Conceptually there are two primary elements which need to be considered when analysing Internet commerce; the attention and the network (Kelly 2007; Goldhaber,

1997).

Image 1 from: http://www.coastradio.org/images/attention.gifImage 2 from: Image From: http://www.textually.org/textually/archives/2008/09/021196.htm

Attention Media

i. What is it?

• Simplistically attention media is drawing in an audience, from where (to whom?) you are able to deliver your message. In the context of [the] Internet business, the first element is being able to attract an audience, whether this be through Internet methods or via the creation of interest from outside of the Internet medium.

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• The attention, was characterised by Warhol, as the ‘fifteen minutes of fame’. The logic being that everyone has it, but how this manifests itself becomes the ultimate challenge. We need attention in order to create interest, but we only have a brief period to convert this into something meaningful.

• Our attention therefore, is what will bring the audience to our product, site or event; we have, but a fleeting opportunity to use this to create the next level of business.

ii. How important is it?

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• In the context of any business there is a need to get people ‘through the door’, in the traditional context this would be through shop window display or advertising the business. It is the gateway to bring the consumer in for the sale. There is no difference with Internet commerce, in that there are the same principles of the necessity to get people ‘through the door’, how we achieve this is the fundamental measure of success of the initial stages of the Internet business.

• The attention grabbing for an Internet business is substantially greater than a traditional outlet. In the first instance there are a larger level of options available, and with faster speeds a potential consumer will be able to analyse a number of businesses in a rapid period of time.

Technology parallel – broadband and web2.0 enabling increased speed or access, fast comparisons/product research, quicker sales turnover – global sales

Image From: http://weburbanist.com/wp-content/uploads/2010/01/anagram-bookstore.jpg

• Consider the example of buying a book, for a traditional book buyer, visiting a strip mall they might have 3 options, each 200 metres apart. Given browsing and travel time to visit all three might take an hour and there may only be a differential of $5 in the price of the book. [Juxtaposed] a book buyer online has hundreds of options, and does not have to travel far to reach each one. The attention media therefore becomes important, the book buyer has a limited attention span, therefore the successful site will generally have something to interest and retain them (other than price). It may be the use of flash, a banner advertisement or an offer which leads them to purchase from the site.

Eg: Book Depository (http://www.bookdepository.com/) has free world-wide shipping, Thrift Books (http://www.thriftbooks.com/) sell - and thus recycle - second-hand books, have partnerships with US libraries (sell ex-library books and return a share of profits) , free shipping in USA, they also use environmentally friendly packaging

• Parallels between traditional consumer economics and Internet consumer economics is that there, in the initial stages, something needs to draw the consumer in, and in the absence of this the success of the business will be limited.

iii. Attention in isolation

• Can a business, in the long term survive on attention media alone as its economic basis? This question was answered by the impact of the original Internet boom and bust. These businesses had attention, even sales, but they were unable to convert this to economic success. Fundamentally this was due to having failed to garner repeat sales and transactions, and therefore needing to invest greater funds for each sale, as the novelty and adventure of the sale (for the consumer) become less.

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• For each successful proponent of the attention media, there are a thousand who have not succeeded. South Park parodies this in the concept of ‘Internet millions’ a situation where attention breeds only a concept of return, not an actual return.

iv. Attention as part of a consolidated Internet business

• As part of the development of any form of business there needs to be an element of attention in the creation of buzz and interest in the product or service. In the absence of this, the ability to draw the consumer is difficult, if not impossible, as there is no differentiation other than price. Homogenised products could, in theory, survive without the attention of the consumer (for example electricity providers) if only all participants failed to attempt to grab attention.

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• The attention aspect of Internet commerce, cannot create a business in isolation, rather it is necessary for the business to have other elements, [but] conversely without attention media, the Internet business and the fundamental economic model cannot succeed without firstly drawing customers through the door.

Network Economics

Network economics is best manifested in the example of telecommunications and primarily the fax machine. On its own a fax machine is pointless, but as more people have them they become more powerful.

i. What is it?

