramani says that among his operator partners, in-house billing
systems have been more successful. Access Systems America, which
offers a content subscription server for wireless operators, claims
that many of the off-the-shelf offerings are too powerful. “Billing
for online content is a straightforward process,” says Chung Liu,
CTO and vice president of engineering. “These products are
overkill.”
Billing Model Basics for Online
Gaming
Today most gamers play single-player, arcade-style,
non-traffic-generating games priced from free to up to $15 per
download. This model is easy for consumers to understand and simple
to bill, which is the key to making mobile gaming a
success.
Ghahramani contends that DoCoMo’s i-Mode is a poor
example for North American carriers because it’s complicated.
Although appropriate for Japan, it cannot be replicated in the
United States because premium service offerings are too costly for
the consumer and too expensive for operators to implement. The high
costs of implementing the system, communicating the logistics to the
end user and deploying content within the system are impossible to
recoup, given the low user volume on this model, explains
Ghahramani.
“You don’t want to make a subscriber work to play
a game,” he says. “We want something that generates revenue simply
and users can provision easily. We turn away partnership
opportunities when the operator won’t adopt a simple model. We can
predict that the offering will fail.”
When reviewing billing
models with operators, Air Games insists that the operators stick to
four fundamentals: simplicity, transparency, scalability and
profitability for both parties.
Jamdat, a leading aggregator
of mobile games, and others in the mobile community have adopted the
vending machine as an archetype for presenting consumers with online
options. They want to translate the user’s known, familiar vending
machine buying experience to the mobile world.
“When a
consumer walks up to a vending machine, he quickly notes the price
of each item offered and can easily purchase his goods. These tenets
must pass to the wireless world,” explains Tom Ellsworth, executive
vice president of marketing and corporate development at Jamdat.
“Nomenclature and pricing rules need to be clear, and the prices
must be easy for the consumer to understand and compute. We can’t
try to change consumer behavior.”
Ghahramani says the second
fundamental rule, transparency, means that a service provider has a
standard, universal business deal with all its content partners.
Current behind-the-door negotiations, where the operators cut
separate deals with each game developer, are unhealthy for the
industry, he says. “We need to build an environment where everyone
is getting the same cuts, and only the best applications survive,”
he says.
In general, the game developers claim that each
negotiation with a carrier has unique features, but the deals
include standard cuts of gross receipts. Just as in other content
deals, game developers typically take 70 percent to 80 percent of
the game’s gross.
While these initial revenue shares may
favor the game developers, some operators whittle those numbers down
with additional fees. In PaletSoft’s early experience with Nextel,
storage fees, billing costs and surcharges brought down the game
company’s take-home pay closer to 45 percent to 50 percent of
gross.
“We expected the support costs to be minimal,” says
PaletSoft’s Weber. “We were naďve. Now we have lawyers that know how
to read the fine print.”
In terms of the third rule of thumb,
scalability, Ghahramani says operators must outline how many
applications they want to offer and include a scalable billing model
that will grow from zero customers to 1 million. Some operators are
slowly adding new games to their portfolio. Others have been tasked
to find 10,000 games by 2003. Billing the games as premium services
or charging for transport will depend on the size and scope of the
subscriber base.
“Each operator will make decisions based on
the metrics of its installed base. Successful operators will have a
knowledge group that will create a cohesive data content vision,”
says Ghahramani.
For Liu at Access, scalability is a key to
ensuring mobile gaming’s future success. His company discourages
operators from adopting a vending machine model because of
scalability issues.
According to Liu, the vending machine
becomes a bottleneck because the operator’s IT group must first test
and then upload all the games, ring tones and other content.
“Working with 20 to 30 content providers overwhelms the IT staff,”
he explains. “Operators need a third party that hosts the content
and manages nonrepudiation transparently.”
And Ghahramani’s
fourth suggestion, that both partners must align their revenue
plans, may trigger the most contention. Game developers explain the
concept succinctly: operators will generate revenue only if the
games are successful. If the operators define a plan to share the
revenue based on performance, both partners will be
successful.
In today’s current model, however, where
operators refuse to share transport fees, game developers have no
incentive to create games that increase traffic. “If the operators
only share the premium costs, but not the transport, we won’t create
applications that drive transport,” says Ghahramani.
