Internet games entice players, with view to ads Niche market: Through fake stakes and real cash prizes, online gaming firms hope to turn a profit.

December 02, 1996|By BLOOMBERG BUSINESS NEWS

CHICAGO -- Michael Tomb watched his $100,000 stock portfolio surge 55 percent in one month -- not a bad profit for a guy who makes his living writing computer programs for chemical and drug companies.

Unfortunately for Tomb, the money isn't real. It's part of a new investment game called "Final Bell" from Sandbox Entertainment Corp. that he plays via the Internet.

What is real is the prize. The investor who makes the most money on a phantom stock portfolio by Jan. 10 will win $10,000.

"All the Internet games that caught my attention are ones that you would actually get something back by winning," Tomb said.

That's what companies like Phoenix-based Sandbox want to hear. Their idea is to entice players with the chance to win big prizes, then persuade advertisers to sponsor the games because of the big audience -- much like the early days of TV game shows.

Still, game-makers looking to match Tomb's 55 percent profit will have a long wait.

Sales in the online games industry are about $87 million this year, a cyber-speck in the $12.5 billion market for entertainment software and video consoles and games. The projected increase to $1.38 billion in 2000 is barely a tenth of today's overall market.

Even as a niche market, online game-makers face obstacles. The biggest dilemma is hitting on a business model for making money.

Some online gaming companies are banking on sponsors. USA Today is backing Sandbox's "Final Bell." Charles Schwab & Co. Inc.'s online investment arm e.schwab and software-maker Intuit Inc. are sponsoring similar games. Yoyo-dyne Entertainment bases its games on the sweepstakes concept.

Others rely on fees from subscribers. The hope is that as more people plug into the Internet they will discover games. Online game players are expected to increase to 5.6 million in 2000 from 1 million today, according to Paul Kagan Associates of Carmel, ++ Calif. The number of people going online is expected to jump to 33.7 million from 18.9 million over the same time.

"There is no easy answer here," said Dean DeBiase, chief executive of ImagiNation Network Inc., a computer game network that America Online Inc. bought from AT&T Corp. last summer.

America Online, for its part, just mounted the latest obstacle to online game companies. It is switching to flat-rate prices this month instead of charging by the hour. Many of the more than 30 games offered through AOL are set up to profit by getting a percentage of the No. 1 online service's hourly connection fees.

"Based on the America Online pricing change, the previous business models are now irrelevant," said Eric Goldberg, chief -- executive of Crossover Technologies, whose campaign simulation "President '96" is available through AOL until the end of the year.

Online companies meeting at a seminar in New York recently were up in arms. Some may bypass America Online and take their business straight to an Internet-access provider, Goldberg said.

Crossover Technologies plans to compensate by asking players to become local "gods and goddesses." The players get fill-in- the-blank type software tools for creating and managing parts of the game. And Crossover Technologies doesn't have to pay an employee to do the work.

Even so, that won't make up for the revenue companies stand to lose by the switch to less-expensive flat fees, said some game-makers.

"I don't see how they're making money," said Starr Long, an associate producer for "Ultima Online," Electronic Arts Inc.'s first entry into Internet gaming.

Electronic Arts plans to introduce early next year "Ultima Online," a 24-hour fantasy role-playing game, produced by its Origin Systems unit. The game can be accessed directly from the Internet, without having to go through an online service. The software company plans to make its money on the CD-ROM it will require players to buy.

rTC Online games have been around since the late 1980s, yet only recently are gaining a wider following as more people plug into the Internet.

Originally, online games were traditional action video games put on the Internet. Those games still exist, but often are frustrating to play because of slow connections. Even a split-second delay while trying to punch an enemy could cost a player valuable points.

Now, game companies are trying to broaden their reach with offerings designed specifically for the Internet. The most popular are role-playing scenarios where a cyber-world runs around the clock and players come and go as they please. The games have chat rooms where veteran players can welcome neophytes and guide them through the games. Game-makers call it social computing, and they hope it will appeal to a broader audience than hard-core players.

Pub Date: 12/02/96

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