• Conceptually network economics is that as the network grows, and more people participate and become part of it, it becomes a more valid business. The nature of the network is that its relevance is categorised by having more people in it, and using it.

Image From: http://prblog.typepad.com/strategic_public_relation/images/2007/06/22/simple_social_network.png

• The network can be anything, in the Internet context, this might be users, a forum, even subscribers to a blog or mailing list. In the absence of these there is little, if anything material about the business.

• Facebook, as a network, is a strong example of how the value of the medium grows with each additional user. One user on Facebook has no one to deal with, to talk to, or to share information, but as more people become a part of the network, the business becomes stronger, the level of interaction increases and the value of the business rises.

ii. How does it work?

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• The fundamental economic basis for the business is that as more join the network, the value of the network increases. Using the example of the fax machine, one is irrelevant, two can at least communicate with each other, 1,000,000 and there becomes unlimited opportunities to use the network. As the network increases the viability grows with it.

• (Reference) categorises the network as being a long term reality, and as something which has been increased (grown?) with the increase in communication options. As there are more users, and these users group together, the importance and the relevance of the business has increased.

• For Internet economics, the network is the measure of long term success, attention alone cannot economically build a successful business, as if I need to use attention to bring in a new sale, each time, the cost of doing so will ultimately undermine the success (and economic survival) of my business.

iii. Is it a new event?

• Simplistically, this is not a new event, but rather the birth of the Internet has meant that the opportunities to enhance the network (existing networks?) have increased. With 600m users on Facebook, this is greater than the population of all but 2 of the countries of the world. In a traditional context, this has meant that network has grown beyond what would have been a reasonable level of network in the world context.

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• Businesses have always relied on a network of sorts, whether this be word of mouth advertising, or simply through the support of a business, to allow the owner to acquire more stock, which satisfies more consumers.

iv. Network in isolation, can it grow or is it inefficient?

• In theory a network can grow without attention media assisting it, however this is an uneconomic measure and one which will struggle to gain traction by its own devices. There is a necessity for the network to be promoted in some manner, to bring users in and to ensure that there is something to attract them to keep returning.

• YouTube is a good example of a business which requires both elements in order to remain successful. The attention that the users create through the uploading of videos, brings more users to the site, and the continual refreshment of the data that is uploaded keeps bringing people into the network. However in isolation the creation of the network alone would be insufficient for the business to succeed.

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• The development of network as an aspect of economic success, ultimately the defining measure of long term success, however in order to grow the business, there needs to be strong promotion through the creation of attention to draw users to the site (into the network).

v. Network as part of a consolidated Internet business

• Each successful business on the Internet has an element of network. To succeed by all measures of a business, there is a level of repetitiveness which is constant across all models. In the absence of this consistent transaction there is a lack of economic success as the cost of new customers is considerable when compared with continuing customers. The network, as it were, may manifest itself in a number of ways (being contributors, visitors, commentators, purchasers or subscribers), each is as valid as the next in the growth of the business, and the achievement of economic gains.

• In the absence of network, the ability of the online business to succeed is limited, and simply can be confirmed by the bright burning but ultimately financially unsuccessful attention grabbing ‘businesses’ whose carcasses litter the Internet business model.

Convergence of economic aspects

• The merging of the two concepts into the creation of a successful business model is one that we have considered in the context of Blizzard / Activision, and more specifically through individual business units within the whole offering.

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• In converging both elements we are considering much of the traditional business model. Tying this back to something such as a newspaper, which enjoyed, on one hand the sensationalism of the news page, to build user numbers; but on the other hand requires the ongoing network of readers (who not only commented in print but also in discussion with colleagues and friends) to build the legitimacy and loyalty of the print.

i. Role of each

• In a simple analysis, a business requires attention (loosely defined as advertising [+marketing & promotion?]) to bring customers through the door, and then a network (of customers) to promote the business, and to allow sales to occur to grow the business offering and the products which could be supplied.

• In the context of the Internet business, this further manifests itself through the creation of a longer term network, which not only creates the attention of the business, but also increases the visibility of the business and the ability to create new content to meet the needs of the consumers.

