October 4, 2002 4:00 AM PDT
Gamers cash in at jackpot sites
"My friends all laugh at me when I tell them what I do," said Dion, a Cleveland-area homemaker and one of the top players at WorldWinner, one of a growing number of online game sites luring players with cash prizes.
"Nobody really believes me at first...until they go on the site and see me on the winner rankings. My parents just about fell over...when I told them I was quitting my job to do this. But we were able to buy a house last year, and I was able to buy a nice van and pay for it in cash."
Dion calculates she won more than $250,000 last year playing solitaire and a few other games on WorldWinner. Subtracting the entry fees WorldWinner and other sites charge to cover costs and build jackpots, she cleared more than $100,000--not bad for a job that offers flexible hours, work-at-home convenience and more suspense than the average accounting assignment.
While most players don't come close to Dion's take, sites such as WorldWinner--dubbed "skill-based gaming" to distinguish themselves from gambling sites--are attracting a growing audience and interest from segments of the big, but profit-challenged, online game industry.
Analysts expect online games to grow significantly in the next few years, from $210 million in revenue last year to a projected $2.55 billion in 2006.
While much of the attention for future growth has focused on complex, subscription-based games such as "EverQuest" and the upcoming "The Sims Online," the bulk of traffic is drawn by casual game sites such as Electronic Arts' Pogo.com and Yahoo Games. Despite efforts to boost revenue with paid premium services, most sites like these rely on advertising to support their free card and puzzle games, and they've suffered along with the rest of the Internet economy as advertising dollars have dried up.
A winning hand
It's no wonder, then, that operators of casual game sites such as Vivendi Universal's Flipside and Internet conglomerate eUniverse are showing interest in skill-based games, which offer a business model as simple and reliable as an office football pool. Customers pay an entry fee--anywhere from 50 cents to $20--to join a tournament game, which can have anything from a couple of players to hundreds. The site takes a cut of the entry fees, and the rest goes into a pot to be claimed by the top player.
That's an attractively simple revenue proposition in the Internet industry, said Michael Goodman, an analyst for research firm The Yankee Group.
"You've got a revenue generator where you can very closely track your revenue against your expenses," he said. "And you can still do advertising if you want another revenue stream."
Privately held WorldWinner is the leader in the skill-based category, with 70,000 paying players. Flipside entered the market last August with a menu of fee-based games on its iWin site. Besides the revenue potential, the skill-based game model attracts a different type of consumer from casual games, where a mostly female audience gathers largely to engage in online chat, said Bill Glass, executive vice president of publishing for Flipside Network.
"As in the offline world, different segments of the female audience need to be targeted differently," he said. "Some of them just love to chat, others are a little bit more aggressive and individualistic. With iWin, we're offering something a little more aimed at the individualists; people go there to compete."
The iWin site has only a few thousand paying players now--and it also offers free trial versions of games, as do most skill-based sites--but Glass expects the audience to grow steadily.
"It's becoming more and more significant every day," he said. "We expect that over time, our direct consumer revenue will contribute as much as media revenue."
Garry Kitchen, CEO of online game developer Skyworks, is sold on the concept. After years of focusing on advertiser-sponsored games, such as Kraft Foods' Cheesasaurus puzzle game, Skyworks recently signed a deal to license its sports games to WorldWinner.
"We're excited about it because it's a payment model on the Internet, which are few and far between," Kitchen said. "It's a more unique and different business model than a subscription game site that offers (tournament) ladders and rankings. People get this right away. You have an opportunity to actually see a payout, and that's very thrilling to people...And it's not fixed revenue--if people get hooked, they can spend a lot more than you'd get from a subscription fee."
Skill-based games require a different approach to game design, Kitchen said. Games need to be quick and easy to get started.
Luck and the law
They also need to be backed by scrupulous anti-cheating measures and consistent player rankings to ensure that new players aren't cleaned out by solitaire hustlers or worse. "The devil's in the details," Goodman said. "You really have to think things through to make sure the games feel fair and fun to everyone."
And you need to design the games to minimize the role of luck in any outcome, to satisfy gambling regulations that vary from state to state. Each skill-based gaming site excludes residents of certain states with particularly thorny gambling regulations. Flipside's iWin is one of the more open operations, offering some form of fee-based games in all but four states.
"We've worked with the leading legal authorities in each state, and we feel very comfortable that we're satisfying the legal issues in each state we work in," Glass said.
Those who doubt the skill-based designation need only talk to some of the top players. Solitaire champ Dion says consistent practice has given her a type of sixth sense for moving through a deck of virtual cards.
"A lot of it is good hand-eye coordination," she said. "You know what to look for, and it becomes kind of instinctive how to move the cards and make rows."
Scott Belsky, a Los Angeles actor who supplements his income with winnings from WorldWinner word games, said the element of chance fades the more you practice.
"I've done a lot of Vegas and Tahoe gambling, and this definitely feels different," he said. "This is much more about skill, although I don't think it's 100 percent skill. Some games are like solitaire, where you can't complete the game if you make a certain choice, and there's no skill you can develop to tell you which choice to make every time."
Belsky said he had little interest in online games before he found WorldWinner, but the lure of cash and the thrill of competition make the experience different from free games.
"I was a little bit of an Internet addict, and then I discovered this," he said. "Playing against other human beings made it more appealing to me. And when I started making money--that really kept me going. I was probably playing close to eight hours a day in the beginning."
It's that kind of dedication that could make skill-based gaming important in a way that's out of proportion to what is likely to be a limited audience for competitive gaming, The Yankee Group's Goodman said.
"You get real loyalty in this segment; it's not just a won-and-done type of thing," he said.
"I think if the business becomes successful enough, all the major sites will get into it," Goodman added. "It's not a huge leap to add a jackpot to games you're already doing, and you don't have the image problems associated with gambling. However you present it, solitaire just doesn't look seedy."