Try, Try Again: Can Xfire Massively Monetize Multiplay?

Electronic Gaming Business, June 16, 2004

So many online multiplay addicts...so little revenue. Retail PC shooters like America's Army and Counter-Strike are wildly popular for live team and deathmatch play, but since much of this teeming activity is free for players, online multiplay has no clear business model.

Last year, several play for pay sites like UltimateArena and YouPlayGames (EGB, 7/2/03) tried to get gamers to wager against each other in these contests and take a slice of the betting for themselves and publishing partners. At the time, UA CEO Mike Cassidy told us that 15,000 rounds a month of wagered play could theoretically generate $100,000 in revenue a month, if only 1% or 2% of multiplayers of titles decided to wager. It didn't quite work that way. YPG's Web site has gone dark, and while Cassidy's attempt is still in operation, he now admits "UltimateArena was a single, not a home run."

Recently rebranding the company Xfire and introducing a messaging client for gamers of the same name, Cassidy says the new model morphed out of the weaknesses they discovered about wagered play. "We got 500,000 people once Counter-Strike launched," he says, but many weren't converting to return players. Human nature being what it is, the overwhelming majority of Ultimate Arena bettors thought they were better players than they were. Apparently, getting whupped by ace players for cash wasn't anyone's idea of fun. "These people [UA players] are really good, and others don't want to start losing to strangers," says Cassidy.

UA has shifted much of its model to sponsored tournaments now, but Xfire is a multiplayers' helper that tries to leverage this new knowledge about online players with a messaging client that helps gamers play among a network of buddies. "It's social networking applied to gaming," says Cassidy. Like an IM client, Xfire tracks which of your buddies is online or playing a game, and it lets you gather them up for a game or simply click directly into their game. Because it relies on gamers entering in their own list of friends, the program is wildly viral. It released to 100 machines in January and is now on 500,000, more than half of whom came through a friend's referral, while many others came off of it being bundled with UbiSoft;s Far Cry.

"Last weekend on Sunday alone there were 150,000 players on Xfire," says Cassidy.

The Money Shot

As usual, the big question is how to extract revenue from all of those eyeballs, and Xfire is trying to execute a three-legged strategy for monetizing these avid gamers. Obviously, you advertise to them in a small banner atop the client software, which is open typically up to 60 hours a month. Cassidy says his inventory is already appealing to mass brands like Pepsi and Phillips consumer electronics. He is pitching Xfire as an alternative to the usual game site placements because these banners grab the user closer to the game experience.

For now, Xfire seems to come at a bargain with a $5 CPM against an extremely well-targeted audience of hard core gamers. "To purchase a day's worth of inventory it is about $5,000 a day," he says, with a reach of about 225,000 to 250,000 users.

A less likely source of revenue will be e-commerce referrals. Since Xfire knows who is playing what games and who isn't it should be able to laser target offers to high probability buyers. "If your group of friends is playing Battlefield Vietnam, but you don't own it, we can say wouldn't you like to buy it and make a commission."

The most interesting play in Xfire's book may be the metrics it is able to assemble. With hundreds of thousand of clients registering which games are being played for how long, the company could easily compile a ratings system for multiplay. By monitoring game usage among the Xfire client users, for instance, Cassidy knows that "the average Battlefield Vietnam player plays 6.3 hours a week, and plays 3.2 hours a week of Call of Duty, and plays 2.1 hours of Counter-Strike."

Week to week, he gets a unique view of gaming habits, title longevity, and competitive mind share that he plans to package for game publishers. This is the sort of granular knowledge of gameplay patterns the industry needs, and having a weekly monitor of game usage can help marketers better time afterretail mod releases and expansions to maintain a game's popularity.

Publishers need to do nothing, since Xfire manages to make the program compatible with up to 90% of first person shooters and MMOGs and about 70% of real-time strategy titles. For publishers the opportunity lies in customer retention and title promotion. Cassidy claims that the client adds exposure for many multiplay titles like America's Army, which users can see is very popular among fellow users. As well, by playing with friends at the same skill level, Xfire may help reduce churn in online games because it minimizes the bad experiences that turn gamers off. He expects 40% of revenue to come from advertising, 40% from e-commerce commissions, and 20% from research sales. Ultimately, Xfire wants to move beyond the hard core and penetrate the even more massive online casual games market. That is where we expect the company will meet its likely competitor, AOL's AIM chat client. AOL is already cutting deals with game developers for incorporating AIM into games, and the goliath of ISPs has 150 million users of the client, which it is making ever more game friendly.