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RealArcade is the Real Deal!

RealNetwork’s RealArcade Group is out to change the way you think about buying and playing games online. Early results would indicate their game plan is a winning one. Each day, RealArcade attracts and retains enough game “buyers” to fill Seattle’s Husky Stadium to the roof — people who not only enjoy playing games online, but who have also downloaded one or more demo’s for playing offline. Out of each stadium-size group of gamers, up to an impressive 5% (using a recent best-seller game as an example) put their money down and buy the game, doing so for less than they could purchase the same shrinkwrapped version at their local software store. In total, more than 7 million games have been downloaded over the past eighteen months. Can you say “new game sales and distribution model”?

In fact, RealArcade is much more than the world’s up-and-coming biggest game store. It’s also the engine of a complete online gaming system that can help users download, install and manage their game play. And it’s the platform for a dazzling array of Web-based games, including Smallball (imagine “The Sims,” Major League Baseball and Tamagotchi rolled into one). We sat down with RealArcade’s Group Product Manager Paul Thelen to learn Real’s game plan for winning over the Web. It’s a game of sharp strategy and hard numbers. — LS

Seattle24x7: What differentiates RealArcade from other gaming sites?
Thelen: The main difference is what we’re actually offering consumers, which is an alternative to going to the store to buy a CD-ROM. You can’t get fully-downloadable games from Microsoft or from any other game site right now. With our E-commerce system in place, if you like a game, say, Castrol Superbike Racing Simulator, you can immediately buy it, download it and be playing it in five minutes. The other difference is we have the client software — RealArcade — that enables all of that to happen.

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Seattle24x7: RealArcade is more than a games player, it actually helps with managing and installing games?
Thelen: When we first began offering games on the Web site, we ran into a lot of issues. There are issues with system requirements, people had difficulty downloading, and just getting the game to work right. Today, RealArcade does all of that safety-checking for the consumer so if they don’t have the right CD card, it will warn them before they download the game. If they don’t have the right CPU or memory, they’ll know about it before they try and play the game.

RealArcade does everything a Web browser does — it actually wraps IE in it, so we can render HTML, but it also does a lot of client side management and download management. It has a complete database of every game that it finds on your computer so it can manage and actually launch all those games — including games that we don’t distribute.

Seattle24x7: There’s also a community component, isn’t there?
Thelen: Within RealArcade, you can find information about any game that we distribute, from other user’s reviews to message boards on every game. There’s a complete rating and review system where consumers can actually rate games that they like or dislike and read about what other people thought of games. There’s actually full multiplayer support within RealArcade as well for any game that supports multiplayer. You have a common look and feel area you can go to to play any of those games. Whether it’s a CD-ROM title like Rogue Spear or whether it’s one of our titles like BigBot Battles or even like Hearts or Spades, it always looks the same, it’s the same user interface that people play with.

Seattle24x7: When did gaming first get underway at Real and what were your business models?
Thelen: Late April, early May of last year (2000). When we launched it was real.com/games. When we started, we explored a lot of different business models trying to understand consumer demand and what consumers were willing to pay for. Behind all this, you have to make money to stay in business.

There were two models which emerged fairly successfully. The number one model was the fully-downloabable gamespace where you have full versions of games which are purchasable online and get fulfilled online with no physical product being distributed. There is instant gratification. There’s no cost of goods. You can offer games at a lower price point.. You can have people try all the versions. We have wrappers that will work for an hour so you can try the full version of the game, not a demo, but the full version. Try it out for an hour, and if you like it you can buy it and keep it for life.

The other model we explored was in the Web-based games space which is ad-supported. We offer free Java-based Web games that are ad-supported. That was interesting, not so much financially, as it is in creating a very habituated user-base. Those games are very addictive and cause people to come back day after day and spend a lot of time on the site.

We currently have seven partners for our Web games. We actually do all the selling of the advertising for those games and then we split that with the developers of the games.

Seattle24x7: What percentage of games are free vs. fee-based?
Thelen: Of the games that we offer, we have about 75-80 Web games that are completely free. Then we have about 65 high-quality downloadable games, every one of which has a free version, and everyone of those also has a paid-for version. Sometimes the free versions are demos that are limited by the number of levels you can access, sometimes it’s just a time limit of how long you can use it before you have to pay for it.

