1. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Item Model: The Future Online Business Model? Yes. Erik Bethke CEO GoPets, Ltd. Seoul, Korea www.gopets.net erik@gopets.net

2. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Overview ● Korea the Front line in the Business Models ● Time line of Business Models ● Inefficiencies of the Packaged Goods Model ● Subscriptions Solve most Problems of the Packaged Goods Model ● Advantages of the Item Model ● Types of Items ● Fairness, Gameplay, Communism and Capitalism ● GoPets Premium Subscription

3. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Korea: The Battlefront ● Due to piracy packaged goods model died out circa 1997 ● Large North American publishers still put up sales offices from time to time and make noise about combating piracy ● Blizzard and a few other special titles make some sales – never in ratio to the hit levels if it were to be sold in a low piracy territory like Japan or the USA

4. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke First Generation Korean MMOs 1997 - 2000 ● NC Soft – Lineage I ● Nexon – Param e Nara ● PC Cafe IP-based sales, very low end- consumer payment collection

5. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Rise of Casual Content 2000 – 2003 ● NetMarble – Multiplayer Parlor & Arcade Games ● Hangame – Multiplayer Card Games ● Cyworld is launched – online community ● 3D MMOs become crowded with Lineage and MU clones ● Prepaid Cards begin to become important

6. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Advanced Casual Games 2004 - Current ● Nexon's Kartrider – definition of the category ● Pangya Golf ● Freestyle Basketball ● Now these games command the highest attention from the rest of APAC for licensing ● Mobile Payment, bank wire, landlines – Payments are now fully commoditized, cheap and convenient for content providers and consumers

7. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Rippling Ponds ● Taiwan – 18 months behind ● Philippines – 18 months ● China – 2 years behind ● Thailand – 2-3 years behind ● Japan – 5+ years ● USA – 5+ years ● All Territories Catching up Fast

8. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke PC-OnlinePC-Online/Mobile Platform PPC, CC, Mobile, Phonebill PPC, CC, Mobile, Phonebill PPC, CC, Mobile, Phonebill Types of Payments Item Sales/ PC Café Premium Item Sales/ PC Café Premium Item Sales/ PC Café Premium Revenue Model KoreaKorea, Japan, Thailand, Taiwan, Philippines, China, Indonesia, US, Canada, Brazil KoreaServicing Countries 50,000~80,00020,000~30,000120,000~150,000Concurrent Users (Korea Only) 13~25yrs old (Male dominant) 15~25yrs old (50% Female) 13~18 yrs old (Children) Av. User Age Over 20 yrs. Old Over 20 yrs oldPaid User Group N/A (Paran is 4th Portal) 4,000,000 (As of 3Q2005) 14,500,000 (As of 2Q2005) # of Members (Korea Only) KTH-Paran (Portal) Hanbitsoft (GSP) Nexon (GSP) Publisher 1Q, 20051Q, 20042Q, 2004Release Date 15uk~24uk ($1.3M~$2.2M) 8uk~10uk ($750K~$950K) 40uk~50uk ($3.7M~$4.7M) Average Monthly Revenue (Korea Only) JC EntertainmentNtreev softNexonDeveloper FreestylePangyaKartrider

9. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke

10. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke

11. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Inefficiencies of Packaged Goods ● Retail markup ● Shelf space limitations ● Physical Cost of Goods ● Inventory and transportation management ● Cartel-like distribution bottlenecks ● High price point puts off consumers ● Propriety formats ● Sales tax ● Loss of connection between content creator and content consumer ● Lack of a free play experience

12. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Advantages of Packaged Goods ● Expensive to market ● Expensive to distribute ● Shelf space only to the top 10 or top 5 titles ● In short, if you are the monster publisher with the monster licenses, you like the packaged goods model ● Only long-term piracy as seen in the music and PC game categories will kill your business – as true in most countries

13. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Subscription Model ● Allows for Electronic Distribution ● Retail package for axillary sales ● Neatly solves piracy (note: pirate servers) ● Allows limited demo experience ● Enjoy pre-payment of services from your customers ● Organization thinks like a service company not like a goods company ● Perfect right?

14. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke War on Money Korea: 2003 - 2004 ● Dozens and dozens of 3D MMORPGs from Western Fantasy to Eastern Fantasy to Cartoon styled, female and/or children's focused ● Classic Over Supply ● Prices → zero → Free! ● Open Beta periods were extended from 2 months to 4 months, to 6 months to a year!

15. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Birth of the Item Model ● Play my 3D MMO for Free! ● Forever Free! ● Well not really... ● (instant reincarnation only $2) ● (swords that actually do damage only $5) ● (spiffy armor $6)

16. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Advantages of the Item Model ● Invisible transition from beta to commercial ● Eliminates the Beta Tribe phenomena of users fleeing en mass from one open beta to the next as companies pitifully attempt to monetize their investment ● Allows users to gracefully transition from freeloader to nibbler to active consumer to great fat happy customer!

17. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Types of Items ● Appearance Changing ● Gameplay Effective ● Permanent ● Consumable ● Rarity ● Least valuable: Common Temporary Appearance ● Most Valuable: Unique Permanent Gameplay

18. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke That's not Fair! ● Item model allows users to have differentiated play advantages based on their individual spending patterns ● Last time we saw this big time in the USA was Magic the Gathering! (groan or cheers?) ● Sony is inching their way in ● MUD-Dev quote from a whiner

19. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Communism vs. Capitalism ● Traditionally in sports it is okay to buy better equipment ● Traditionally in games you should compete on skill, luck, or time – not money for some reason ● MMOs are not really games – they are worlds ● The 20 th century consumed say 60 million people to establish that Communism does not work in the real world – nor does it work in online worlds

20. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Premium Subscriptions ● What!? I thought you said subscriptions suck? ● Allows for a differentiated level of services to further help your users feel a sense of status and recognition ● Robust and flexible services will slice up the offerings to best suit the tastes of various markets

21. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke GoPets Premium Subscriptions ● Bonus Gold Shells at Purchase ● Bonus Gold Shells during the term for additional gold shells ● Limited Edition super item never for sale in our stores, never to be duplicated (usually sells for $25+ ● User Customizable Texture Tool ● Ring-tone like sound triggers for your pets ● Premium Subscription supports further Item Sales

22. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Why did I talk about this? ● Big NA console publishers – not listening to the beat of future drums – they will get smashed by open format online games ● The fairness (righteous) independent game developers that are in it for the love of creation will vilify the crass monetization of significant gameplay actions ● Only people that will appreciate will be shrewed new competition for GoPets in the advanced casual game space ;-)

23. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Hey great, I believe! ● So how long will it take for me to turn my online subscription game into an item-based game? ● Creating item-based games requires higher skill in game balance and needs to be built directly from the beginning

24. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Homework ● What is the next business model in the Korean Online space? ● If you turn in your homework early you will get a bonus

25. Item Model: The future online business model? Casuality - Seattle June 2006 -- Erik Bethke Thank you! Questions? Contact: erik@gopets.neterik@gopets.net