Online Gaming
Online entertainment, gaming, 
- distribution of digital entertainment media

last updated 2007 Jan 03
DRAFT The following information is a student project and has not yet (Jan 3rd, 2007) been completely edited and checked for accuracy, spelling, etc.

In 2006, like in 2005 and 2004, a few students in UTSC MGTD06 expressed interest in doing their Case Study project by preparing an equivalent amount of work in the form of one of the Teaching Units on University of Toronto student Scott Ng expressed a very strong enthusiasm for doing a unit on online gaming. After Scott explained that it should be considered not just as an extertainment situation, but also as a marketing opportunity, I encouraged him to put together the unit. One of the things that struck me as particularly useful thing to understand is that the creators of gaming situations are accepting advertising within the structure of the game - which creates a whole new opportunity for "marketing in the information age". 

To give you an example of how this can work, let us say there is a person playing within a game, and they steal a Ford car; then by making that selection, all the other cars in the game can be coverted to different Ford models, and one could click on the particular car within the game, and be conveyed to a URL on Ford's site for more information.

INTRODUCTION This page deals with
  o Background of Online Gaming
  o A Historical view of Online gaming
  o The Big Three VS Computers
  o Explosive Exponential Growth of Online Gaming
  o Online Gaming Crisis
  o Top 10 Industry Facts about videogames 
  o More women play games than men? 
  o Merchant selling goods on Virtual world? 
  o China, the next Korea? 
  o Politics: Does Online Gaming benefit Society?
that effect
Economic / Financial Environment
  • Everyone should be living fairly decent if they can enjoy videogames/online gamings, thus there are no problems in this section
  • However, gaming addiction problems had drove people to do things that they normally would not do to earn money so they can pay for online gaming fees. (please refer to the politics section for more info)
Political / Legal / Regulatory environment
  • Please refer to the politics section above for more information. But in general, the gaming addiction problems are causing a lot of stirs in the political world
Sociocultural / Ethnic / Linguistic environment
  • Different cultures have different taste in gaming. Eastern gamers tends to like RPG, racing, puzzle games, where western gamers tend to enjoy football and first person shooters game. As a result, companies need to do enough research to ensure the product they develop will sell around the world
  • Certain contents are not acceptable in certain countries and game developers need to pay attention to different cultural taboos before releasing a game. 
Technological environment
  • The technology for internet has been around for quite a while and there has been many innovations
  • The challenge right now is perhaps speed, the transition to the HD era and gaming medium file sizes are getting larger and larger, affordable super fast internet connections are required
Physical / Geographic environment
  • All the major countries such as USA, CANADA and CHINA have huge land mass and might be very hard to deliver cable high speed internet to all areas due to high cost 
Competitive Environment
  • The competitive nature in the gaming industry is fairly intense because everyone is trying to get your money. They do strive to use the latest technology and companies would copy each other's ideas. 

  • In the bigger picture, the major competitions are between Japanese game developers VS Western game developers. The Japanese are very good in graphics and details where the western developers are very good at designing online games.

Why study Online Gaming Traditionally, video games are usually played alone or with friends via a television set or a computer. However, as the popularity of the world wide web grew, a new type of medium to play video games was born. 

Now players can battle each other around the world via a television set or through a computer monitor, 24 hours a day, 7 days per week. All you need is a either a video games console or a computer, internet connectivity, some online opponents and you can expect some online gaming action.

Not all forms of online gamings are played by hardcore computer nerds, actually, the majority of the online games are played by casual gamers because it can be as basic as hooking up a computer to the internet and playing a fun game of chess or pool with either a human or computer AI.

Many people have perceptions that videogames are, "Its just a toy" or "Its just a game". Although technically they are correct, but the videogames/online gaming industries can generate multi-billion dollars revenue on a yearly basis. Many industries and media in the past did not pay too much attention to the gaming industries because they were not considered as a serious business model. But as the traditional marketing formula failed to sell products/services, the growing videogames/online gaming world seems to attract a concentrated group of community members that is very appealing to many marketing agencies today.

The gaming industry is a legit business model that has been looked down upon for too long and with the growing popularity of internet and the need for entertainment, companies and the media are finally paying more attention. 

Different types of Online Games There are basically FOUR major categories in the realm of the online gaming community. 


Basically it is a gaming concept based on a player carrying guns in a first person view shooting each other until all the enemies are wiped out. 


Basically it is a gaming concept where players need to manage resources and built an army to destroy other each other

3) ONLINE BROWSER GAMES (think about online Java or Flash based games)

Simple concept games targeted towards causal players, games such as chess and pool. 

