Getting Serious About Gaming

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Gaming 2.0

In addition to serious games, a second niche has been attracting attention: projects at the intersection of gaming and social-networking technologies. "At conferences, Web 2.0 and games have been the meme all year," says Sawyer.

One of the most high-profile efforts in this area is the L.A.-based Areae, founded by industry veteran Raph Koster (former chief creative officer at Sony Online Entertainment (SNE)) in December, 2006. Still in stealth mode, the company is talking very broadly about its plan to reinvent virtual worlds. But the basic idea is to bring down the astronomical development costs of the popular MMOGs by borrowing from the equally popular and vastly more economical Web 2.0 technologies supporting sites such as MySpace and YouTube. (Game design stalwart David Perry is also working to bring down game-development costs by using Web 2.0-style crowd-sourcing to develop an online multiplayer game, Top Secret (see BusinessWeek.com, 8/13/07, "Video Games Entertain and Educate") .)

Areae's proposition to combine the best elements of two of today's hottest media genres has attracted funding from both Crescendo Venture Management and Charles River Ventures, and it isn't the only player in this sector. The Boston-based Conduit also has raised venture backing for its plan to blend social networking with gaming. Kaneva and Cyworld, which originated in Korea and now boasts an American version, already offer 3D virtual worlds focused on social networking (see BusinessWeek.com, 4/13/07, "Digital Suburbia"). And while it's too early to estimate the size of this market, Disney's (DIS) recent purchase of the casual MMOG Club Penguin for $350 million—with another $350 million on the table if the site's operator, New Horizons Interactive, hits earnings targets—provides a useful data point.

From Product to Service

Even studios that aren't focused on the Web 2.0 model need to think about how their games can function as services rather than as three hours of packaged entertainment. Through a partnership with ESPN, Electronic Arts now offers a real-time sports news ticker in games such as NCAA Football 07. Similarly, EA's NCAA Photo Album function allows players to capture game highlights, add captions, and share the images with friends.

"Every game should have a feature that allows a kid to print out a frame of their game or upload it to Flickr. And why doesn't every game have a Machinima output?" asks Sawyer, referring to the fan-developed technique of making short films using game technologies. "Gamers are doing things with games that the companies never intended," he concludes, pointing to the users posting clips of the Sony karaoke game SingStar on YouTube.

Such changes are happening slowly, because most companies are just focused on shipping in time for Christmas, when a game can bring in $50 million to $100 million (see BusinessWeek.com, 8/13/07, "Console Makers: Move It or Lose It"). But as the mainstream video game market continues to expand—and it will, as the PwC report shows—and companies increasingly look for new market opportunities, the once-niche markets on the fringes of the industry will be tomorrow's growth drivers.

Jessie Scanlon is the senior writer for Innovation & Design on BusinessWeek.com.