2004 Web and Downloadable Games White Paper 

IGDA Online Games SIG 

II.  Market Overview 

A. 

Introduction 

Online games continued to be a major form of entertainment in 2003. It was a year of growth, maturity 

and change for this nascent segment of the game industry. There was dramatic growth in the amount of 

content available to consumers, with the number and variety of games on the major game portals 

increasing significantly from last year. The biggest growth came from the increase in downloadable game 

offerings and skill based gaming. 

While our March 2003 Online Games White Paper identified downloadable games as an  interesting new 

development  there can be no doubt that these products came into their own as a major source of 

revenue for publishers and developers in the ensuing year. First championed on the web by sites such as 

Real Networks' RealArcade, Shockwave.com, Yahoo! Games, Pogo, and Microsoft 

s MSN Zone, other 

online publishers quickly followed and today the vast majority of online game publishers carry 

downloadable games as part of their offerings. 

With this growth the segment began a new phase in its evolution. While online game sites historically 

have struggled with their business models, depending on the volatile advertising market for the majority of 

their revenue, downloadable game sales, cash competition and new subscription models emerged to 

bring strong additional revenue streams. The smart online publishers have trimmed their staff, focused 

their marketing spending and are able to finally make a profit from games. 

Another part of this growth has been the emergence of technology and services leadership in the space. 

Transaction providers such as TryMedia

, game developers such as PopCap

 and GameHouse

 and 

cash competition providers such as WorldWinner

 and Game Universe

 have emerged to provide 

services across most of the major players in the industry. The strength of these dominant players has 

created a nearly homogenous offering   for better or for worse. 

Much of the content has evolved as well. While puzzle and card games and standards such as Mah Jong 

Solitaire are still the dominant genres, simulation and light action have begun to gain some traction.  

With the increased opportunity came increased competition for the game developer. It is estimated that 

there are over 200 companies developing web and downloadable games worldwide. Major publishers 

report a desire to work directly with only a handful of developers while small downloadable game sites 

spring up almost daily and number in the hundreds. The low hanging fruit appears to have been taken 

and the web and downloadable game segment seems poised for merely double digit growth for the short 

term and possibly significant consolidation, hallmarked by the recent acquisition of GameHouse by 

RealNetworks. 

1. 

Asian Overview 

The Asia Pacific online gaming story continued to gain mass market acceptance and momentum in 2003, 

particularly with massively multiplayer games (MMPs) and web based casual games, where in both cases 

software piracy is a non issue. 

South Korea thus far has demonstrated the fastest growth based on proven and scalable profit models, 

with over a dozen major online game developers / publishers domestically producing revenues in excess 

of $50MM USD and net profit margins of between 30 40%. This has been driven by the highest 

broadband penetration rates in the world, with over 73% of households with multimegabit access

1

 and PC 

cafes on nearly every street corner. 

China in 2003 has emerged as a serious online gaming market. Driving this growth is a market of 56.6 

Million Internet users as of April 2002, and expectations of reaching 80 to 90 Million by 2005.

2

 China also 

has over 40,000 PC cafes nationwide, mirroring the South Korean Internet phenomenon in the late 

1990s. Out of fourteen hours per month spent online, the average Chinese Internet user spends eight 

1

 http://www.forbes.com/2003/08/27/cz_0827soapbox.html 

2

 http://it.asia1.com.sg/newsarchive/04/news001_20020424.html 

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