4) MASSIVE MULTIPLAYER ONLINE ROLE-PLAYING GAMES (also known as MMORPG, there are also MMOFPS and MMORTS, but MMORPG is most popular)

A fairly new gaming concept where hundreds of players are allowed to play together in a fantasy setting, where players will undertake quests and work together to overcome in game challenges.

(Pictures sources:)

A Historical view of Online gaming This is not a history course, I will outline some of the most important time line for online gamings without going into too much details. (You can get more information by going to the reference link) Online gaming has actually been around for quite a while now, to be precise, the very first form of online gaming can be traced as far back as 1969. 

1969: The first network game was born, a two-player Spacewar game on PLATO, by 1972, it can support up to 1000 users simultaneous. .

1970 – 1984: More games were developed for PLATO, they include Star Trek, Avatar and Airfight, another popular gaming style of Multi-User Dungeon concept was born. The online gaming community is still heavily based on the University level due to the high cost. 

1985: The first graphic-based online gaming service was launched by Quantum Computer Services (later known as America Online) The fee is $9.95 per month, plus the gamer has to pay $5 per hour.

1992: A very popular online game, The Kingdom of Drakkar, an online role-playing game, is enjoying a healthy streams of revenue, with an active base of 3000 players who would pay between $3 to $5 an hour to play the game online. 

1993: This year is perhaps the first sign that the online gaming industry was taking off. The world wide web was gaining popularity and with more internet users, the online gaming community grew. 

1994: The amazing first person shooter game, DOOM, was released by Id and this is the first time players can happily destroy each other over LAN, which supported up to 4 players. (Warcraft was also released by Blizzard, an RTS game at that time, which will eventually become the most popular MMORPG of all time in our era)

1995: Many Online FPS and RTS games were published and by that time, two huge title games that surfaced were Descent (a flight fighter game) and Command and Conquer (a RTS game)  approximately 300 text-based Multi-user Dungeon games are available via World Wide Web, and most of them are free

1996: The creaters of DOOM is back, this time with Quake, a true first form of online First Person Shooter game, allowing many players around the world to play against each other in real time. "It was noted that on any given nights, over 80,000 players can be found destroying each other in Quake on their personal home computer."

1997: The very first MMORPG game was introduced, Ultima Online, attracting more than 50,000 paying users in just 3 months. (In total, during Ultima Online peak era in 2003, there were around a quarter of a million paying subscribers.)

1998: With the increased popularity of the internet, companies are taking notices and are targeting casual players with their simple online games like chess and pool. Eventually it became a big market as found on Yahoo games and Microsoft Gaming Zone. 

1999: The second wave of MMORPG gaming craze continued, Everquest was released and became one of the most MMORPG of all time. 

2000 -  present:  The current generation of online gaming began.


Clash of Traditions:

The Big Three VS Computers

As mentioned above, most of the online gaming industry is heavily focus in the computer sector. The traditional TV plug and play video games home consoles were not considered as a threat before. However, as video games home consoles became more and more powerful, computer online gamings monopoly no longer exist. 


Nintendo Wii Nintendo Wii was just release on November 19, 2006. It contains all the benefits of traditional home gaming consoles, allowing users enjoy a video games experiences never seen before due to its innovative control. Nintendo is aware of the massive potential of the online gaming industry and without a doubt, it jumped on to the bandwagon. 

The Nintendo Wii will of course support online games via the internet, but perhaps the most interesting new features is the ability to download classic games over the internet. Nintendo called it the Virtual Console, Nintendo has set up shops online that will allow gamers to download many classic games for a fee. Games can be purchased via Wii points. (which can be purchased at your local retail stores) 


Right now Nintendo is offering Nintendo Entertainment System ($5 per game), Super Nintendo Entertainment System ($8 per game), Nintendo 64 ($10 per game), Sega Genesis ($8 per game) and TurboGrafx 16 ($6 per game) games for sale. 

Nintendo plans to release 10 new games per month in the future, the profits are huge because all those games developmental cost have been paid already. Nintendo has also partnered with Opera to offer a web browser for the Nintendo Wii, making the system a gateway to online entertainment. 

In terms of e-commerce, the potential is unlimited because there is a huge library of games that Nintendo can offer. There are also plans underway that Nintendo will partner up with other media company to deliver other forms of digital entertainment via the Wii internet network. The Nintendo Wii has created a specific targeted audiences for marketing companies and the network can be definitely used to generate alot of advertising opportunities. 


