What Entrepreneurs Can Learn from Blizzard Entertainment

Blizzard Entertainment, creator of World of Warcraft, Starcraft, and Overwatch, has navigated its fair share of challenges and transformations. What can entrepreneurs and startups glean from Blizzard's recent history?

What Entrepreneurs Can Learn from Blizzard Entertainment

In November 2015, 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.

Blizzard Will No Longer Report World of Warcraft Subscriber Numbers
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World of Warcraft subscriber numbers had peaked in 2010 during its Wrath of the Lich King expansion, reaching 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, subscribers 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 2015 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.

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There was a lot of speculation about Blizzard’s reasons for pulling the plug on WoW subscription reporting. Some thought that the negative press from the games and tech media and hyperbolic “WoW is dead!” rhetoric from players 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 Blizzard 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. It’s also fairly amazing that the team has managed to improve and modernize the product over time as much as it has without starting from scratch.

Most importantly, World of Warcraft has already made Blizzard more money than anyone ever imagined it would.

What made it a problem was the scenario in play when the decline in subscriber numbers began. Although Blizzard had popular franchises like Diablo and Starcraft, it lacked a product that could prevent the company from losing momentum, growth, and market share if Warcraft subscriptions dropped significantly.

As of 2016, Blizzard has fixed that problem, and it has done that by embracing values that anyone who has worked in startups would recognize.

How Blizzard Executed Large-scale Strategic Transformation with a Lean MVP Approach

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: HearthstoneHeroes 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.

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<i>Hearthstone</i> designer Eric Dodds took the stage at GDC 2014 to shed light on the game’s creation and share design lessons learned by a small team building

They were able to get the design phase of the project done quickly and inexpensively, 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.

Blizzard's Strategy Change: 6 Key Points for Entrepreneurs

What are the main lessons that entrepreneurs and startups can take from Blizzard over the past couple of years?

1. Track the right metrics.

Metrics, the compasses of business, can lead you astray when incorrectly selected. Misaligned incentives, inaccurate predictions, and erroneous problem identification are just some of the pitfalls.

Vanity metrics, such as pageviews and followers, create an illusion of progress that distracts from the real drivers of business outcomes. This confusion can impede understanding why strategies succeed or fail, leading your business off course.

Vanity metrics can inflate the institutational ego, fostering a culture of denial in established businesses and obstructing necessary changes. Moreover, they can mask looming crises, creating a dangerous false sense of security. When these metrics start distorting reality, managing stakeholders' perceptions becomes a Herculean task, necessitating a thorough reassessment of the situation.

Choosing the right metrics is not just important—it's crucial. They serve as early warning systems, allowing for timely responses to potential problems. The right metric can steer your business towards success, while the wrong one can lead it into disaster. So choose wisely.

2. Manage your attachment with objectivity checks.

Don't let attachment cloud your judgement.

When everything depends on the success or failure of one product, it's very hard for the people involved in making that product to see it objectively. The more invested you are, the harder it becomes.

It's your responsibility as an entrepreneur to accept that you're human too, and make a conscious effort to close gaps between your perception of the scenario and the reality.

Making the right strategic moves in advance can prevent catastrophes from occurring at all, but you have to be willing to kill your darlings – or at least be willing to develop some more.

Maintain objectivity about what the strategic fundamentals mean for the lifespan of your product.

Face truth boldly, and take nothing for granted.

3. Determine whether you need diversification or transformation.

When positioning your business for future resiliency, it's important to make your plays early enough. But it's more important that they're the right plays.

Determine whether your business requires diversification or transformation to become more robust.

Take a good look at your business and the market.

  • Should you focus your resources on a true pivot or developing a transformative successor product?
  • Or should you start building new ships, with a long-term plan to support your existing product's transition from flagship to niche entrant?

It's essential to make this call correctly.

4. A single point of failure will always fail.

For new companies and entrepreneurs working on new projects, it's best to focus on doing one thing well. But once you have reached success with one project, don’t become complacent. Observed for long enough, a single point of failure will always fail.

Use your newfound resources to branch out in the pursuit of diversification and resiliency. Assess the strengths and weakness of your business as it stands today. Think strategically:

  • How can you apply your known strengths to accelerate and improve product development, and uniquely differentiate your offerings in new areas?
  • Which weaknesses can you proactively address through product development? This perspective is defensive and shouldn't lead your product ideation, but is one key factor when prioritizing and greenlighting experiments. Which activities provide the highest future strategic leverage?

5. Validate new ideas early with Minimum Viable Products.

Validate new ideas early with prototypes and minimum viable products, and work on them quickly and iteratively with small, nimble teams.

Keep these experiments lean until growth-geared resource investment is justified by validation. Maintain focus in your business by validating new ideas early with focused, self-sufficient teams.

For Blizzard, three new, interesting ideas developed quickly had a better shot at producing a market leader than investing a decade into a huge AAA title and hoping for the best.

2023 Update: While Heroes of the Storm is no longer actively developed, Overwatch has a sequel and Hearthstone remains the most popular online CCG. Two out of three agile bets paying off is a great result on its own, but especially so after seven years.

Early validation massively increases your odds of success.

6. Outside commentary is just a signal (and a tool).

When making high-level strategic shifts in your business, it's only a matter of time before your customers notice a difference in how you operate.

Bear in mind how the outside world will interpret your actions based on limited information. Are your signals going to be interpreted in a catastrophic way? Can you use them to build anticipation?

Manage expectations and the release of information so this effect works in your favor — but don’t let outside commentary decide your next actions.