Trouble in the gaming industry

24 March, 2009 (15:41) | Game industry

The last months have been exceptionally good times at our office. We have landed new deals with major publishers and game icons as ID Software and Futuremark, EA continues to trust us with the next chapter in the Battlefield series and hundreds of new clients found our attractive priced services worth paying for.

Looking around, the gaming industry isn’t doing well. Publishers have to cut costs, development studios are closing down or stopped hiring new employees. And to top it off, a large number of game server providers went out of business. In the Netherlands, our competition fell apart. We now compete with:

  • Foreign companies doing business on an European scale
  • Extreme budget hosters. Selling for such low prices they will not be in business in the near future
  • Hosting companies doing game servers on the side, not as core business
  • A very limited number of “high prices is high quality” businesses with a very low number of paying customers

So what happened?

New games

In 2008 a number of new games was released with limited support for hosting platforms. For example, Call of Duty 5 (World at War) was released as a Windows game. Only Windows servers could host this game, but the promise was made a Linux version would be available at launch or right after launch.

As a large number of amateur companies waited for the Linux release, the market was ready for the bigger hosting companies deploying the game on their Windows servers. The Linux game server software was released 4 months.
Call of Duty is just one of the many games where it benefits to run on Microsoft Windows.
People ask us often if all our servers run Windows, I can safely say only 20%  of our server base runs on Microsoft Windows.

Contractual limits

Certain games are bound to contracts, limiting the availability of the game server software. For publishers this has major advantages:

  • More control over the software: this means there are NO cracked servers. Compare the Battlefield series with the Call of Duty series. CoD has major piracy issues.
  • Better feedback: closed groups of hosting parties exchange knowledge to deploy the game and work around any game specific issues.
  • The game is more exclusive, statistics are of higher quality. Great example: America’s Army Honor compared to Call of Duty client side “stats”.

These contracts limit the number of game server providers hosting the game, thus competition has to get in before being a threat.

Amateur companies

The “Internet generation”, and more specific, the gamers are young. There is a large number of amateur companies run by minors. These “companies” exist as extremely low budget hosters. In an open market, budget customers switch easily from provider to provider forcing them to compete even more on pricing. No knowledge, no volume, not paying taxes, customer support only after school is closed, it is all very common for these companies.

They don’t last very long, but the continues cycle of new start-ups and closing down attracts customers away from legit GSPs in the market thus being a serious threat to small to medium GSPs.
In this market, you need to distinguish yourself from the competition. If you fail, you are bound to compete with the amateurs. And you’ll loose as they come and go and have absolutely no long term strategy in mind.

Illegal software

Very common in this market, especially with amateur companies, but also regular with legit companies. Software like Ventrilo is very often sold illegally. How stupid: they even advertise with it!

No diversity

Several GSPs only sell game servers. Just game servers and nothing else. That’s asking for trouble. There is a clear cycle in gaming revenue throughout the year. Easy months are from spring to fall. Can they survive? Usually not. Colocation costs, employees (if they actually have employees!) won’t settle for less salary in the summer. If business was good the year before you’ll have to pay additional taxes.

Some companies go to the extreme with their diversity. There is no clear core business as they deliver anything from VPS to VOIP to dedicated servers to shared hosting to game servers and colocation. These companies won’t make money. If potential customers don’t know what you are actually selling, why would they buy anything from you?

Looking at the current situation in The Netherlands

Almost all game server providers active one year ago are out of business. The number of active game server providers in business for more than 2 years is dangerous low. As you may understand, times are good for our company. Our business grows internationally, let’s see where we are next year.

We have seen companies being sold, shutting down, companies doing such a good business their owner works a fulltime job somewhere else. Some disappear, some go out with a bang. It is so silly you cannot find one single overview of all GSPs doing business in the country without having a dozen shut down companies listed. Customers don’t want to hop from provider to provider anymore. The market is deciding. The real powerhouses are doing major business. Times are good.

I am very curious about your opinions on my blog.

Comments

Comment from Chris Moran
Date: March 24, 2009, 4:02 PM

Nice writing style. Looking forward to reading more from you.

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Comment from dedicated game servers
Date: April 23, 2009, 5:36 AM

lets not cut costs on this. i know the economy is bad but lets
keep it up.