2004 Web and Downloadable Games White Paper 

IGDA Online Games SIG 

with 80% of content (based on the % of registered users) being of Korean origin, and with Korean 

origin games leading in a nascent Japanese online gaming market. 

2003 was important in that it validated the business model of casual mass market gaming with 

sustainable, quarter on quarter revenue and profit growth. Until recently, the South Korean online 

gaming market has focused on large scale MMPs such as 

Lineage

 or 

MU

, but the story changed 

with the mega IPO of NHN (now at over $1b USD valuation) and subsequent stock price run ups 

of Neowiz and Netmarble, the second and third casual game portals in Korea. 

In  past  years  players  such  as  NHN,  Neowiz  and  Netmarble  struggled  to  monetize  large  online 

communities,  and despite past efforts to produce revenues such as advertising, advergaming / 

product placements and paid per usage models, it was the advent of game related avatar and 

item commerce that rescued their businesses. 

How  most  sites  work  in  Korea  is  that  they  give  a  kind  of  cyber  cash  to  players  for  winning  in 

games, which enables users to buy virtual items for themselves such as player avatars, additional 

power  ups  or  item  upgrades.  In  theory,  this  rewards  players  to  play  more  often  to  gain  more 

virtual  currency  and  to  gain  greater  prestige  on  ladders  and  ranking  boards.  In  reality,  most 

people are impatient and do not have the time or skill to continually play online and add to their 

virtual riches. So what casual game players engineered was the option to purchase virtual money 

with small one time payments (around $5). This would allow players with otherwise lower skills or 

playing  time  to  upgrade  their  online  personas  and  remain  competitive  with  those  who  fully 

upgrade their online race cars or buy an extra life for the online version of Bomberman.  

The best way for an overseas audience to understand this is a coin op arcade analogy. Imagine 

you  and  your  friend  are  playing  head  to  head  Street  Fighter  at  an  arcade  for  25  cents.  For an 

extra  2  cents,  a  player  can  choose  to  upgrade  his  power  spells  or  gain  an  additional  life.  If 

someone does it, then it's unfair to the other player (unless fully confident in his / her skills) to not 

follow suit and upgrade themselves to even everything out. Now multiply that across hundreds of 

different casual web games in Korea, from a simple car racing game to a timed quiz show where 

you might buy an additional hint or two. That's how Korean casual web game players are making 

money   they are banking on the competitive spirit and the need for consumers to gain whatever 

competitive  edge  they  can.  Koreans  are  crazy  about  these  `online  head to head  arcades'  and 

perhaps in the coming years, this can grow into a global phenomenon. However, as successful 

as this model has been in Asia, it has not yet gained traction in the U.S.  

H. 

Issues and Opportunities 

There are some critical issues that web and downloadable game developers need to be aware of in their 

business dealings.  

1. 

Will Subscriptions Ever Be Viable? 

Online game publishers continue to make forays into the subscription business model. Pogo's new Club 

Pogo, Yahoo's All Star, Shockwave's GameBlast, and RealArcade's GamePass all represent varying 

attempts to acquire game players for the long term and extend their limited lifetime value. So far no one 

appears to have achieved complete success in this area.  

The question that any viable subscription model needs to address is whether or not the total lifetime value 

of the customers being converted has a positive net present value. If only the highest spending customers 

are paying for the subscription plan, then it's likely that less revenue is being extracted from them than 

would be otherwise. 

This isn't an issue when the subscription program being offered is only based on perks and additional 

services that have no monetary value outside the program. Yahoo!'s All Star is an example of a program 

that doesn't cannibalize any of the other revenue streams, but it does not appear to be lucrative based on 

Page 18 of 93