Seattle24x7: Some of these titles are also available as shrinkwrapped product in stores. The electronic versions sell for less?
Thelen: Right, in the traditional retail model you have production costs — the actual printing of CD’s being one thing — but even higher on the cost chain is the number of mark-ups the game goes through from the publisher to the distributor to the retailer. And then you have issues with shrinkage, theft is a fairly significant thing, as well as obsolescence where you might have huge inventories of games that didn’t sell. It’s very hard to predict which games are going to be a hit and which ones are not. But on the Internet, if you have a hit game, you never run out of inventory. If you have a really bad game, you don’t waste any money with inventory.

A lot of it is passing higher margins on back to the developers of the games themselves. In the traditional retail model, game developers don’t see a very big percentage of the actual consumer purchase dollar.

Seattle24x7: Are you doing any of the hybrid adver-games like the Toyota Monster Truck game?
Thelen: We haven’t currently. We have some fully-downloadable games that have sponsors but the sponsors are not necessarily what the game’s all about. We have five very high quality, 3-D games that are very graphically intense. And those are sponsored by Intel for the Pentium IV campaign. On the free version of those you get a full-screen ad thing. With the Kayaking game, it will say, for better splashing and paddling or whatever, get Pentium IV, and that’s on the way into the game and the way out of the game. And then some of the gates within the Kayak game have some branding. Those are relevant sponsorships, and the reason they’re relevant for the consumer is that these games chew up a computer, and the better computer you have, the better your experience is going to be.

Seattle24x7: Where in the launch process is RealArcade today?
Thelen: We’re officially in beta now. We will go gold with the service sometime late summer, early fall. Gold is a final version in product terms, but because it’s a service it will continue to evolve every month. We’ve built it in a dynamic way to add functionality, new sections and new features over time, without having to release new product.

Seattle24x7: Kayak Extreme is one of the hot new launch titles?
Thelen: Kayak is an exclusive title for us. We’re the only place in the world that has the game. About 20-30% of the games we offer are exclusive to us. The other 70-80% are either available as shrinkwrapped at resale or from the developers themselves online.

Seattle24x7: Exclusivity shows a real commitment on the developers’ part to what you’re doing?
Thelen: Several developers are pretty focused on this space. A company out of the UK called SmallRocket has a number of our exclusive titles. They’ve been thinking about this space for a number of years and designing games which are incredibly rich 3-D environments yet in a reasonable size for downloading.

Seattle24x7: SmallBall is another title that seems destined for great success?
Thelen: Right, it’s from a group called “And Now” in Half Moon Bay, California. They also did Echo the Dolphin and a lot of Playstation and Nintendo games. The best way to describe SmallBall is “The Sims meet Major League Baseball meet Tamagotchi.” You become a manager of a team of little smallball baseball players and they all have very unique personalities. You kind of get to know each one of them over time, their individual strengths and weaknesses, and you can improve upon all their skills over the time you spend with them and practice with them. If you ignore them, they get upset and don’t play well. They start to lose their skills after a few days if you don’t pay attention to them.

Once you have them in prime baseball shape you go online and you can find teams to play against. Win and you can advance up the rankings from the big league into the tournament league.

Seattle24x7: Do the Smallball players ever get into contract disputes?
Thelen: The game doesn’t allow trading of players yet.

Seattle24x7: How many players on a Smallball team?
Thelen: There are 13 players, each one has what [the developers call] PlayerDNA — about 22 various character sets within each player. They have some preset strengths and weaknesses and aptitudes to learn certain skills. You can make anyone a good pitcher, but only a few players will be just exceptional pitchers. When you get to know your players, you can figure out who has the optimal skills.

Seattle24x7: When you look at the game categories by genre, are the casual games the most popular?
Thelen: If you look at who is being served by the retail market historically, the hard core gamer is pretty well served, and it’s a good medium for them because they expect the latest, greatest, deepest game. They’re spending 20-30 hours per week playing games, and so they need a lot of depth to a game.

People who are unserved fall more along the lines of what we call the mainstream gamer. These are people who like rich game experiences, they know what a good game vs. a bad game is, but they don’t have 30 hours a week to devote to it. They like a game that’s easier to get into, where they don’t have to read a 60-page manual to figure it out. That’s where we’ve been focusing our sweet spot.

Larry Sivitz is the Managing Editor of Seattle24x7.

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RealNetworks RealArcade Group

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http://www.realarcade.com/ Current number of employees: 34