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• Considering the individual success of either model, there is an acknowledgement that the business cannot survive in the long term without each providing support for the other element of the business.

ii. Analysis of a successful Internet business – Blizzard / Activision

• The business of Blizzard Entertainment is considered in our timeline, and is one of a company which has translated on exceptionally successful platform game into one of the most valuable Internet commodities and the most successful MMORPG in the world (with an estimate of over 50% of the market share).

Image from: http://brisbanemodchips.com.au/store/images/wow.gif

• In analysing this property there are two primary elements which have been considered, the first is that of battle.net, the online ‘database’ as it were for the underlying games within the series and the second is that of world of warcraft (‘WOW’) (a MMORPG), which was developed from the original warcraft series Orcs and Humans.

• The company has a number of other successful titles which have been developed and repackaged (for example Starcraft), however none, as yet, have reached the scale of WOW in terms of revenue and market penetration.

• In many ways the WOW business has become a segment killer, seeing off a number of challenges from similar businesses, which have simply been unable to create a level of user numbers to challenge the dominant player.

(i) Battle.net

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• In itself battle.net does not make money for the Blizzard business, but instead is a consolidated platform for gamers to use the products which they have physically purchased. It is an online registration system as much as it is a methodology for the allowing of the playing of games.

• The importance of the platform for the business is considerable in the context of brand loyalty, security and promotion.

a. How does it create value for the business?

Security

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• A subscriber to battle.net now has the option of bank account like security features (through the use of tags) to protect their account. This has addressed a significant concern within the community over the hijacking of accounts, but has also meant that a user within the game is given a level of protection greater than offered by most other games.

• Whilst this is not a revenue creator for the business, it is however, a defining feature and one that places the business in a first mover advantage. A player in the game can be confident of account security, well above what would normally be expected.

Brand Loyalty• The platform has created a network for the user, wherein they can join forums of similar

gamers and can access information about upcoming games and features or can access beta testing of new games and improvements. This brand loyalty has manifested itself in the evolution of new games, which has been reflective of the wishes of the users.

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• The accessing to reviewed forums has been a catalyst for the business making game improvements in line with the wishes of the user community in a faster time than would be available through other methods. This has brought the games closer to the players, and therefore is more likely to meet their gaming needs (and enhance the overall experience). A form of networking with customers

• The creation of brand loyalty is an importance aspect in the growth and success of a business, it is accepted that acquiring a customer is seven times more expensive than retaining one, where a customer enjoys a platform which recognising them as a part of a community then the business is more likely to be successful.

• Battle.net has created a level of brand loyalty across multiple titles, the platform has tailored itself to not only interest the user in the games that they are currently player, but also allows them to make comment on the content of the current game, and the future of games that they wish to see.

Promotion• The Internet business models for the most part are reliant upon the promotion of the

commodity in order to bring users into the site. Insofar as battle.net has been used to date, it is as much promotion as it is providing a secure platform.

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• The user is given an insight into the new developments of the business, each time they log in, they are given trials of new games and the quality of communication internally is incredible. This promotion through platform has to some extent, replaced the need for businesses to create buzz through computer magazines and traditional media sources.

• The creation of loyal users and members means that the business is better placed to promote new products, through the development of the network of supports of the business, there is an ability to create buzz outside of the traditional confines and in turn increase the numbers of users on the platform.

• The value of this aspect again is not measured in terms of the creation of revenue, but through the increase in exposure (which over time will increase revenue), it is not necessarily definable in terms of overall revenue, but can be measured through this long term increase in sales.

How successful is this strategy?

• The success of this aspect of the business has been considerable when examining the uptake of user numbers on the platform, and the level of interaction on the forums and the sites alone. There has been an acceptance that users are preferring to focus their purchases on an online outlet as opposed to physical stores and blizzard.net is replacing much of the face to face sales function.

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• As the component of the business is still relatively young, the financial performance and the creation of value is still limited, however early indicators are showing that this component of the business is greatly valuable to the overall business, and will be best demonstrated once Starcraft 2 is launched in 2011.

