Q&A: John Smedley, President of Sony Online Entertainment

John Smedley is one of the people responsible for the creation of the MMORPG genre in its modern form, thanks to his role in the development of the original EverQuest. Now President of Sony Online Entertainment, he announced in 2007 that the company would begin pursuing new business models intended to expand its audience. Virtual Goods News sat down with Smedley to discuss SOE's plans for the future, which now include the sale of virtual goods through the StationCash in several games. 

"I think a lot of people are wondering if StationCash signals that we’ll make EverQuest and EverQuest II free-to-play, and that's not correct," says Smedley. "The reason for the StationCash store is very simple. It’s an additional revenue
stream that gives customers something they want. The evidence of that is
the sales numbers we’re seeing."

Virtual Goods News: When did Sony Online Entertainment first become interested, as a company, in bringing microtransactions and virtual goods into its games?

John Smedley: Purchasing our Denver studio was the catalyst for it. That was the primary reason we bought the studio. We saw this as a very strong market in the future and we wanted to get involved in it.

VGN: How has the Station Exchange store performed for SOE?

Smedley: Very well. We don’t give out specific revenue numbers, but we’ve been very pleased and pleasantly surprised by how many users are actually using it. We’ve been adding new items and seen things we thought would sell not do well, and vice versa. 

VGN: Would you consider expanding virtual goods into other SOE titles?

Smedley: We have. The conclusion that we came to is that StationCash won’t go into Star Wars Galaxies, it won’t go into Vanguard, and it won’t go into future games where it doesn’t make sense. It will be in EverQuest, EverQuest 2, and some future titles like DC Universe Online, though items we sell there in upcoming games may be very different from what we're seeling now.

We’re trying to hold the line about not selling "power," but what form that takes in DCUO remains to be seen. We might sell more costumes and different sorts of customization things. We’re still learning what people like and don’t like when it comes to virtual goods.

VGN: Does bringing virtual goods into the business model change the development approach for a game?

Smedley: We have gone out of our way to make sure we’re not doing virtual goods development in addition to everything else. As a good indication of performance, we’ve added another person to each relevant team that does nothing but handle the items. Our users have signaled very strongly they don’t want existing resources that should be making dungeons or optimizing performance being used to create StationCash items.

VGN: Do you see SOE transitioning away from the subscription model for MMOs?

Smedley: I don’t. There’s not a transition there. We aren’t going away from subs, this just gives us another avenue.

The question is still open about how we’ll handle subscription
in DCUO and The Agency. We’re going to see how FreeRealms goes and see
how that business model works for us. We may very well end up with subs
in DCUO and The Agency. If we can make enough revenue, though, we may consider going goods only.

VGN: So what’s driving the interest in virtual goods at SOE?

Smedley: We’ve been intrigued watching the Asian free-to-play model for awhile and got interested in that. The sales data we get out of the Denver studio is just shocking. People have money to spend and they want to spend it on something cool.

So, we did some surveys of our players at FanFare 2008 – we got criticized for this – but we wanted to talk to our hardest-core fans and hardest critics. We got feedback that was very strongly “Yeah, as long as you don’t sell power, I’d give it a try.” We thought that the time was right.

VGN: How do you see the traditional subscription model of generating MMO revenue? Do you see it declining?

Smedley: I don’t.  I believe virtual goods sales are an ancillary revenue stream.  In fact, I think in World of Warcraft and in our games, there’s a strong sense that people understand that subscription model. I don’t see it going away any time soon.

I do think, though, people aren’t looking at SOE's virtual goods with the right viewpoint, as to our real intent. Our intent, especially with FreeRealms, is to capture a market we couldn’t otherwise capture, like kids who don’t have credit cards.

If my son wants a $5 gift card for a game, I might buy it for him or he might use his allowance. To me, that’s a very powerful thing. It gives kids some ability to control their own destiny when they can buy things in a game.

VGN: A lot of SOE’s microtransaction titles have a CCG theme to them (Legends of Norrath, PoxNora). What lead to SOE’s interest in this area?

Smedley: We believe strongly in the core gameplay. Those are great games. We also wanted to get into the microtransaction space.

VGN: But why use the CCG model specifically?  

Smedley: We felt the user-base was already used to it, looking at stuff like Magic: the Gathering Online. So we wanted to add that to our MMOs.

VGN: What was SOE’s interest in acquiring PoxNora? The game itself or the developers?

Smedley: Both! We loved the game, I’m a huge PoxNora gamer. It was a perfect fit for us.

VGN: Can you tell me anything about the project that SOE Tucson is going to be developing with SOE Denver?

Smedley: The main thing Tuscon is going to do is continue to support PoxNora. Over time, we’re going to do some more games, we’re not ready to talk about what yet. We certainly have big plans for them. PoxNora fans can rest easy, though, the game will continue to be fully supported in the future.

VGN: Can you see SOE wanting to change anything about PoxNora’s business model?

Smedley: No. We like it, they run it really well. We enjoy the different models they’ve put up. It’s different from ours but we’re excited about that.

VGN: Let’s talk for a moment about upcoming projects. How is FreeRealms planning on support virtual goods and microtransactions?

Smedley: FreeRealms has a StationCash store built right into it. The items include potions, outfits, pets. It’s designed with microtransactions from the ground up.

VGN: It's typical for virtual goods to amount to selling "power" in a free-to-play game. Are you going to sell power in FreeRealms? 

Smedley: I wouldn’t call it power. We’re selling convenience. There will be some items there that you can buy. It’s primarily a microtransaction game, but it’s selling health potions and things like that.

VGN: What role are virtual goods going to play in The Agency, which is a more non-traditional title?

Smedley: We haven’t made any announcements yet, but that’s because we haven’t made up our minds yet. It’s skill-based, so we can’t sell anything that confers player advantage. What that specifically means, I don’t know yet. We’re still experimenting.

VGN: What direction do you see SOE moving in, over the next five years, with regard to the business models of its games?

Smedley: I think we’re going to continue to expand virtual goods as part of our business, but it won’t be the core of our business. You’ll see it in new titles to different extents where appropriate.

VGN: What direction do you see the MMO space as a whole moving in, with respect to virtual goods?

Smedley: I think it is slowly but surely making its way in. It’s coming into everyday normal, MMOs. It’s just an ancillary revenue stream, a convenience for players, and I think people will gradually get used to it provided companies are careful with how they integrate it. I think over time it’s going to become a mainstream thing.

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