Everyone is talking about "Web 2.0" where hot brands such as YouTube, Facebook, Flickr, Zillow and others deliver distributed services to a community of growing users. Just last week the Web 2.0 conference in San Francisco drew heavyweights including Microsoft CEO Steve Balmer, News Corp. CEO Rupert Murdoch, AOL founders Steve Case and Ted Leonsis and a who's who of the new web titans.

These new web services have smashed the old paradigm of software products that were developed, "gold mastered" and then sold into a few predictable channels. Companies had traditional barriers of increasing costs of product development, infrastructure, sales, marketing and distribution. Now companies are built in a few weeks on "mash ups" of several existing products and technologies to become big in a matter of months on shoestring budgets.

I think there is a revolution happening now in the games industry-one that many have labeled as "Games 3.0". Last year I wrote about the games business being broken and how to fix it. For a little perspective, the Games 1.0 epoch was from the early 1980s-1995 with the early Sega, Atari and Nintendo game consoles that were eventually outdistanced by the radically different Sony PlayStation. The model was simple; sell a hardware box and "attach" as many games as possible to each one. The channel was retail and stuff was sold in boxes. PC games were still mostly standalone though early MUDs were becoming more sophisticated and geeks connected over Telnet and a newly developing technology called the Internet.

The next evolutionary step was Games 2.0 that ran from 1996-2004. This era was categorized with "next gen" consoles. Sega Dreamcast started things off on the console side with revolutionary modem connectivity. Sony followed with the enormously successful PS2 and Microsoft entered the market with Xbox. Handheld gaming was catching on in a big way and Nintendo had one word for it-Game Boy. The big game publishers experimented with connected games. EA's Majestic was innovative and a few years before its time. MMORPGs caught on. Everquest became a (gamers') household name and subscription services began to gain impressive numbers. Casual games were emerging as fun, simple entertainment that legitimized the download and buy model. For the first time, a lot of women were playing games on computers. Business models were still about shipping boxes to retail, attach rates and licensing fees. Big brand licensing got bigger and every movie had to have a game.

We've been in the Games 3.0 period since 2005. I peg the start of it as the launch of the Xbox 360 where connected broadband gaming was now table stakes. Everyone was now doing an MMO and PC gaming was getting cool and profitable. World of Warcraft changed everything.

So What is Games 3.0?

There are a few necessary components of the Games 3.0 world:

- Broadband connectivity

- Community and user engagement

- Non-retail business models

- User controls and openness

- Feeds, widgets and viral content

The BIG idea around Games 3.0 is "Games as Media, NOT as product." This is a big shock for most existing game publishers whose lifeblood comes from the retail channel. For over 10 years, everyone has paid lip service to digital distribution yet it has not become a meaningful part of any major publishers' business. Revenues of downloadable games have been laughable with the exception of casual games. Microsoft has been bold with its moves around Xbox Live Arcade that will democratize the existing console oligarchy. The publishers are trying to mold Web 2.0 services and ideas to a Games 1.0 model, i.e. sell as many retail boxes as possible with additional bells and whistles. Nintendo has created a bridge between these worlds with the Wii and Internet channels.

In Games 3.0 the community is a major part of the entertainment:be it on Halo 3 or Club Penguin. Look at Facebook and you see that all the traffic and potential revenue is derived from their community of user generated content. Engaged users drive excitement. The challenge for the game industry is that media understands games are important and they are jumping in. Look at the investments from Viacom, Fox, Disney and Time Warner/AOL (owners of GameDaily). They understand they need a games component to be credible in a larger media context. They have all invested in community platforms, game publishers, developers, in-game ad companies and virtual worlds. However, many game companies fail to see themselves as what they must be-engaged media companies. The winners in Games 3.0 understand the right mix of media and games. The main competition for games companies is not other games but other media. There are 100 million people on social networks who weren't there three years ago. They are spending time, lots of it. The competition is for their time and attention.

The disruptors in this space are all around us: the free MMOs selling in-game items, virtual goods and ads; free web-based games that are easy to use like casual games yet their content looks like video games; casual games that drive huge audiences in web-based competitions. A major rule of web publishing is that 90 percent of your customers at any given time are NOT on your website. Hence the popularity of RSS feeds and widgets that bring popular experiences out to users wherever and whenever. The value of a product franchise is not just the projected sell through on version 4.0 of the same license property, but rather the value of their community of engaged users and how they can be monetized through a variety of models. If the user base shows super engagement the value can be enormous (not that Facebook should be a measurement for future valuation). The challenge for game companies is to act more widely and openly to bring what have been closed, "walled garden" experiences out to users who now expect to cobble together their entertainment experiences when and where they want.

Games 3.0 is here and it's time for our industry to harness our creativity and innovate like growing media companies.

Source:
BusinessWeek