• In terms of the creation of community, a simple measure for Internet

• businesses, to date there has been an estimate of ??? active users, which has been compared favourably ahead of total Xbox live users.

• The creation of network to date has been successful, from its humble origins as a network for the allowing of playing Orcs and humans, the games has greatly increased, to being the platform for in excess of 20,000,000 users.

c. How has the business adapted with age?

• The original platform was for the playing of a network game. The platform worked on slower Internet connections and required the individual player to have a working copy of the game on their machines.

• As the speed of Internet connections has increased and the requirements of the players has increased, there has been a continual refinement of the platform. Moving into web 2.0, users are able to play many of the games with only limited data stored on the host machine. For example, WOW only has a small percentage of the total platform on the host machine, the majority of the game features are online, to the extent that the individual user is unable to access the game offline.

• This is further evidence towards Kelly’s (1997) philosophy of ‘embracing dumb power’. One dumb machine by itself is useless, while many dumb machines networked intelligently are very useful (Liebowitz 2002, p.13-14, Kelly 1997). Nice point!

• This aspect of the business has grown as the business has matured, there has been a movement from ‘now’ activities, to the creation of account and brand loyalty through the platform, not only being a conduit for accessing the immediate game, but also in the promotion to the user base and the ability of the user to contribute to changes in content.

• As attention has reduced in the long term growth of the business, the network has become more of the focus, there is less attention media on the existing properties and more on the creation of the buzz for new products. The platform has matured to define the sense of community for users which has continued to grow the network organically.

•

d. What elements of the business are attention and which are network?The simple definition of the economic measures of attention and network are prevalent in the business model of blizzard.net.

i. Attention

• The attention elements of the business over time have been through the strength of the existing properties and the building of the community to use the site. In the original business, the attention was manifested through the attention that the game (Warcraft 2) was gaining in mainstream media and through the actions of the participants. As one of the first mover properties on networking games, the success and crossover from the standalone game was through both mainstream and targeted media.

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• The business held tournaments to build usage and buzz. These tournaments have been widely covered in both mainstream media and through specific industry publications. The business has utilised existing platforms for the promotion of the events, expanding these through media, YouTube has been a significant contributor to the promotion of the game platform.

• As the business has matured the elements of attention in blizzard.net has been primarily on the strength of the WOW property, this is considered below, but for blizzard.net this has been through linking the platform to the game, and through the promotion of the new properties through the site. It has been targeting the fans of the previous games, giving them an outlet to experience the new properties and giving them a voice on development.

• This attention has been important in the growth of the overall business and number of users, as users have seen the functionality in the platform they have been bringing more users to it (and therefore creating further network).

ii. Network

• The strength of network economics in the context of the development of the business has been the ability of the business, not only to invest into further infrastructure, but also through the creation of an online community, who use the resources and play the games contained through the platforms. Examining the evolution of these platforms over time, there has been a necessity for more users to make the platform more successful.

Image from: http://www-cs-students.stanford.edu/~amitp/game-programming/game-ideas/radial-base/example.png

• ‘More gives more’; as the number of number of nodes in a network increases, the value of the network increases. Blizzard products increase in customer value as the gamer population (gamer network) increases (Kelly, 1997).

• This has been achieved through two primary methods, the first was through the ‘simplification’ of games, to ensure that there was not a situation where users were discouraged from playing the game. The second is through increased functionality so that the user is not required to leave the platform, this has been achieved through comprehensive forum access to allow users to understand the mechanisms and techniques within the game itself.

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• The network economics has been promoted through the compulsory transfer to battle.net for all WOW users, this has increased the overall traffic on the site, and has meant that there is a greater community. The business has also acquired third party sites such as wowhead.com which has added a further level of community which again increases the overall usage of the site.

• This is an example of the ‘Law of Increasing Returns’ where businesses integrate their resources with other businesses in order to create ‘Network Value’. Network Value encourages exponential growth compared to the linear growth of economies of scale (Kelly 2007).

• The business relies heavily on the existence and expansion of the network of players, in the absence of this, the games platform would be limited to standalone games, which, in the increasing speed of Internet communications, are falling to wayside.

