A CES interview with SOE CEO John Smedley (pt. 1)

At CES last week we had a chance to check out several of the newest titles in the works or on offer from Sony Online Entertainment. The Agency, Free Realms, and Legends of Norrath are three substantial departures from the company's big-budget fantasy past. Last week we brought you links to the company's full video presentation on The Agency. Today Dan O'Halloran has firsthand impressions of what the free-to-play kids title FreeRealms will offer.

While we were in Las Vegas we had a chance to sit down with SOE's Chief Executive Officer, John Smedley, about these departures. Our chat focused on the economic changes the company is making in response to the shifting face of MMO gaming. He had some fascinating things to say on the subject of microtransactions and RMT, and unveiled a new community outreach program that will tie in to Free Realms called "Share the Wealth".

Let's say you have your own website. You come to our site, fill out a form pretty much the same as the one for our Station Exchange service with a Social Security number, and give us your PayPal account information. You cut and paste some JavaScript to your site, and now you have a banner ad for Free Realms on your site. We are tracking every customer you give us, and once a month we'll give you somewhere between 5-10% of all the revenue from every customer you send us. That's as long as they are playing the game.

Check out the full discussion on that subject below, and come back later today for the rest of the interview. Mr. Smedley offers us a sneak peek at big plans for subscriber's to SOE's Station Access pass.

Massively: In the past year, Sony Online Entertainment has made some interesting announcements regarding plans for their upcoming titles. What made you change your mind, and focused you and SOE down the path of mictrotransactions as opposed to subscriptions?

John Smedley: So, it's very simple. It's the belief that these games are more accessible to people if the barrier to entry isn't a credit card. I believe fundamentally, long term, that the subscription model won't be the primary one in the industry forever. It will always be there, but many more people will have access to these games through other methods, a much younger audience. The average age of our consumer right now is 31 years old. Our players are 85% male. If we are going to grow as a company we need to change that, we need to aim younger. We're doing that through a combination of different games, which is the biggest way we're changing things.

We're also looking at new business models, and that's a close second. In order for people to see the games, they have to be able to play them; we're opening them up to that possibility by letting them play for free. You're going to see that first with FreeRealms, and I'm not going to commit to it yet but we're leaning towards going that direction with the Agency as well. It's the same with console games, subscriptions are new things for console gamers.

Massively: You've previous discussed buying non-essential items through Free Realms, and we talked earlier about Legends of Norrath – do you think that those kinds of microtransaction charges are going to be one of the primary sources of revenue for the company?

John Smedley: I do. Our position on the selling of items, and I realize this is a controversial position, is always to focus on non-game-altering items. I think we've done a fantastic job with making sure the items you can get in Legends of Norrath, the loot drops, are not game-impacting. That's essential. However, some people care if their character's shirt is black and they can get a one-of-a-kind item. I think World of Warcraft did a really good job with that in their card game. The turtle mount doesn't give you any extra speed, but it looks cool, and people like that. We want to go the direction where one player doesn't have an advantage over another, but perhaps one player's style choices are more deliberate.

I also think one of the smarter things we did in Legends of Norrath was to make it so that people can get cards via drops in the games. Eventually I want to find a way where people can get everything they need completely by buying it, or just by playing the game.

Massively: So you're talking about a situation where you might be playing and you could find a time card as a drop?

John Smedley: It's interesting that you mention that, because we have been debating in LoN about having 30-day timecards as some of the loot cards. I think that would be a cool way to go. We've proven to ourselves with this game that you can introduce things like this to customers in a way that doesn't piss them off. I think the reason people are okay with it in LoN is that even though it is inarguably the selling of items, you can also get the packs just by playing the game. In my perfect scenario, every item you can get by buying you could also find through straight gameplay without spending a dime. Literally without spending a dime; we can monetize those customers by using in-game ads ... by the way, when I say in-game ads that probably means watching a 30-second video when you log in. I think at the end of the day if you're playing completely for free that's a pretty good trade-off.

Massively: Talking about Legends of Norrath, how do you feel like the game has done in these couple of months since the game came out?

John Smedley: Really well! I can give you some numbers: our average customer spends $133 dollars. We have been able to successfully convert 40% of our customers into Legends of Norrath players. 25% of our customers are paying players. We're extremely pleased and pretty shocked at the level of money people are willing to spend in these things. The reason that's important to customers is that, long-term, we can use that same model to make it so that the people that want to pay can help pay for the people that don't. I think it's an ideal business model for this industry.

Massively: When we spoke last year at SOE Gamer's Day, you were fairly firm about not bringing payment schemes like this to the more traditional hard-core games, like EverQuest 2. With Vanguard you folks have sort of an interesting opportunity, is there any thought to making that game a free-to-play title?

John Smedley: We haven't talked about it with Vanguard, but we have discussed it with the other games. We just feel like it would be too big of a change ... but we do have something that I can talk about publicly. This would be the first time I've ever mentioned it.

With FreeRealms, we're going with a very different distribution system. It's called "Share the Wealth". Let's say you have your own website. You come to our site, fill out a form pretty much the same as the one for our Station Exchange service with a Social Security number, and give us your PayPal account information. You cut and paste some JavaScript to your site, and now you have a banner ad for FreeRealms on your site. We are tracking every customer you give us, and once a month we'll give you somewhere between 5-10% of all the revenue from every customer you send us. That's as long as they are playing the game. I just announced this to our company in December, so this is a very new thing.

Massively: That's very interesting; what made you folks decide to go in that direction?

John Smedley: I believe very firmly that MMO games and online gaming is an ecosystem. A great example of this is World of Warcraft. I think we did a good job with this in EverQuest 1, not so much with 2. Thottbot is a direct example of someone who wrote a great tool and became a part of the game as a result. It's an ecosystem, and so an outside company has been able to make money off of WoW customers via advertising. I believe that one of the best things we can do is to ... first and foremost we have to make a great game. A close second is to give people the ability to build a community around the game, for there to be a community that can feed itself. I think the blogs surrounding these games are a great example; all part of the ecosystem. People want information, and that's healthy for the games and for the bloggers. I want us to push forward in the direction of people evangelizing our games. I think it's a big thing.

Massively: To make sure I understand this, you want to sort of reverse the relationship between Thott and Warcraft? You're giving people the tools to have a 'buy-in' into your game.

John Smedley: Exactly. You get a piece of the game. And it's not a one-time piece, it's an ongoing piece.

Massively: So that's the entire time that the referred players are with the game?

John Smedley: Yep. We're still working out all the details, but that's exactly what we're going to do. We're going to come up with some sort of ramping rate over time ... I'm talking about the number of customers you bring us, you'll reach some sort of threshold ... we're working out the details. That's what we want to go for though, it's about sharing the wealth. I want our customers to be our evangelists, and I want our evangelists to be gaining some kind of reward for that.

Go to part 2 >>