Wagner over at GigaOm talks of a major defection from the world of traditional Massively Multiplayer Online Games (MMOs.) It bears some discussion.

Most MMOs involve software you install (a “fat client”) and a monthly subscription. They’re lucrative — Blizzard’s World of Warcraft is the big one, with an estimated 10 million players worldwide. There are others, like Everquest, Age of Conan, and Eve Online.

These MMOs need to keep adding content to retain users. Warcraft originally let players climb to level 60; then they added the Burning Crusade, which moved the level cap to 70. They’ll soon introduce a third patch which adds more content and takes the cap to 80. Each time, they sell new software and they change the game to make it easier to get to the higher levels, changing game dynamics.

As Wagner points out, the dynamics of the industry are changing. “Casual” MMOs like Runescape have a huge following, and start out free. They run in a browser, and they make their money wherever they can — through item purchases, advertising, and “premium” game models.

The astonishingly entertaining Battlefield Heroes shows it’s not just subscription MMOs that are struggling. If a relatively lightweight client can be downloaded and still offer a good gaming experience, patches are cheaper and cross-platform compatibility is easy. Heroes follows the trend of Team Fortress of using cartoonish characters rather than photorealistic shading, which I’m guessing reduces graphics burden somewhat and makes this feasible to play in a thin client.

Blizzard’s latest Recruit-a-Friend campaign smacks of desperation. It goes like this: Invite a friend to play, and you both level three times as fast when playing together, plus the ability to level alts and — most importantly — the ability to summon each other from anywhere in the world.

Sure, it only lasts 90 days; but these benefits significantly shift the balance of power (being able to summon someone to a fight in a PvP server is a big deal.) Offering promotions that change game dynamics is IMHO a sign they’re facing problems. If I had to guess, I’d say things are slowing down. Blizzard’s continued growth coincides with the release of new content, which revitalizes gameplay and makes top-level players start playing again. But at the same time, this puts the highest reaches of the game farther from new entrants.

I’ve argued before that Blizzard is an example of cloud computing, and one with huge revenues. That’s not entirely true: Blizzard’s client software weighs in at over a gigabyte and the company’s license is month-to-month. Clouds need to be transparently provisioned and pay-as-you-go, and in that respect games like Eve Online’s Webwars (which must be doing well, since registration seems to be busted) are a closer model.

It’s yet another example of the challenges of shrinkwrapped software, even when it’s backed by monthly revenues.