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• Liebowitz describes this as ‘Winner-Takes-All’ where businesses that occupy extended networks are at a strong advantage because they:

- Pool resources- Share financial, human resources, knowledge, expertise- Link manufacturing, distribution and marketing- Form technology cooperation networks.

(Liebowitz 2002, p.16; Rifkin 2001, p.19).

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Image from: http://www.gosugamers.net/warcraft/images/news/Activision_Blizzard_Logo.jpg

• The formation of cooperation networks is demonstrated further in December 2007 when Activision and Blizzard merge to form Activision Blizzard. This meant combining a world leader in interactive publishing with a world leader MMORPG equating to 18.3% market share at that time (Cunningham, Langlotz, Rhode and Whaley 2008, p.24).

• This is a drastic change from Industrial economy where it was all about excluding competition (Rifkin 2001, p.17).

(ii) World of Warcraft

• The business model for world of warcraft is the monthly payment of fees by subscribers for accessing the site and playing the game. It is estimated that the monthly revenue for the business is in order of $200m, and is by the leader in the field. The game is played on multiple servers (geographically aligned) and players are generally spread on these according to the time that they joined the game. A player can have up to 50 characters with a maximum of ten per server.

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• A player acquires the software for the game once only, from that point on, if they ever need replacement game disks they can download these from the blizzard.net site.

Digital nature of the downloaded replacement 'disks' means that they do not take up shelf space (small amount of server space used to house the disk image) ie much more cost effective to store a disk image than many physical DVDs

Graph from: Feldman, Leszczynski and Pulst-Korenberg 2009, p.14, Appendix Figure 3• From this perspective Blizzard are ‘are able to achieve ‘instant scalability’ through their

ability to meet market demand in virtually no time (Liebowitz 2002, p.17). This is demonstrated through their ability to accommodate increased numbers of users at any time (Feldman, Leszczynski and Pulst-Korenberg 2009, p.2).

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• Blizzard’s instant scalability is largely due to their products involving ‘access’ rather than ‘ownership’ particularly with MMORPG games like WoW that involve monthly subscriber fees (Feldman et al. 2009, p.2). This is one of the fundamental economic basis of Internet commerce as demonstrated by Rifkin (2001); “Markets are making way for networks, and ownership is being replaced by access” (Rifkin 2001, p.4).

• There are a number of adjunct businesses to WOW which have been criticised as taking advantage of the nature of the player group, these being described as ‘Gold Farmers’ have been accused of distorting the game and making it unfair, the counter argument to this has been that for players without the time to play, using the gold farmers has simply levelled the playing field. This secondary economy has been addressed by Blizzard through the use of internal controls, but at the end of the day the regulation of this has been minimal as the game requires parity between the ‘hardcore’ and ‘soft-core’ gamers.

• The WOW business is reliant upon the continued play of the existing player group and the addition of new players to the network. The business has steadily grown from the original game, with 2 subsequent major releases and a third to follow in October 2010. Each renewal of the game has made the overall game more user friendly, and has reduced the level of skill required to be successful at the game. The game caters for a myriad of different gaming interesting, from the raider, solo player, those interested in playing auction or marketing and even those who enjoy the community within the site.

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• The game now has an estimated 11,000,000 active users through the world, these numbers continue to grow (Gray, 2008).

a. How successful is this strategy?

• In simplistic measures the property is the most successful game in its genre and in terms of revenue the most successful game of all time, however this belies the entire story, and fails to acknowledge the strength of the business in the conversion to the mainstream.

• The business has transformed from merely being the domain of a ‘geek’ to be inserted into the common vernacular and now being merely a part of everyday life. To achieve this the business has taken a number of steps, these have included significant advertising on television and digital media (noted mostly through the Mr T and William Shattner Warcraft advertisements) and were the business was part of parody (being the Southpark episode “Make Love not Warcraft”) the DVD release for series ten contained a copy of warcraft.

