Strategy Analytics estimates that revenues from online games will reach $11.5 billion by 2011, a 25.2 percent compound annual growth rate (source: arstechnica news). In 2006, the North American subscription market hit $576 million, and Europe rose to $299 million. Europe has seen the fastest growth over the last few years, rising from $74 million in 2004, and is expected to see the most growth over the next few, as well (source: IGN).
There are two main methods that game developing software companies use to create revenue. These two methods aren't exclusive to graphic-based online games, the second option is also used by text-based online games such as MUDs.
Method 1. Retail the game client program for $30-60 per user account, and
1a. Either elect to have server game play for free: Guild Wars, NWN, etc.
1b. Or, have users also pay for a monthly subscription: WoW, City of Heroes/Villans
Method 2. Allow users to download the game client for free, and
1a. Have an in-game "store" that users use real world money to buy items for their in-game characters
1b. Exclusive use of special items and character equippables that greatly enhance playability for a fee
1c. Examples
MMOs aren't immune from the 4 (or 5, depending on who you consult) P's of marketing, otherwise known as the marketing mix: Product, Price, Place (distribution), Promotion, and entrepreneurship. Customer acquisitions and retention are key issues for MMOs, just as with any for-profit business. The MMO facet of the gaming industry is beginning to see the emergence of a high barrier to entry: Price, and I'm not talking about standard purchase fees, but rather how much it will cost a game developer and its VC investors to bring an MMO to market.
Who would have thought that when games made it to the online realm that bringing a game to market would cost $25+ million?
Read more?
Wikipedia definition of MMORPG
MMO Profitability
Games with strong online components outsell the competition
Why the MMORPG subscription based business model is broken
Free-To-Play MMO Creators Should 'Show Us The Money'
