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ATVI's  World of Warcraft
Note the advanced used of Business
Analytics! Hmm...
Today  Reuters reports that the CEO of Blizzard Activision is in talks with Rupert Mudoch to buy MySpace.com from News Corp. Why is this a big deal? It's a big deal because it's the first sign of intelligent life I've seen in the online gaming industry in quite a while. Blizzard has around ten million subscribers to World of Warcraft and makes about a billion dollars a year from that game alone. And yes, you read that right! Subscribers! Paying subscribers! On average male player in the 18-35 demographic spends over nineteen hours per week playing MMPORGS. An average female in this category plays more!
While Facebook offers a generic community in which to share content and connect with other people, World of Warcraft chat, organization, and collaboration are integral to the game. Gamers who play together regularly have each others cell phone numbers. The nature of the game demands intense, highly evolved and orchestrated collaboration in order to achieve goals virtually impossible to achieve by geographically dispersed professionals working in Corporate America. With a base of twelve million paid subscribers, extending this highly engaged community from the online world into the social networking world makes me think about where this could lead. World of Warcraft + MySpace.com would immediately create a richer gaming experience, and would simultaneously create a vibrant social networking community. The lack of attention to this deal on Wall Street makes me wonder whether Wall Street may take its own business classifications a little too seriously. Wall Street groups Activision Blizzard with all other console and packaged software game firms and those firms only make money from sequels and upgrades. Blizzard Activation MMPORGs are subscription-based, residual revenue assets aka Software as a Service (SaaS). As far as I can tell, ATVI is a SaaS vendor and a community builder even if management doesn't fully realize this is their business. The fact that the CEO is closing the deal for MySpace.com, causes me to believe that at the highest level the company will now be re-branded and re-positioned in the marketplace and in the investment community.

We all know Facebook is a huge success and overvalued and much needs to be proven and we'll have to just wait and see. Overturning Mubarak, was a pretty cool trick, though, I must admit. Even so, a market cap of 70 billion for Facebook, as opposed to a market cap of two billion for Netsuite, or even ten billion for LinkedIn makes you wonder if maybe somebody knows something or nobody knows anything or everyone is just having too much fun sharing their photos and playing Farmville to really care.


For me it's what people, particularly financial analysts don't know, or what they won't find because their personality, lifestyle, peer group tends to construct their reality around experiences with people who like to do things together like talk, play basketball, have lunch, attend art shows, weddings, bars, sporting events, play squash, and many other excellent healthy social activities. And for such fine citizens to look at Facebook and realize it's a big deal is fairly straightforward. When I was in high school I was one of four students out of a large class who had any interest in computers. Since then, I've worked hard on my social skills. Even so, I still enjoy playing World of Warcraft, and at least (mostly in the United States) about ten million other people share my interest. People in Australia like to play as well, and so do people in China and all these people pay to play the game and pay every month except for some hackers who run their own private WOW Realms (aka servers). Moreover, the nature of the game is such that the more you play, the more of an investment you have in the game. If you stop paying, you stand to lose the fruits of literally thousands of hours of your "labor" invested in playing the game and building your capabilities. This isn't Farmville anymore. People regularly buy a high level character for on Ebay paying in the neighborhood of three thousand dollars for an advanced level avatar.

At SIIA's All About the Cloud May 2011 in San Francisco, the director from Grant Thornton explained that for a SaaS company, the valuations tend to correlate very closely with revenue--about 10x revenue, but sometimes 20x or moew. These SaaS companies are businesses though, so the multiples for a B to C firm would be different. Based on my research and basic understanding of this world, B to C plays get higher valuations, and are funded by VCs at a significantly higher rate than B to B firms.

I've thought about the MMPORG game space for a while. I bought some shares of ATVI (Activision Blizzard) last year after playing enough World of Warcraft to understand the business of online games. Blizzard games have extremely loyal and fanatical players who subscribe to games like WOW (World of Warcraft) at around $12.00 / month per player.

I wonder what would happen if Blizzard could figure out how to create a version of World of Warcraft that could be played on MySpace for free? Think about it: in one fell swoop, purchasing MySpace.com gives ATVI both a substitute or proxy for Facebook as well as a large subscriber base (and paid!!) plus a substitute / proxy Zynga in the form of WOW "light." How much is Zynga's capitalization right now? I don't know. But according to this article, back in October 2010 Zynga was worth five billion five hundred million dollars. And to me the interesting thing about Facebook is that it's essentially hard to get consumers who have never paid for anything to pay anything for something. At least for WOW subscribes they are already ok with paying. Often WOW will pay real money to get cute pets to accompany them as they play the game. That's hard to do when you offer a free service and easier to do when you have a paid service. But Facebook has fifty Facebook fremium subscribers for every one of WOW's $12/month paid subscribers. So on that basis if we divide seventy billion for Facebook plus the five and half billion for Zynga, we get seventy-five billion divided by fifty, or one billion five hundred million for WOW and we are forgetting entirely about the fact that the WOW subscribers are paying customers. Also, WOW is just one of the assets. The entire company is valued at $13.6 billion, it has a PE of 25, and actually pays a modest dividend.

According to this report back in March 2010, Rupert Murdoch was asking $700 million for MySpace. As of June 2nd 2011 I see a report stating that Rupert can't find a buyer even at the price of $100 million. As Farmville players probably know fruits and vegetables can rot on the vine if they aren't harvested in time. The key to social networks is to have a critical mass of highly engaged people who will create a vibrant community that will engage existing members and enlist them to enlist new participants. World of Warcraft has this is spades.

And I waited until now to mention that WOW is just one of multiple MMPORGs. Blizzard has several other properties with subscription players. Even better, Blizzard could white label the MySpace platform to competitors who want to make the same play.

This deal seems like amazingly good business on the part of ATVI.

We'll see.

Tobold's MMORPG Blog: How low can you go?



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More Stories By Brian McCallion

Brian McCallion Bronze Drum works with executives to develop Cloud Strategy, Big Data proof-of-concepts, and trains enterprise teams to rethink process and operations. Focus areas include: Enterprise Cloud Strategy and Project Management Cloud Data Governance and Compliance Infrastructure Automation