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• This increase in overall popularity and growth in gamer culture is a strong representation of an economy moving away from industrial production of goods and services towards cultural production of electronic cultural entertainment (Rifkin 2001, p.7). This is represented by a ‘play’ ethic fuelled by commodified cultural experience (Rifkin 2001, p.7-8).

• This also represents a shift from an industrial workforce centered around supplying goods and services, towards people servicing cultural ‘needs and desires’. Networked micro-chipped machines replace the industrial human labour force while business concentrates on working towards cultural experience (Rifkin 2001, p.9).

• The dominance of the game has been such that it has resulted in very few competitors arising and even less being able to make traction against the dominant brand. Guild Wars, an Australian company, failed in its attempt to compete (even though it was acknowledged as a superior game), solely as it could not create a sufficient network compared with the existing warcraft brand.

• The evolution of the franchise from the initial platform game to the MMORPG has not been without issues, the business has required considerable adaptation to remain relevant, and in this regard there has been an alignment between the wants of the users and the business to ensure that the game continues to be strong.

Graph from: Morningstar Equity Research 2010, p.2

• Morningstar Equity Research reports that Activision Blizzard is one of the largest developers,publishers, and distributors of video games for consoles, PCs, and handheld devices. This equates to current trading volumes sitting around 19 million.

b. How has the business adapted with age?

• The evolution of the WOW game over the 6 years of existence has been considerable and reflects the intention to move from hardcore gamers to more mainstream. This adaptation has been evidenced through the major releases reducing the emphasis on raiding to reach the highest levels of the game and bring parity between the casual gamer and the hardcore (primary through the removal of the 40 man raids with the introduction of Burning Crusade). The business was under risk prior to the launch of Burning Crusade as there was a large disparity between the player groups and the casual player was marginalised.

• This adaptation has manifested itself in a number of ways, recent changes have included automated group finding which has meant that there is less need for organisation and less ‘downtime’. The development of a more comprehensive auction has attracted players whose interests lie in accumulating in game gold. At a player level the ability to level up much quicker has meant that a new player is not isolated for an inordinate period

• The conversion to the battle.net platform has consolidated the business in such a manner that the Blizzard company has more contact with the customer base, with an eventual view to the replacement property to the warcraft title (assuming this takes place in the foreseeable future).

• By making the game generic it has attracted a greater number of users, this has been response to criticism of the game from casual gamers, and whilst the business has not necessarily ignored the hardcore gamers (and certainly appeased them through the introduction of achievements), it has acknowledged that the success of the game is through the number of players and not necessarily on catering solely to a hardcore base.

c. What elements of the business are attention and which are network?

• The advertising and marketing of the business has been as much about pointing at itself and its users and being a message that the business is available and playable by all. The attention aspect has been primarily through digital media, however the crossover has been exceptionally successful and indicates that the business is well aware of the importance of catering to both the hardcore and mainstream.

• In the initial stages of the game, there was almost a stigma attached, where it was the domain of the nerds, this has been superseded by a commonality of the game, and the point of the Southpark parody can be seen as almost the point where the business made the conversion.

• Attention in the context of the success of the business has been in the growth of the player numbers, more numbers has meant that the game has got stronger (and in turn increased the user group). This attention has been important, as being the dominant company in the field there is a constant need to draw in new players. Methods for doing this, have not only included the methods above, but through allowing studies to be made of the game, critical and positive media and through users and detractors from using forums.

• In the absence of attention economics the business would have struggled and its success has been certainly attributed to events that have been created by the business, whether these be successful advertising, events or the creation of buzz.

• The network of the business is the number of active users and the creation of in game (and out of game) communities, groups and guilds. These have been an important element of the growth of the game and ensuring that it continues to be supported. The creation of community has been an important aspect of the development of the business, in the absence of this the game would only be a simple platform and the attractive elements of the game would be unachievable.

• Network economics in the context of WOW are manifested in the interaction between the users, there is a legitimate community, with social parameters and the expectations that define a normal community. This network has brought the game to be as a much a replacement for physical community for many, and provides succour where the marginalised do not identify with their own communities or groups. This has grown the game in terms of not only users but in providing interaction which builds the success of the game.