Sony Playstation 3 Sony Playstation 3 debuted on November 17, 2006 and it claimed to be the most advanced video gaming console in the market. Sony learned from its previous mistakes from Playstation 2 and debuted with a brand new online interface for Playstation 3.


Sony is not charging any thing to allow players to battle each other over the internet, compared to a subscription based structure offered by Microsoft. Gamers can download demos and movie trailers for free. 

Similar to Nintendo Wii and Xbox 360, Sony has opened an online PS3 store which will allow gamers to download Playstation One and other arcade games for a fee. Eventually Sony will add music and movie download services similar to what the iTunes store has to offer. 

                                                                      (Sony's online store)

Again, the potential for the online Sony PS3 store is huge because basically the limit is the sky, since the amount of content that Sony can offer for download is endless and Sony can make a lot of money from recycled contents. 

Some gamers are nervous about online downloading services because game developers are showing more interests for in game contents. Imagine paying a fees to download a code that will unlock the strongest weapons or all the contents in the game. Or imagine buying a racing game with 1 car and 1 racing track, then gamers have to pay if they wish to obtain more additional cars or tracks. There are a lot of money to be made if game developers decide to charge $1 per car or per racing track. 


Microsoft Xbox 360 The Microsoft Xbox 360 had a year start ahead compared to Nintendo Wii and Sony Playstation 3. Microsoft is known as a software company and the Xbox 360 online structure has really flourished because of that. Xbox 360 is the best online service provider in this current generation. 


Xbox Live offers gamers a revolutionary way to interact with each other over the internet. It supports massive online gameplay with in game chat, offers free game demo and movie trailers download, downloadable contents for old retro games like Geometry War,  Pac man and many more classics games ranging from $5 and up, high definition movies and TV shows download for a fee that is competitive with the iTunes store. Where a movie would cost between $4-$6 per movie download and $3 per TV episode download. 

                                                               (Xbox Live Marketplace)

Some gamers are upset that Microsoft is ripping off consumers by offering too much useless down loadable contents. A great example to illustrate my point is that Microsoft was offering gamers to download a piece of horse armor in a game for $2.5!!! But wait, the horse armor does not make your characters stronger or better in any form, but many gamers still paid $2.5 for this piece of junk. 

                                                             (This useless armor cost $2.5 US)

Although gamers have to pay a yearly subscription fee of $60 for a gold membership, this has not discourage gamers as recently Xbox Live has surpassed 4 million users worldwide. Microsoft expects that number to reach 6 millions by summer 2007. 

Here are some interesting figures for Xbox Live. 

"--More than 70 million pieces of content downloaded in Xbox Live Marketplace's first 11 months.
--More than 12 million Xbox Live Arcade downloads in that same period, with a trial-to-purchase ratio of 24 percent (Uno leads all Arcade titles with a 50 percent trial-to-purchase ratio)
--Time logged on Xbox Live playing games has surpassed 2 billion hours
--More than 9 million text and voice messages are sent over Xbox Live each week"


The Last Word It is obvious that the Xbox Live community is where the future of online gaming is heading, a centralized online environment where gamers around the world can play against each other, download movies and other contents they desire. 

This is good news for e-commerce because a concentrated group of consumers can be reach very easily and advertisements and other form of online business can be profitable if it is utilized properly. It is clear that consumers are willing to shell out a lot of money in the online gaming world. This is good news for e-commerce because it will have a new solid strong medium to distribute games and other contents via a new method compared to the old brick and mortar method. This will certainly reduce cost, uncertainties and generate a lot of opportunities for many other industries. 

However, since this method eliminates the middleman, the brick and mortar store might not welcome the growth of this industry because if all games are distributed online, then profits for many stores will suffer financially. Recently, online stores like STEAM is gaining popularity (, as a result, more and more gaming publishers are selling their games on the STEAM network. 

The Explosive Exponential Growth of Online Gaming: 

Unlimited Profits?

Monstrous Revenue

"According to the NPD group, in 2005 U.S video games sales reached a new record 10.5 billion dollars, a 6 percent increase form 2004."

The online gaming industry growth is looking bright as well, according to DFC Intelligence Forecast. The expected growth rate for online gaming is huge as seen from the chart. 

Currently, the most popular online game in the world is a MMORPG game called World of Warcraft, developed by Blizzards. In September 2006, World of Warcraft have 7 million active subscribers paying an average of $15 to $20 per month just to play the game online. That is A LOT of money, 7,000,000 * $15 * 12 months equals monstrous revenue and profits. 

