That video games are a social and economic phenomenon is well publicized. The robust sales and widening demographic of the $11 billion game industry have led some to peg it as the usurper of Hollywood’s entertainment empire.

When it comes to narrating the success stories of games, however, business and technology media tend to take a shallow view, waxing instead on the coquettes of the technology sector – startups. In terms of outlining best practices for emerging software companies, Skype, MySpace, YouTube, and Second Life are the debutantes of page 1.

The gaudy valuations of these companies are newsworthy, but the startup-like approach and jaw-dropping profit of a game has earned the headlines.

In 27 months, Blizzard Entertainment’s
World of Warcraft has turned strong interface design, innovation, scalability and simple listening skills into revenue that should exceed $1 billion in 2007.

World of Whats-it?

World of Warcraft is an orcs-and-elves fantasy MMORPG (Massively Multiplayer Online Role-Playing Game) that opened to the public in late 2004. To borrow from a game player’s vernacular, it quickly owned the competition and has grown prodigiously since.

Blizzard Entertainment recently announced that World of Warcraft had crossed the 8 million subscriber threshold. These are not YouTube voyeurs – they are paying customers. WoW currently costs $20-$50 to buy and a (very loose) average of $15 to play.

Online Gaming and Web 2.0

While games like World of Warcraft (WoW, for short) are not exactly social networks built on Ruby on Rails, Blizzard Entertainment’s vision and approach holds wisdom that young software companies can borrow from – and a bottom line even mature corporations can envy.

Can a game be like a startup?

Most games aren’t. Massive online worlds like World of Warcraft, however, share many of the challenges faced by 2.0 and software-as-a service companies, including:
• Significant front-end development and resource outlay
• Need to balance soon-as-possible launch dates against stability
• Reliance on endless product iteration, innovation and QA
• Entering a field against multiple next-generation competitors
• Need for continued network scalability and stability as usage scales
• User churn vs. the need for subscription growth

World of Warcraft’s startup challenge #1 – market share

OBSTACLE: When Blizzard (Currently owned by Vivendi games) entered the MMO market in November, 2004, there were several incumbents in the space, including the hugely successful Sony-owned Everquest, Origin System’s Ultima Online and Microsoft’s Asheron’s Call. Sony’s follow-up and heir apparent Everquest II launched in the same month as WoW. While hindsight revealed the MMO market to be tired and ripe for innovation, analysts at the time considered it to be crowded and mature.

SOLUTION: World of Warcraft was designed to appeal to the casual and even to the non-game-playing user. It did so by lowering the barriers to entry with a) a simple, intuitive interface b) an environment that encouraged social interaction and c) by catering to the needs of casual players without alienating heavy-use, hardcore users.

RESULT: In the world of online gaming, WoW’s current market share is comparable to Apple’s iPod dominance.

Challenge #2 – Costly development and QA burden vs. pressure to launch

OBSTACLE: Like startups, MMORPGs use beta testing to find bugs and get a product out the door in a usable state, as well as create evangelists in the form of beta testers. Because of the huge development and marketing resources required, however, there is financial pressure on developers to release an imperfect product. Almost all do.

Blizzard had what they thought was a stable 1.0 release. But tremendous launch sales delivered a flood of players. Queues for entry grew and customer complaints grew with them.

SOLUTION: Blizzard’s vision of a scalable, expandable product (new server ‘realms’ can be added) and ability to upgrade hardware without extended downtime helped alleviate queues.

RESULT: Nonstop growth and the reluctance of players to switch to new servers means this is a lingering issue. However, users seem willing to tolerate waiting in line as long as in-game responsiveness is high.

Challenge 3 – Maintaining momentum without ruining the recipe
OBSTACLE: Tweaking the experience and introducing new features is a never-ending process for online games. Competition is relentless and the community demands new content and features – often championing their own ideas via online petitions and polls.

SOLUTION: Listening. Blizzard pays close attention to what users say…and to what they don’t. Blizzard has been careful not to fix what wasn’t broken.

Refinements to the user experience and new features have been steady.

RESULT: New game content is hotly anticipated and the publicity surrounding it helps attract new users. Blizzard has been careful not to release imperfect work however, even postponing their first retail expansion until after Christmas in order to polish it further.

Challenge 4 – Churn vs. new subscriptions

OBSTACLE: Churn is a bellwether for any subscriber-based business, whether they are a phone company, social network or online game. But for MMORPGS and 2.0 startups, users don’t simply take their money elsewhere: they take their friends, too. Desertion becomes a factorial problem.

SOLUTION: Blizzard strove to give World of Warcraft an exceedingly low learning curve, so that casual and non-gamers could quickly grasp the basics. Simultaneously, they facilitated quick intra and extra-game customer service—while ensuring that hardcore users saw rewards commensurate to their efforts.They made it easy for players of all levels to get and stay hooked.

RESULT: “Non-gamers” are much less likely to leave for more densely-pixilated pastures (newer games) which helps lower churn. Casual WoW players introduced the game to non-gamers through their personal networks. The recipe has driven 8 million subscribers in only 27 months.

(other corollaries have been left out due to space limitations)

End Game

It could be argued that finding users for an online game is easier than for, say, an online accounting service. Perhaps, but user pain is still user pain. Good design coupled with vision, listening skills and great customer service is a potent (but strangely elusive) startup cocktail that has helped Blizzard exceed the billion-dollar plateau.

Pay attention startups, this game has something to teach you.