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Big or small valuations?

May 31st, 2007 (Visited 2407 times) Tags:

Virtual Worlds News reports that HiPiHi has raised $7-10m, with the little comment that it’s “from three overseas venture capital firms for a 10 percent stake in the company.” So, uh, that’s a valuation of $70-100m for a product in beta.

On the flip side, I just mentioned Multiverse’s round, which was for $4.175m. According to VentureBeat, that’s with a post-money valuation of $10.5m.

Quite a gap there. Is it all attributable to HiPiHi being in China? Is it because the monolithic server is seen as a better business play than the slightly-middlewarish Multiverse approach? Who knows!

I know, I know, all you gamer types are bored with this biz and legal stuff I keep blogging today.

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Tim said on May 31st, 2007 at 8:47 pm:

Please keep blogging this k thx bai! :^D

Mike Rozak said on May 31st, 2007 at 10:03 pm:

I haven’t tried valuating a MMORPG engine toolkit, but here’s an off-the-cuff guess.

At the moment, approximately 20 million people pay for MMORPGs in any given month. (It could be 15M, but I’ll use a round number.)

Each of those pays $15/month x 12 months x 20M = $3.6 billion

Of course, $3.6B is wrong since at least half the players are in China, or other countries where they can’t afford $15/month. The percentage of low-paying players will only increase as MMORPGs become more popular in Central/South America, Asia, and Africa. So, it’s not $3.6 billion, but half that, $1.8 billion.

As I’ve stated contoversially before, the top few MMORPG companies will write their own engine and avoid using a MMORPG toolkit. (I was surprised that Bioware decided to use the Hero engine, but I suspect their contract has a buy-out clause in case Bioware’s MMORPG does well.) Almost everyone else will use a MMORPG toolkit.

So, given the typical distribution, only 25%(?) of the MMORPG money will go to MMORPGs made from MMORPG engines: Hero, Multiverse, BigWorld, Fallen-Earth one, etc.

Thus, MMORPGs from toolkits get 25% x $1.8B = $450 million per year.

And of course, within the MMORPG toolkits, there will be a distribution where the most popular toolkit gets half the sales, second most a quarter, and the rest divy up the dregs. Since this is still unknown, and and since there are at least 5 reasonably professional MMORPG toolkits in the works, I’ll inaccurately guestimate that multiverse will be used by 20% of the MMORPGs using toolkits (based on the number of players in MMORPGs). It could be 50%, or it could be 5%.

$450M x 20% = $90M

According to Multiverse’s licensing, they get 10% of that.

10% x $90M = $9M

Since the bulk of toolkit-based MMORPGs won’t appear for 2-5 more years (since most companies are waiting for stable toolkits, BigWorld being the most stable at the moment), money will dribble in for the first few years before reaching the full (predicted) $9M.

Given that the MMORPG market has been growing by 30%(?) a year, one can assume that the MMORPG toolkit market will grow by 30% a year.

$9M/year is higher than I expected.

And this post may have just incented a few more MMORPG-development toolkits to be written.

Ola Fosheim Grøstad said on June 1st, 2007 at 2:17 am:

I don’t know, but being in China possibly with the right infrastructure, at the right time, might increase value quite a bit. I remember seeing quite many asian papers on 3D graphics througout the 1990s, so if they can attract those programmers for a reasonable salary… And hit the home-market spot on… Imagine the growth potential.

And there might be other clauses besides that 10%…

Amaranthar said on June 1st, 2007 at 1:09 pm:

China’s a gold mine. Their huge population is only scratching the surface of the technological age, economically speaking. Add their laws and restrictions to outside influences and you can see the benefits of producing something like this inside China.

Kim Pallister said on June 1st, 2007 at 3:14 pm:

>I know, I know, all you gamer types are bored with this biz and legal stuff I keep blogging today

Some of us gamer types get off on the biz side of things too. Keep it coming Raph, good stuff!

Sam said on June 4th, 2007 at 11:00 pm:

Mike, your calculation seems to be quite sound for a quick assessment, but I think you are forgetting a major aspect:

The interesting part of MMORPG Toolkits isn’t the current market, but the market that doesn’t even yet exist - Merchandising / Tie-Ins.

With tool-kits, every bigger movie (Shrek - the MMORPG), anime show (Sailormoon MMO - here we come), tv series (LOST - join the action), comic (The V for Vendetta MMO - Sponsored by George Soros) and novel (take one of the billions of fantasy novels) can have an MMO attached to it. By reducing the variable costs per MMO, you open up a whole new field where they can be used.

Ola Fosheim Grøstad said on June 5th, 2007 at 3:16 am:

Sam: By reducing the variable costs per MMO, you open up a whole new field where they can be used.

Yes, I suppose it will work for established brands which already have the artwork and the brand recognition.

But how are new players to distinguish themselves if they have no influence over the client? The server and reliable hosting end seems much easier to commodify without effecting the experience in a negative fashion.

I guess I don’t understand why people want to save that much on the client when they still have to produce the heaps of costly artworks which dwarfs the cost of having a client-programmer or two.

There’s a limit to how many “anonymous” static-3D-worlds there is space for in the marketplace. Multiverse risk reducing their own income by creating a flood of free worlds. This happend with text-MUDs too. I hope they manage to stay clear of that “trap”.

Big or small valuations?

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