As one can see that the videogame industry trend in terms of sales is definitely a huge industry and the trend clearly shows that in the future more sales will be generated. As explained before that the big three home consoles are equipped with online capabilities as they will lead online gaming to a whole new dimension.

Basically, the trend is showing that the videogames/online gaming industry will enjoy a healthy steady growth in the future years. It is a huge market worldwide that will generate billion of dollars in revenue, and due to its internet connectivity, online advertising will benefit from this market as well.


Online Gaming Crisis? The industry was found on a basis of advertisements driven business model. Where free online games would be available for gamers to enjoy, in exchange advertisements would be displayed on the website. However, the profitability of the free online games websites have declined over the years and many companies are finding new ways to generate revenue. 

"Video Games Will Generate Nearly $260 Million in Advertising Revenue by 2008, Says Yankee Group; $92 Million Will Come From In-Game Advertisements and $168 Million From Advergaming." (Bnet)

The Online gaming industry have found new ways to generate revenue and one of them is in game advertisements. In game advertisements is not a new thing, but real life update in game advertisements was never done before. Basically advertising agencies will buy ad space in game to display a certain type of products and services and the ad will can change depending on the request. This was done in MMORPG game Enter the Matrix, originally the argument was that real life in game advertisements will make the game more realistic, but at the end gamers were furious and opposed to such “in the face” advertisements. However, in game advertisements is still a huge industry in the online gaming world. 

According to Adweek, another projection predicts that by 2010, Massive Inc states that they would expect in game ad can reach between 1.6 to 1.8 billion dollars. Thats alot of money if you ask me because that would represent about 3 percent of media spending in 2010. 


Top 10 Industry Facts about videogames "1.  U.S. computer and video game software sales grew four percent in 2005 to $7 billion -- a more than doubling of industry software sales since 1996.

2.  Sixty-nine percent of American heads of households play computer and video games. 

3.  The average game player is 33 years old and has been playing games for 12 years.

4.   The average age of the most frequent game buyer is 40 years old. In 2006, 93 percent of computer game buyers and 83 percent of console game buyers were over the age of 18.

5.  Eighty-five percent of all games sold in 2005 were rated "E" for Everyone, "T" for Teen, or "E10+" for Everyone 10+.  For more information on ratings, please see

6.  Eighty-seven percent of game players under the age of 18 report that they get their parents’ permission when renting or buying games, and 89 percent say their parents are present when they buy games.

7.   Thirty-five percent of American parents say they play computer and video games. Further, 80 percent of gamer parents say they play video games with their kids. Sixty-six percent feel that playing games has brought their families closer together.

8.  Thirty-eight percent of all game players are women. In fact, women over the age of 18 represent a significantly greater portion of the game-playing population (30%) than boys age 17 or younger (23%).

9.  In 2005, 25 percent of Americans over the age of 50 played video games, an increase from nine percent in 1999.

10.  Forty-four percent of game players say they play games online one or more hours per week. In addition, 32 percent of heads of households play games on a wireless device, such as a cell phone or PDA, up from 20 percent in 2002."

It is clear that the video games industry is gaining popularity and the industry will going get bigger, as the echo boom and the younger population enter the working age, the videogames industry will generate more profit.


More women play games than men? According to a recent study by Nielsen , the study concluded that 64% of Online Gamers are women. Also more than half of nation's total gamers play online. 

Most causal online gamers plays online browsers games and knowing that 64% are women is a huge advantage to many industry. This can be used to attract and generate new interest with in game product placement, in game advertisements and other forms of mediums to reach out more effectively to the women market. 

Since more women are getting interested in online gaming, it will also help the online gaming industry to flourish even more in the up coming future. 


Merchant selling goods on Virtual world? Online gaming has grew so big that even the world's largest computer maker are setting up shops online, but not your regular website, Dell is opening shops on an island, in a virtual gaming world. 

Dell is setting up a 'Dell Island' in a very popular online gaming community called Second Life, consisting of 1.4 million active users where the virtual characters can do things that can be done in real life. Just as going to work, shopping, playing sports and anything you can think of. 

Dell is setting up the online virtual shop with real life Dell computer ordering systems where in game characters can purchase a real computer in real life from the virtual Dell Island.

Companies are taking advantage in online community to increase the profile of their brands and sell real life products in a virtual world. At this rate, perhaps one day, one can log in to a virtual game and go shopping in a virtual supermarket or a mall, pay with your credit card and the goods will be delivered the next day. 


