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I believe it is if you consider that many games that are being considered genuine MMOs don't always necessarily allow for that many more people per zone either.
The definition of MMOs has always been rather vague. If Destiny, Warframe, Path of Exile, Phantasy Star Online and similar titles are allowed to fly with "MMO" tags and labels despite them only allowing for a few handful (if even that) of players in each zone then Palia most definitely is an MMO too.
What can be said with most certainty is that it's an always online live service game and that you can do most things solo. But you can't strictly avoid other players. You will run into them, whether you like it or not.
Also it's not an mmo if it's not MASSIVELY MULTIPLAYER and that also this MASSIVE AMOUNT OF PLAYERS dont need to interact together at all. That's real definiton of an an mmo.
Tho as we can try to argue on the def of "massive" we cant argue about that the ineractivity between players because otehrwise that's a solo offline game forced in a online only trash feature.
Note: Whales = those who spend an extraordinary amount on a game / "Gotta Catch Them All" purchase mentality.
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That's not to say it's a bad game, I do enjoy playing it, but it also should have had another year plus development time before being released because it's very content light hidden behind time gates, etc.
atm more single player but i imagine in future more mmo
You can't play the game without connecting to other players. But there's not enough players in any one server to count as "massively" multiplayer.
An MMO by definition has no game rules or balance issues with allowing unlimited players and only sets caps on the player limits to avoid issues with hardware (server strain, player's PCs only being able to render 20 people, etc.), Meaning that as hardware gets better the games can potentially continually raise the player cap without any fundamental changes to how they work.
However there are many games out there that have given themselves the "MMO" tag when they very definitely are not MMOs, some of the more recent games in the CoD series for example.
The list of examples you gave are actually good examples of how games actually DO comply with the definiton of an MMO even though they limit players in certain situations: Destiny, Path of Exile, Warframe and PSO/PSO2 all have lobbies which can hold "unlimited" players (capped due to server capacity and/or player rendering limits, not game rules), they only limit player counts within specific areas.
It's minimally multiplayer.
It's unnecessarily online.
It doesn't do much to earn any part of the acronym. You can see other players and do a few things with them, with very little benefit to it.
The lines some people are drawing seem somewhat random to me and not thought through. There have been entire debates about modern MMOs catering too much towards solo players and not being what they used to be. Josh Strife Hayes for example should have in-depth videos on YouTube going over that.
I understand the notion behind some people refusing to acknowledge Palia as an MMO. But again: This is quite the can of worms. In my opinion other games shouldn't be called MMOs any longer either if Palia is not fulfilling the criteria others are setting. In my opinion the basics are there (there is definitely room for improvement - but still) and really don't differ that much to what other, allegedly more genuine MMOs are featuring.
Even the "massively" part is a rather moot point. Because many MMOs only have you meet tons of players in social zones. The moment you set foot outside of them a significant amount of sharding and instancing takes place. Games like Destiny and ESO cleverly hide this with semi-invisible transition and loading areas. You have to pay some attention to see them, but they do exist. Fairly sure I never saw more than one or two handful of unique at any given time in ESO either, yet I can't recall having seen anybody say that it were no MMO.
And honestly I see no issue with that per-se. You all want "massively"? What exactly you mean by that? 100 or 1k people simulatenously with in Kilima or Bahari Bay with absolutely no sharding and instancing whatsoever? Good luck getting anything done then. The competiton for rare materials and huntables would be unreal. Some people are already complaining about this a good amount. That issue would get so much worse if they let in many times more players into these open zones.
And didn't World of Warcraft abandon that early model of overpopulating its zones in favor of more intense sharding too over time? There are good reasons for that shift game-design wise. But my impressions are that plenty of people are never losing a single thought ever over the gameplay implications that comes when you just mindlessly shove as many people as technology allows into one area. Having 50, 100, 500, 1k players per zone/instance or whatever other random number you have in your heads doesn't automatically equal a better game - rather the contrary in my experience. After a certain point the more people the worse gameplay gets. So be careful what you wish for.