Psychochild's Blog

A developer's musings on game development and writing.

16 August, 2006

Business models
Filed under: — Psychochild @ 6:14 PM

In between editing 90-page chapters (!!!), I’ve been reading a few blogs. Matt Mihaly has a post about business models for virtual worlds. A pretty good list based on feedback from a previous post (linked in the current post).

Some interesting things to think about. Read on for some of my own insight.

First, some of the most interesting stuff comes when you mix business models. Traditional online games mix an upfront cost with a subscription. M59 does away with the upfront cost, unless you consider the cost of the first month to be such. Virtual Assets sales are controversial, but I firmly believe they are the future for smaller games; the traditional models simply don’t scale downward appropriately.

Popularity is also another big issue. People don’t seem to mind paying money on an upfront box, subscriptions, and expansions, yet they balk at the thought of virtual asset sales for all the potential unfairness. Many people also look askance at a smaller game for not practically giving the game away, even if the smaller game doesn’t charge an upfront price or charge for expansions. Perception is huge here.

Likewise, I think that some of the aggressiveness in our industry comes from the monthly subscription model. Look at the other companies that charge (“gouge”) you by the month: cable, cell phones, ISPs, etc. Few of these companies are really cherished by their customers: the feeling is that the company gives the minimum service and expects you to keep paying. Exploring other business models could help ease this general level of hostility, especially that felt by the smaller game operators.

As I said, some interesting things to think about. If you want to run a smaller game, I highly recommend looking at alternatives to the standard subscription model.

What do you think?

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  1. Insurance on assets or incentive-based clan/guild-building (discounts on subscriptions, possibly multilevel, based on how many people you bring into your guild, who are now making more money for the company – though there could be an $5 off first month for incentivizing new players getting into guilds)

    Comment by Ratchet — 16 August, 2006 @ 6:35 PM

  2. Clan/guild discounts would probably fall under affiliate programs. Not sure what you mean by “insurance on assets”, though.

    Have fun,

    Comment by Psychochild — 16 August, 2006 @ 7:09 PM

  3. Look at the other companies that charge (“gouge”) you by the month: cable, cell phones, ISPs, etc. Few of these companies are really cherished by their customers: the feeling is that the company gives the minimum service and expects you to keep paying. Exploring other business models could help ease this general level of hostility, especially that felt by the smaller game operators.

    One exception: TiVo. Their customer love them. And they were nearly profitable once or twice, almost – seemed like they were on their way to be profitable sooner or later for sure – before those unloved companies began offering DVR services, anyway. Their customers love them enough I’d almost swear they could make more money asking for donations than charging for service at this point.


    The Virtual Asset Sales model only suffers from a couple of things: 1) People like to know how much something is going to cost them up-front, and a game that’s “all the elves you can enjoy for free, and if you want more elves then you can pay for ‘em” defies that.

    And B) The other is the whole “I want a level playing field, don’t break the magic circle”-complaint from people with lots of time and little extra-elf money on their hands (I want to dismiss it as a complaint, or at least to focus on people with lots of extra-elf money, but it’s so common and I’m just a little bit humble-enough not to do so completely).

    Certainly smaller games could profit from offering more in the way of “pay more, get more” and especially as catering to guilds (and honestly, rich people): guilds want to be a big part of the world: heck, let ‘em run a big empire (or for slightly less cash, a small one with potential): make them part of the world. Rich dude wants to be a demi-god? FINE. Someone’s got to do it (or rather, “someone is better than NPC), and a player would probably do better than an employee. Especially a player “invested” in the world to that degree (a pretty nifty, if expensive to implement mini-game, but worth implementing if that particular game is also expensive to play).

    Certainly not the sort of thing a “we want a billion subscribers!”-kind of game could do.

    Hm. Somewhat certain.

    Comment by Jeff Freeman — 16 August, 2006 @ 9:50 PM

  4. In reply to the comment about “level playing field” when it comes to the virtual asset model I think one also needs to look at if it is possible for non-paying players to get access to the same things.

    One thing that many of you might find interesting is that Cyworld( one(perhaps the) largest community portal sites in Korea uses that same style for revenue. Besides just being a blog/mini-homepage people can also build virtual houses and purchase additions to them for “acorns.” Don’t ask me why they used acorns… but that’s what their “credits” translates into. People can buy these acorns online, and even at most convenient stores throughout the country. They claim their average user is around 29 and the average user only spends around $7 USD a year. They are currently testing a US version of the site, but personally I don’t think it will work… but that’s because they are basically just translating it and not redesigning it to fit the American users. Time will tell though.

    Comment by Joseph Monk — 17 August, 2006 @ 2:16 AM

  5. It’s interesting how business models move about. Gaming I think, has shown incredible fluidity in that respect. I think it’s because games have never had the security of other media (tv being my main example) they have shown a willingness to follow business ideas outside the box. Initially just being about here’s a game in a box. Buy it, play it. Then we see things like this is a game to try online.. buy it after 20 days. Then this is a game, pay for it now, get 30 days free and pay for it some more. Stop whenever. And even more recently with micropayments: here’s a game. Pay for everything in it, if you want. Otherwise just pay a little bit maybe. Or hell, just do what you want and maybe pay us if you want something special. Finally the up and coming, pay us a certain amount, get x amount of extras. Pay us a big amount get x+y+z amount of extras.