China, the next Korea? At present, about 23 million Chinese plays online games and that is about to grow even more as China expand in the future. 

In 2004, there were around 22.8 million Chinese online gamers who spent $500 million dollars. 
According to iResearch, online gaming market will reach $1.2 billion in 2007. In 2008, they expect the growth will be 18% and by 2010, it will grow at a rate of 10%. 

Another market analyst IDC predicts that China online game will reach $673 million this year and reaching $2.1 billion in 2010. 

The reason is due to the rapid growth of broadband Internet access in China. Currently there are 77 million broadband internet users and that number will only go up in the future. With a population of 1.3 billion people, many industries say China is the next big thing in business, and it is no different from for the online gaming industries. 

The only thing that is holding the industry from taking off is the lack of piracy control in China. Once that problem has been solved, the growth 



Does Online Gaming benefit Society?

As one can see that online gaming is a very lucrative business around the world. But at the same time, it created many problems to society as well, especially in the youth and the young adult population. Globally speaking, over the years, online gaming related problems are beginning to get on the nerves of politicians as they felt pressured to do something about it. 

Although one may argue that the online gaming experience is a healthy networking tool that allows millions of players around the world to socialize, interact and promote teamwork tasks that might be beneficial to the end users, it comes with many externalities. 

"South Korea is one of the most connected cities in the world in terms of Internet broadband connectivity, which is at 78% in terms of per capita rate. Over the past 4-5 years, many Koreans, in fact, about a HALF-MILLION Koreans are suffering from a new social disorder that never existed before, an unhealthy obsession with online games."

A recent Korean survey done in 2005 demonstrated that about 546,000 people (about 2.4% of Koreans population age 9-39) need counseling for addiction. This Internet addiction problem might one day become a national problem because those online addicts are playing so many online games that they dropped out of school or quitted their jobs. Many experts argue that one day that this social disorder problem might be worst than alcohol, gambling and drugs. 

A Korean friend of mine, told me that in South Korea, in order to persuade their children to stay focus and attend school, the parents have to play the online games for their children!!!

There have been reports in South Korea showing that there are online gamers who would trace the players who killed their characters in game and attack them physically in REAL LIFE. There are also reports illustrating girls who turned to prostitution for money in order to play online games. As mentioned before, online gamers are skipping classes, dropping out of schools, quitting their jobs in order to play their beloved online games non-stop for a long period of time. But it gets worst. 

Lets talk about China for now, Qiu, 41, borrowed a very rare item, a “dragon saber” to Zhu during an online gaming session. Zhu sold the item online for about $1000 US and Qiu was extremely upset. Qiu went to the cops but the police were unable to do anything regarding stolen virtual items. Zhu agreed to pay back Qiu but Qiu got impatient and killed Zhu by stabbing him in the chest. Qiu was recently sentenced to jail for life for his murder. 

In America, a World of Warcraft player, who got banned from the online game because he cheated in the game, threatened to kill himself if his account is not reopened. As a result, he got a visit from the police to ensure that he did not commit suicide. 

Lets get back to Korea, Lee, a 28 years old South Korean Internet gamer, recently got fried because he was playing too much online games, died after a 50 hours gaming marathon in a local Korean Internet cafe in August 2005. (He was playing Starcraft for those who are curious) In December 2005, a 38 years old South Korean died after playing an online game for 417 hours in 20 days. (There are only 480 possible hours in 20 days)

In 2005 alone, at least seven people died due to heart failure or exhaustion while playing online games in South Korea. 

There have been numerous responses from governments around the world. In China, time limit has been set for how long a gamer can play online games. In Korea, authorizes have set limits that Internet cafes cannot be located near schools and many addiction counseling centers have been set up around the nation to provide help. 

The fundamental reason why those online games (mostly MMORPG) are causing these much addiction problems are due to the nature of the game. A traditional video game usually contain a goal or an ending where gamers can feel that they have completed the game. However, most of the online games DO NOT end, it does not really have a game ending because as long as gamers pay their subscriptions, game developers will develop more contents for the gamers to enjoy. It is a never ending cycle as this why it is causing this social problem around the world. 


Scott's personal final thoughts
Here are a few personal conclusions for online gamings
Business Models
  o Subscription business model
  o In game advertisement model
  o Consumer service business model (which includes Advertiser pays, viewer sees content free model, 
     advertising-Subscription Mixed Model and Fee-for-Transaction/Services Models)



© Scott Ng 2006