Vision & Strategy
Vision – virtual 3D worlds as ‘Web 3.0’
In the last 15 years we have witnessed an incomparable triumphal parade of the Internet. Meanwhile millions of people spend a part of their lives online. From everyday search and research tasks, knowledge bases, navigation systems, e-commerce, e-mail, chat and direct messaging, right across the board to video platforms, music downloads online games and social networks. Our work lives and our leisure time are relocating more and more to the Internet. The rapid spread of broadband networks has accelerated this trend additionally.
Already today, online gamers are playing in their thousands simultaneously in three dimensional game worlds which are open around the clock. We are convinced that in the future, hitherto Internet usage such as social networking and e-commerce, which is currently presented in a two dimensional catalogue or listings format, will be relocated by internet users into a similarly complex three dimensional space format, in which the participant will be represented by an avatar instead of mouse pointer.
The trailblazers of this trend are today’s graphically impressive three dimensional gaming worlds. In so-called massively multiplayer online games (MMO games) thousands of online enthusiasts, from across all the generations and social classes, are experiencing adventures with one another. Modern online game worlds of this type today already offer a huge range of functions, from character customization through to the furnishing of virtual apartments, resource extraction and trade, virtual crafting activities and professions, group and city level competition, right up to numerous social and communication functions. In vast 3D worlds which extend over several continents, thousands of players cooperate in taking on common tasks and challenges and bind themselves together in firm communities. Independent of actual physical and geographical limitations, users can interact worldwide without hindrance in virtual 3D spaces. Social networks and the conventional Internet will steadily shift into three dimensional worlds.
Web 3.0
We are of the belief that the virtual worlds described here are indeed the next big trend on the Internet. Following on from what is now referred to as ‘Web 2.0’, the age of ‘Web 3.0’ is now dawning. We expect that in the foreseeable future, a life in virtual worlds will become a firm component of mainstream entertainment culture. The advantages over today's leading medium, television are clear. Users act and interact on the stage of an experiential world of their own choosing. They actively shape these themselves instead of being damned to passivity and solely consuming the program set in front of them. The disadvantages of the quality of the presentation in comparison with cinema and DVD are reducing rapidly as technology advances. The atmosphere of online game worlds is becoming ever richer and with it, the level of immersion, meaning the diving into as well as the blooming in the virtual reality is becoming more and more intense.
Genre Diversity
We envisage that three dimensional virtual worlds based upon wide-ranging temporal scenarios will appear: ancient times, medieval, wild west, contemporary cities such as Berlin, Seoul and San Francisco, or futuristic science fiction scenarios. At the same time genres are also differentiating themselves more widely: Together with the dominant fantasy settings, experiential worlds with a focus on comedy, drama, romance, soap opera, crime, eroticism, horror and many more evolve. Differently from social networks so far, users in such gaming worlds are able to experience adventures together and in doing this find lots of starting points for interaction and communication. Social communities emerge, which exercise a strong influence on the lasting cohesion of their members to their corresponding virtual world.
Real jobs in virtual reality
Along with the settling of these virtual worlds, virtual objects and virtual economies have come into existence. And through the triumph of virtual worlds and massively multiplayer online games, even real workplaces come to exist in this virtual reality: craft workers, fishermen, hunters, merchants, architects, property agents, fashion designers, musicians, sports stars, bankers, warriors and many more, will in the future earn virtual or quite real currency for their virtual services.
Living in dream worlds
While computer game fans once used to play traditional PC games against their computer alone, in massively multiplayer online games they are becoming participants of a communal experience with thousands of co-players and opponents. Instead of ‘only’ in the real world we will in the future spend more and more time living virtually. Using their own attractive or powerful avatar, players carve out a virtual career without physical restrictions and against a backdrop of their own choosing. In dream professions and roles of their choice they can attain virtual and real wealth, become a media star, travel into the future, into the past, or around the whole world and thus, get to make any number of new friends without having to physically change their position.
Growth market: Online games
In contrast to the stagnating market for traditional computer games, the market segment of online games is enjoying a boom period, , which points to an enormous future potential since it is still at the beginning of the expected growth spurt. According to the current tenth Global Entertainment and Media Outlook from Price Waterhouse Coopers (PwC), the online games segment will demonstrate a dynamic growth of above 20 percent p.a. for the period from 2004 to 2013. Up to that point, the worldwide market is estimated to grow to a volume approaching 14 billion US Dollars.
PwC, however, uses a very broad definition for the online games segment. The segment can be divided into sub-segments of different innovative strength and different dynamics that vary according to the type of online game and the publisher's business model. The Free-To-Play segment, in particular, where the business model is based on the sales of virtual goods via what is known as micro-transactions and in which Frogster AG is active, may even experience substantially higher growth rates.