    How dynamic is that! It’s even more interesting when you consider how inflexible other formats have been. TV for example. Ok, let’s make people pay us to put their product in between segments of a show. Let’s later sell the shows to other companies who can replay the episodes with their own adverts in it. Finally let’s put the shows on video and sell them there. That’s pretty much how it went, the basic model. Very similiar with music. How it mostly still goes. But then, here comes the internet and suddenly people are stealing the shows, stealing the music by downloading it. The initial response is to sue anyone doing it. Doesn’t really work. The new response… make people pay the same price to download it. (I’m thinking recently of looking at buying a digital king kong dvd and finding it was cheaper to buy it at the store than download it, and I couldn’t burn it to my dvd shelf.) Hmmm. They try to be flexible by expecting to achieve selling the same price as always.

    Are there lessons to be learned between media about business flexibility do you think? Maybe we’ll see alternative movie and tv models. Will we one day have micropayments for tv shows perhaps? Or shareware downloads (download the first half of the show, buy the second.)

    I definitely agree with you on the consideration of other business models for small games. But I wonder if maybe some of the bigger games might start considering shaking it up a bit. In my mind a flexible business model can pull people away from another product.

    Comment by Jpoku — 17 August, 2006 @ 4:48 AM

  6. Jeff Freeman wrote:
    One exception: TiVo.

    Yes, but that’s pretty much the exception that proves the rule. How much do people enjoy the new DVRs? Or even TiVo when it deleted saved shows by “accident”.

    People like to know how much something is going to cost them up-front

    Sure, but people still visit restaurants they don’t know. It can be a small shock to find out the prices of the meals there, especially if you come up a bit short on cash.

    I would argue that the pay-for-perks or virtual asset model is actually a bit nicer, given that you can usually play these game for free up front. The individual player has more control at that point over how much they want to spend. Budget appropriately and you can still spend only as much as what you would spend on a subscription-based game. On the other hand, you can spend a bit more or a bit less if that’s what your entertainment budget allows.

    Is it easy for the price to get out of hand? Sure, but that’s the same as any other situation where you spend money. I can’t tell you how many times I’ve come back from the store with too many games I shouldn’t have bought. I don’t expect Target to start charging subscriptions, though. :P

    The other is the whole “I want a level playing field, don’t break the magic circle”-complaint from people with lots of time and little extra-elf money on their hands

    Well, the smart thing to do is make the perks a substitute for time. Giving people raw power based on how much they can pay will be a losing situation no matter how you slice it. Really, this targets a very nice audience for us: people with money but not much time. In other words, busy professionals like lawyers, etc. They want to play the game, but can’t dedicate college-student hours to it. So, you let them pay a bit of cash to keep up with the rest. But, you really need to be careful about how much power you give to them. In golf, it’s considered acceptable to buy some expensive new clubs to improve your play. It’s not considered acceptable to give the caddy $100 to claim you got a hole-in-one. A subtle, but important, difference.

    I do think this will work better for more niche content. Really, we’re like the boutique stores or exclusive hotels. You can’t just charge more while offering “mass market” content. You have to be offering something special that you can’t find in other places. Then, people will be willing to pay more.

    Great discussion on everyone’s part, though. I’m interested to read more thoughts.

    Comment by Psychochild — 17 August, 2006 @ 2:32 PM

  7. Virtual Asset Purchase models have a huge advantage of lowering the cost of entry for new players. But, like anything else, they still require good game design. First and foremost, the game has to work and be fun for the free players. That means supporting player skill, not just cash-for-victory. The “magic circle” is broken by poor game design, no matter what the business model. I would argue that the “grind” that everyone complains about all of the time breaks the wonderful “magic circle” at least as badly as virtual asset purchases – killing rats repeatedly is Magic Circle good?

    Of course few people talk about one of the real advantages of Virtual Asset Purchases…. they can pretty much kill gold farming and RMT – i.e., people play for fun, not to feed some game developer’s notion of appropriate behavior. After all, if anything can be purchased for price X, it puts a ceiling on how much someone will pay for something on the black market (especially as there is a risk premium associated with black market purchases).

    Maple Story is apparently one of the most successful MMOs even though it doesn’t have “state-of-the-art” graphics or anything else, it is a virtual asset purchase game – as is Kart Rider, which has been played by over 25% of the population of Korea! And, the available data indicates that they make more on average per customer than subscription games even with only a conversion rate of players to paying players of 1-3%. (Interestingly, Second Life seems to support these kind of numbers, though in SL a lot of the money goes to resident businesses, not to Linden Lab.)

    It all gets back to good game design and business model design.

    I have written on these topics previously in the Game Commerce and Game Design sections of my blog at: PlayNoEvil, also, I have a section on Metrics where I have tried to grab as much info on how online games work (or not).

    Comment by PlayNoEvil — 17 August, 2006 @ 4:31 PM

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