[The online game market has a battle raging between subscription-based and alternative microtransaction-related business models - Gamasutra examines the matchup with SOE's John Smedley, Three Rings' Daniel James and EA Mythic's Mark Jacobs.]

While the majority of MMOGs in the U.S. still earn their keep by collecting monthly fees, the classic subscription business model is no longer a knee-jerk reaction for most domestic publishers of new massive-multiplayer online games.

Indeed, publishers say they are thinking long and hard, weighing their options, and not announcing earlier than necessary how their forthcoming games will produce income.

Consider Sony Online Entertainment. Every one of SOE's six current MMOGs -- EverQuest, EverQuest II, Vanguard: Saga Of Heroes, The Matrix Online, Planetside, and EverQuest Online Adventures -- requires gamers to shell out a monthly subscription fee. But come 2009, when Sony launches The Agency, an online action shooter, it still isn't clear what will be its method of generating revenue.

"We'll be launching another MMOG -- Free Realms -- prior to The Agency late this year. And we've already said that we're absolutely going away from standard subscriptions there, using 'freemiums' instead," says John Smedley, SOE's president. "That means you can play for free but you can also sign up for a club within the game if you want extra features.

"As for The Agency, we're taking a wait-and-see attitude," he adds. "Before we make any decisions, we want to see how the combination of free play, microtransactions, and advertising support works for Free Realms. If I had to guess, I suspect we'll be doing the same with The Agency, but we're not quite ready to commit."

"In the meantime, we've designed the game to fit different models. Regardless which we actually choose, I foresee us moving to various business models other than subscriptions over time for newer games."

SOE's The Agency

Smedley wouldn't comment on DC Universe Online, another forthcoming SOE MMOG that has not yet been officially announced.

But he did hint there's even the possibility of re-tooling older MMOGs to accept new revenue models.

"We might be able to get new life out of an older MMO by going away from the subscription model and adding microtransactions," he says. "It is possible to do that, but it's probably unlikely. We'll more likely save the newer revenue models for our newer games."

Smedley observes that while SOE's current MMOGs have been very successful, he's starting to see some growth limits due to the subscriptions they impose on gamers.

"As time goes on, it's going to be easier to reach new, non-typical gaming audiences with new business models, especially if they've never subscribed to games in the past and are reluctant to do so," he says. "That is the main reason we're instituting a new strategy for Free Realms and considering one for The Agency."

One developer that's had experience reworking an MMOG from subscriptions-only to micro-transactions to grow its audience is San Francisco-based Three Rings Design.

The company currently offers two MMOGs -- Puzzle Pirates and Bang! Howdy -- as well as Whirled, which is in beta. Three Rings launched Puzzle Pirates in 2003 as a subscription-only game which ran in that format for a little over a year.

"But, in 2005, we rolled out a microtransaction version of the game which we called 'Doubloons,' and we did that for a couple of reasons," explains CEO Daniel James. "People were playing for the seven-day free period and then leaving us."

"We theorized -- and it turned out to be correct -- that if you could keep gamers around for a longer period playing for free, you have a better chance of turning them into revenue-generating customers via microtransactions down the road."

"Also, not everyone wanted to commit to a $10-a-month subscription," he adds. "But they were willing to pay $3 in micro-transactions to get their feet wet. And, interestingly enough, if these people found that the game provided attractive enough things to spend their money on, a small portion of our user base suddenly became extremely enthusiastic about spending a lot of money on it. And I'm talking about a meaningful number of high-end users who spend multiple thousands of dollars a month."

James firmly believes that the nature of a particular MMOG has a lot to do with whether it lends itself more to subscriptions or to micro-transactions. For instance, the people who play the larger-scale, "hardcore" MMOGs -- like Blizzard's World Of Warcraft or SOE's current offerings -- tend to consider themselves "gamers" and are more amenable to paying recurring monthly subscriptions.

"They are used to acquiring their MMOGs through the retail channel and then spending $10 or $15 monthly on what they consider their hobby, which is playing games," he says. "In contrast to that, the market we are more interested in... and one that is growing much, much more rapidly in terms of number of users... is the casual gamer whose numbers are in the hundreds of millions worldwide."

James explains that these "casual gamers" are not the ones generally considered to be the older female audience who enjoy playing Sudoku and card games online.

"By 'casual,' I'm referring to the armies of teenagers -- perhaps 100 million of them -- who are actively playing games on the Internet," he says. "By and large, they aren't buying games in stores because they are so expensive; they're playing simple flash and Java games online that don't have to be downloaded or installed.

"There is a huge audience out there that is voraciously consuming games like Puzzle Pirates -- a very casual MMOG -- which is why our demographics are literally from seven to 70 and 50-50 male-female."

"It is so broad that if we, as an industry, can work out how to monetize that audience, how to get them to become more immersed in games and then give us money, then clearly there is a much greater potential than in the hardcore PC game industry, in the MMORPG business, or in the console business. And that is where our focus is as a company."

However, there will be no experimenting with revenue models at EA Mythic where the subscription model is alive and well. Gamers pay monthly to play its current MMOG Dark Age Of Camelot and they'll pay monthly to play Warhammer Online: Age Of Reckoning when it is released this fall.

"You know, everyone thinks it's just so cool to say that the subscription model is passé, that it's dead," notes Mark Jacobs, general manager and VP. "They love to talk about their new models and how they are going to revolutionize the MMOG world. But MMOG publishers are spending a lot more on their games than anyone thought they'd be spending five years ago."

"If your game doesn't have the production values of a leading-edge game, if they are two-dimensional and not three, if they have lower system specs, okay."

"But if you're investing as much time and money as we are on our MMOGs, if you need to pay for the servers and the customer support, if you want to make a real profit on your game, subscriptions are the only way to go."

While Jacobs concedes that the micro-transaction model has been extremely successful in Asia where gamers have become accustomed to it, he says there's a reason why most of the MMOGs in the U.S. and Europe are subscription-based.

"The microtransaction guys will say that they are more successful," he argues. "Oh really? I find it very disingenuous when publishers talk about how many people are playing their game but won't talk about how much money they're making."

"Frankly, I would rather have one million customers who are all paying to play than 20 million customers with only one million of them paying to play. I can give them better support, I can give them a better game, I can deal with a better community, I have fewer customer service headaches."

EA Mythic's Warhammer Online: Age Of Reckoning

As a result, Jacobs say he has no desire to try any other models on Warhammer.

"We already have 700,000 people signed up just to test our game in closed beta," he recounts. "The nice thing about our model is that you can do very simple math with it which is what I like 'cause I'm a very simple guy. If we get a million subscribers each month and we charge 15 bucks a month, that's $180 million a year. There's no need to wonder how many people are going to buy how many micro-transactions."

Regardless how strongly Jacobs feels about subscriptions, he says he doesn't see the MMOG sector agreeing on any one particular model anytime soon. In fact, he expects there will be new models surfacing although he can't predict what they might be.

"Somebody, I'm sure, will come up with something interesting, because they always do," he says. "In fact, I find it humorous that a lot of people on the various MMOG forums I patrol are actually calling for hourly billing. Can you imagine? I thought we got past that. But they're saying, 'Look, I'd rather pay 25 or 50 cents an hour because I only play a few hours a month and don't have the time for more.

"I don't think those people remember when all MMOGs billed hourly," he concludes, "and gamers who got hooked on MMOGs were receiving $1,000 monthly bills. That's what I like about subscription models; I don't have to worry about nickel-and-diming people to death. It's bad enough that the airlines are now starting to charge for your first piece of luggage and for window seats. Can you imagine?"