KZero Worldwide, a market research company specializing in virtual worlds and associated markets, assumes in its current study: 'Virtual Worlds: 2010 and beyond’ a growth figure of 62 percent p.a. from 2009 to 2013 for the sub-segment of online games revenues from subscriptions and micro-transactions. KZero identifies the chief drivers for growth in the growing number and diversity of virtual worlds, an increase in the average revenues per player as well as an increasing conversion rate of non-paying users into paying users.
Strategy – Early mover in an innovative sub-segment
Frogster was an early entrant into online games and has concentrated on the sub-segment of massively multiplayer online games (MMO games). As opposed to traditional off-line or multiplayer games where players either play on their own against the computer, or gather with a handful of human opponents , in the case of MMO games players interact in vast virtual 3D worlds together with thousands of fellow players. Client based MMO games for which the player installs the game world as a software program on its own PC, offer the highest presentation quality and depth of gameplay and as such can be considered the premium class among online games.
Thus Frogster is an early mover in the highly innovative market segment of these three dimensional virtual experiential worlds (please refer to Spotlight: MMO games). We belong to a small number of European providers who have devoted themselves completely to this technology-driven, fast growing Internet-based entertainment trend.
While many online games are still sold in the conventional way, exclusively in retail outlets in the form of a DVD-box, Frogster was one of the first providers to offer customers convenient distribution free of charge via download and as a disc accompanying print magazines.
Frogster as one of Europe’s front runners
Frogster is one of Europe’s front runners in pioneering the business model of the future: ‘free-to-play’. We not only offer our virtual worlds’ software client free of charge, but we also offer ongoing gameplay without the usually common signing up for a subscription. A short registration process on the game website is all that is required to obtain full access to the desired game world. This procedure reduces the barriers to entry for new players to a minimum.
As in real life, people in online worlds are also keen to progress as quickly as possible, to assert their individuality and adorn themselves with possessions and status symbols. By means of an item shop, we give our players the opportunity to acquire virtual goods to suit their varied individual tastes for small sums as well as convenience functions for faster progress in the game and benefits such as, for example, a splendid creature to ride upon or furnishing items for their in-game house. Once created, these virtual objects and services, even when reproduced thousands of times, have no additional manufacturing costs beyond license fees for the revenues achieved with them – an extremely successful and lucrative business model which has made a triumphal cross-over from the pioneering Asian market. In the innovative group of pure online games providers, Frogster belongs to those companies who first grasped the trend in the west and who have carried it over to high quality games in the premium segment (known as AAA Titles).
Service provider instead of merchant
With the consistent orientation of its business model toward the long-term operation of online games, Frogster no longer functions simply as a sales organization or as a publisher. Rather more it has become a service provider of an entertainment service that is open and available around the clock. All of the enterprise’s employees act to provide users with an exciting entertainment experience. In the future, providers of MMO games will be increasingly regarded as hosts to their guests in their virtual worlds.
Online games offer a series of business advantages over traditional computer games. While such games are current for only a few months, online games have a significantly longer life cycle of up to over ten years. Because of the stronger identification of players with their virtual characters, there is a demonstrably more intense relation of players to their game world. With their virtual worlds laid out to several year life-cycles, providers achieve not only one-off revenues at the date of publication via the sale of the software into the distribution channel, but sustainable daily revenues direct from end users. With a predominantly digital distribution model, Frogster, to large extent, avoids paying margins to third parties and product returns.
Offering massively multiplayer online games, however, calls for a markedly expanded value chain structure in comparison with traditional PC titles in terms of the technical management of servers (so-called ‘Hosting’), the administration of individual player accounts( ‘Account Management’), the integration of payment methods (‘Billing’), ‘Customer Support’ as well as ‘Community Management’.
The fundamental prerequisite for publishing and operating virtual worlds is owning the corresponding licenses for the MMOGs which are produced by specialist development studios in a development period which extends over several years.
The employment of what are known as ‘core gamers’, extensive communication with the gaming community and active maintenance of close relationships with development studios worldwide, assures Frogster of being in a position where it is able to identify attractive opportunities early on. Reaching a license agreement early in the development process also allows us to have a direct influence on the design of the game.
Own Community
With its stake in the editorial gaming portal ‘OnlineWelten’, Frogster has access to one of the most wide ranging German language community platforms about computer games. This also represents a great advantage in the competition to license attractive online games. It is similar concerning the creation of a large user base of registered players. Both assets form an important basis for the company’s future success, because they provide competitive advantages in both the securing of licenses and in marketing and also represent a barrier to the entry of imitators into the market.
On the way to being a global player
In its choice of geographical location, Frogster is pursuing a strategy of being close to its customers in order to be able to offer them a gaming experience via local servers without time-lag and also a customer support service in players’ own native language and time zone.