Forget
About the Minutes: Revenue Alternatives
For the operators,
the “share the minutes” argument is old and tired. “Transport is
ours to keep,” says Sprint PCS’ Hallock. Patient game developers,
such as Greg Costikyan, who has been designing games and consulting
for the last 20 years, expect that this attitude will change within
two years.
Instead of waiting for a new mindset,
forward-looking companies are suggesting alternatives that will
increase game developers’ revenue without tapping into the
operators’ minutes. And since the developers and operators have such
a symbiotic relationship, these alternatives would also benefit
operators.
“Game developers need to look for new sources of
revenue, such as viral sharing,” says Liu at Access. “They need to
enable revenue streams that are completely separate from the service
provider.”
Today, gamers can’t share the application because
of copyright problems. Viral proliferation—point-to-point
distribution, where one friend forwards the game to two friends, who
each forward the game to two more friends, and so on—can’t
occur.
To open up this type of grassroots growth, Access is
developing digital rights management (DRM) tools that will allow
players to share games. “Adding DRM could enable new business models
that move a game’s price point from $5 to $90,” says Liu. (For more,
see “DRM: Balancing Usability with Security,” Billing World &
OSS Today, October 2002.)
Inciting players is another
suggestion for building revenue. For example, if a player shares a
game with five friends and two buddies purchased the games, the
original owner would receive two tokens good for a discount toward a
new game. Or, in the case of multiplayer games, a player could
invite a friend to play and offer to pay for the friend’s
session.
Rewarding the player with free minutes could be
another incentive. If a pal introduces a friend to a new game, the
original game player may get free minutes added to his bucket. “We
need to introduce the value of playing a game and get away from
looking at a network event consuming a megabyte,” says Trinneer at
QPass. “We need to give incentives for users to play with friends
and disassociate the minutes of game play. The industry needs to
think about the activity rather than the network events that
transpired.”
Answering $64,000 Questions
Like all
burgeoning markets, mobile gaming is abuzz with controversy. On the
development platform front, J2ME has a considerable advantage based
simply on the legions of Java developers in the market. BREW, on the
other hand, requires C++ programmers, a decidedly smaller pool.
Symbian, which has limited availability in the United States, will
not be a factor for many more months.
Both J2ME and BREW
still have limitations. Developers are comfortable using J2ME, but
it prevents basic gaming activity. For example, developers can’t
create spaceships that turn and shoot at the same time. BREW allows
developers to be more creative, but some game developers report that
it’s a difficult work environment.
The good news, according
to long-time developer Costikyan, is that the technologies are
similar enough so that game developers can port a game developed in
BREW to J2ME, or vice versa. Companies like Jamdat are adept at
creating games that cross both platforms.
PaletSoft’s Weber
claims that the industry has room for all platforms. “J2ME, BREW and
Symbian will co-exist, but break into niches,” he predicts.
“Low-cost, mass market, quick-and-dirty games will be created in
J2ME. Flashier, more sophisticated games will be in BREW, and
higher-end business applications will come over Symbian.”
On
the single-player vs. multiplayer front, gamers may not see real
multiplayer games for many months. Business models and technical
concerns are keeping these games from the consumer. On the business
side, developers are reluctant to create multiplayer games until
operators agree to share transport costs.
If mobile gaming
becomes popular and operators incite developers to create
multiplayer games, the partners will have to solve some technical
issues. Network latency is a serious problem for developers testing
multiplayer games. “We can’t maintain a solid data connection,” says
Weber. “You can’t play these games without that.”
Costikyan
agrees. “If you compare multiplayer games over the wired Internet,
you can see the problem quickly. In the wired environment, gamers’
ping times are between 100 and 200 milliseconds,” he explains. “If
you move to a wireless network, the ping time grows to seconds, not
milliseconds. This time lapse makes a whole set of games not
feasible in the mobile environment. None of carriers are working on
latency, though.”
Wireless bandwidth limitations are not a
concern at this point. As Sprint PCS’ Hallock says, traffic
bottlenecks would be a nice problem to have. When PaletSoft first
began developing mobile games, it optimistically created tools to
throttle traffic and slow down the system. To date, though,
excessive traffic hasn’t been a problem. Instead, the company is
trying to speed interaction through compression and preventing lost
packets.
Even with these concerns, Hallock foresees
multiplayer games in the future. “Consumers want to connect to play
head-to-head events and mystery games,” he says. “The capability
exists, but to date people are just learning their way around the
games. For now, simpler is better.”
