What Entrepreneurs Can Learn from Blizzard Entertainment
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In November of last year, Blizzard Entertainment announced that it'd no longer share World of Warcraft subscriber numbers in its quarterly earnings reports.
"There are other metrics that are better indicators of the overall Blizzard business performance," the company said at the time.
World of Warcraft subscriber numbers had peaked in 2010 during its Wrath of the Lich King expansion, when it reached over 12 million subscribers. The next two expansions didn't resonate with subscribers as well, and that number quickly dropped to 10.2 million in 2011, 9.1 million in 2012, and 8.2 million in 2013.
But in a surprising turn of events, that number shot back past 10 million in 2014 with the announcement of the Warlords of Draenor expansion. Players I've spoken with say that this expansion seemed to reinvigorate the interest of the playerbase by getting back to the core values of the game, and this seems to have held true — for a short time. The early play experience was highly engaging, but the expansion didn't have much staying power, and only a couple of months post-launch, subscriptions were in freefall again.
As of the November earnings report, the last time for which we'll have accurate data, the number stood at 5.5 million — the lowest it has been in nine years.
There was a lot of speculation about Blizzard's reasons for pulling the plug on this reporting. Some thought that the negative press from the games and tech media and the hyperbolic "WoW is dead!" rhetoric from players — something that has existed for most of the game's life, regardless of the situation — were causing Blizzard PR problems when it came to buoying the subscription number. My interpretation differs.
Blizzard knew that while WoW was not dying, it had certainly already lived past expectations and was going to decline into a more niche product played by a few million dedicated fans, and it was going to do this faster and faster. It would still have a strong playerbase that could likely support several future expansion releases. It would still be able to cash in on short nostalgia-driven subscription spikes with new expansion releases, but it would not always remain the company-buoying revenue behemoth that it was. And it figured this out years ago.
The decline of World of Warcraft is not a problem in and of itself. It is more than ten years old; it's amazing that it has lasted as long as it has, and it's also fairly amazing that the team has managed to improve it over time as much as it has without starting from scratch. Most importantly, it has already made Blizzard more money than anyone ever imagined it would. What made it a problem is that when the subscription decline first began, while Blizzard had other big titles in Diablo and Starcraft and likely wouldn't fold, it didn't have anything in play that could keep the momentum and growth of the company from going in the reverse direction should Warcraft subscriptions really plummet.
As of 2016, it has fixed that problem, and it has done that by embracing values that anyone who has worked in startups would recognize.
Recently, Blizzard held its first earnings report that did not include World of Warcraft subscription numbers. The results seem to make it clear that the timing of this cessation has been strategic. Blizzard was able to announce that year-over-year, MAUs (monthly active users) across all Blizzard properties were up by 25%, an impressive growth rate for an established company with its flagship product experiencing sharp decline.
It has achieved this through three titles using a radically different development approach: Hearthstone, Heroes of the Storm and now Overwatch. It has also made big moves in the world of eSports. While Starcraft is the game that started the eSports movement, the company is just now making its involvement in the eSports industry itself a big part of its business mix.
For the first time in a long time, the commentary around the earnings report on February 11 took on a different tone. The bleeding from World of Warcraft was no longer front and center and investors and gamers were able to see that Blizzard's new strategy, which had been showing promise, was in fact working very well.
Blizzard could've stopped reporting subscriber numbers when that new strategy first started showing promise, but this wouldn't have been the best course of action available to them. Blizzard watchers would assume that the cessation was an admission of Warcraft's failure, that it had only just caught on to this, and that while the company's new products were providing some hope, they also looked like last-minute, still-shaky attempts to save the ship from sinking.
Instead, World of Warcraft subscription numbers served as the curtain that was pulled away to reveal that Blizzard had solved its problem.
How did it do it?
First, Blizzard had two fresh blockbuster titles that were built in typical AAA fashion to help carry it through the early stages of World of Warcarft's decline, buying the company time to try different approaches — one of which was to start building a new major AAA MMO based on a new IP, which Blizzard ultimately cancelled, recycling spare parts into Overwatch. These titles were Starcraft II and Diablo III, and they produced not only revenue but enough for the media and players to digest and discuss while Blizzard searched for answers. Always having ideas on the go, whether they use tried and tested strategies or divergent ones, is important.
Blizzard points to Hearthstone as the product that changed how it thinks about developing new products. Hearthstone started out with a team of two designers, who spent time making paper and Flash prototypes while waiting for developers to be freed up from other projects. They were able to get the design phase of the project done with much less expense than usual this way, and they were able to really solidify the design principles of the game before getting development and art teams involved.
A small team moving quickly in a lean and iterative fashion, using few resources beyond the time of two employees in the initial stages, helped Blizzard learn how to validate an idea very early on — something that's always been tough in AAA gaming, making flops and winners hard to predict before they reach the market. Really perfecting design principles before development begins also helps to avoid problems that can really delay things later in the development cycle.
The Hearthstone team was also a big believer in focus, on paring down to the features that really make a product great to use, within reason — another value that sounds like something a Silicon Valley founder would say rather than a games developer. And knowing when to put a pin in a release, ship, and accept that often you'll need to wait another release or so to get all the features you did want in is essential to building momentum.
These are lessons that the company has brought to its other efforts, and it has released more new products in the past couple of years than in any other comparable timeframe throughout the company's history. Hearthstone was followed by Heroes of the Storm, which has also become an eSports hit, and Overwatch is due for an official release in a few months. Beta players suggest there is little possibility that Overwatch will not be a massive success. It has also recently released a Starcraft expansion, updates to Diablo 3, and will release Warcraft's expansion not very long after Overwatch comes out.
What are the main lessons that entrepreneurs and startups can take from Blizzard over the past couple of years?
- Vanity metrics inflate the collective ego, and that's never a good thing. Track the right metrics so you know when trouble is brewing before it is critical, giving you time to respond.
- While you shouldn't abandon efforts you've invested a lot in easily, you shouldn't cling to a sinking ship when it has become clear there's little future (or a limited future) left for it. In some cases it's a good idea to support that ship alongside the new ones you're building, and in other cases you'll want to perform a true pivot.
- Validate new ideas early with prototypes and minimum viable products, and work on them quickly and iteratively with small, nimble teams.
- Diversify. For new companies and entrepreneurs working on new projects, it is often best to focus on doing one thing well. But when you have reached success with one project, don't depend on it. Use your newfound resources to branch out, always validating these new ideas before you fully commit to them. For a company like Blizzard, three new, interesting ideas developed quickly had a better shot at producing a market leader than developing one huge AAA title and hoping for the best. Hearthstone is a market leader, Heroes of the Storm is a strong player in the MOBA niche, and I predict that Overwatch will smash expectations.
- Bear in mind how the outside world will interpret your actions based on limited information, and manage expectations and the release of information so this effect works in your favor — but don't let outside commentary decide your next actions.