A Report from DFC Intelligence on the MMO business points out that, while MMOs are being funded like there’s no tomorrow, odds are there will only be one or two winners and a whole lot of losers.

Perhaps the most important point to note is that there will be a great deal of money lost. Since the emergence of the current MMOG market, which we pegged as 1997, there have never been more than a handful of hit products in a given market at the same time. In North America there has been one product (Ultima Online, then Everquest, then World of Warcraft) which stood head and shoulders above a small group of second tier products that had 25-50% of the top game’s subscriber base. Never in the over thirty year history of massively multiplayer games has there been more than five top-line products in existence at one time in a given market. Even then, the top two or three games have always commanded between 85% and 90% of the market

Below that level, there have been niche efforts and upstarts. Despite the increasing variety and number of MMOGs in the market, this quasi-network effect appears to be strengthening, not weakening. The good news, thus far, is that the overall pie does seem to be expanding. That is to say, the niche efforts now sometimes have 50,000 subscribers instead of 5,000 and the mid-level games have 150,000 subscribers instead of 50,000.

Of course, you can make a hell of a lot of money with 150K subscribers. Still, the organization needs to be geared for that, as opposed to expect (and spend development money as if they were). And, in fact, the report suggests that trying to appeal to those smaller niches is where the true opportunities are nowadays.

One of the biggest trends of note in the MMOG space is the products that have experienced success by providing games for underserved segments of the market such as science fiction fans, teenagers, or children. Other games have catered more to fans of purely social worlds, changed game settings, or played with the game mechanics to incorporate new ways of “fighting.” Examples are Eve Online (science fiction), Habbo Hotel (teens), Second Life (social worlds), Toontown Online (children), City of Heroes (setting change), and Puzzle Pirates (game mechanics changes). Many games have introduced different revenue models in an effort to draw customers.

And Habbo isn’t exactly niche – it’s daily logins are said to surpass WoW’s. How’d they do that? By not pretending to be them.

Original comments thread is here.