Many game developers are
distressed that operators are refusing to work with the smaller
development houses and pushing for market consolidation.
“I
understand why aggregators are easier for carriers, but aggregators
have preconceived notions,” says Weber. “I don’t want to see the
mobile entertainment industry follow the same path as the music
industry. Aggregators stifle creativity and constrain consumer
choices. Unfortunately, I expect we’ll see four to six publishing
houses control 90 percent of the development.”
Whether a
small development house or large aggregator, gaming companies are
being asked to create brand name games. Hallock at Sprint PCS claims
that the known, familiar games are one means to increase consumer
adoption. “People immediately recognize Pac-Man,” he says. “They are
more likely to play something they know. We are interested in
unknown games, but we want to start with branded games.”
With
only a single line of text to promote the game and a small screen, a
recognized brand is an asset for the operators. But obtaining rights
from the intellectual property holder could cost the game developer
up to $250,000, says Weber. A company may gain the rights and put
resources into developing the game, but the operator may decide not
to deploy it. “We need a guarantee that we will make back our
money,” says Weber.
Q/A Testing
With a crowded field
of operators, multiple platform environments and a large pool of
handsets, quality assurance testing is tricky. The entire approval
process can take anywhere from two weeks to two
months.
Overwhelmed by the sheer number of games available,
operators are outsourcing the process to third-party companies, such
as VeriSign, or blindly accepting the game if the application was
approved for another network.
To begin the approval process,
service providers post basic specifications and a list of all
devices for the gaming companies. Sprint PCS provides a set of Java
tools for developers on its Web site. These specifications explain
interaction basics and give guidance on issues such as how to invoke
the vibrator mode, how to add sounds, how the network works and how
to handle incoming calls during a game.
The biggest problem
for the developers, though, is that these specifications are unique
for each operator. “The testing process depends on the application,
the technology and the carrier. Everyone does Q/A differently, and
it requires a lot of resources on our part to optimize the user’s
experience across so many different environments,” says Mobiliss’
Levin. “We need standardization.”
Game developer Costikyan
explains that a game could be designed in Java to run on different
handsets, but if the operator supports a wide range of Nokia
handsets, the developer must add the Nokia API to make the game look
better and run more efficiently. Java also doesn’t auto-scale
graphics, so the game must be compiled to look good on each
handset.
Inconsistent Q/A testing is another problem that
game companies have faced. Games can be turned down for any number
of reasons. Cosmetic concerns, such as whether instructions should
be in all uppercase letters versus initial caps, can send a game
back to the developer. Technical issues, such as how to handle
memory management, can also halt a game from reaching
consumers.
“Certification requirements often change
mid-stream,” explains PaletSoft’s Weber. “Operators outline the
steps that we have to go through, and then they update the steps.
Certification becomes a moving target.”
Operator
certification imposes costs, too. Weber says his company paid $1,400
per game for certification with Nextel. Other certifications range
from $400 to $1,500. “We can spend $2,000 to $5,000 to develop one
application,” he says.
Game Ready
Even though
analysts’ data strongly support mobile gaming’s future, service
providers and game developers must strengthen their partnerships.
For the emerging market to be successful, the two groups must
attempt to understand one another’s business models. Game
developers, for example, must grasp operators’ dependence on ARPU,
which is ever decreasing. And operators must recognize the costs
required to develop a game. Intellectual property rights and
certification programs take a heavy toll on the game companies’
revenue.
Both groups can expect slim profit margins unless
they adjust current billing models and add ways to incite gamers.
Starving the game developers is not in anybody’s best interest. The
operators realize that both partners need to be profitable, but they
encourage prudence in the fledgling market.
“We want mobile
gaming to be a big win for us and the developers,” says Sprint PCS’
Hallock. “When either of us gets too greedy, though, it drives the
price of the content up. We have to balance the costs with what
consumers are willing to pay.”
The developers, in the mean
time, want more access to subscribers and more support. If the
operators can drive subscribers to purchase the new handsets, the
gaming contingent claims, mobile gaming will explode.
“We
have been successful at generating revenue, and we can make the
operators successful,” says Air Games’ Ghahramani. “We just need to
define a simple plan for building the applications for multiple
environments and for sharing revenue based on performance.” |
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