Network, then Profit
Lately, we’ve been discussing network effects, where wider usage adds values. You might be inclined to purchase something, but that inclination might be increased if you know a lot of other people who have that good or service. This is how things become popular, like the recent rising fidget spinner trend, or why if people stop using something, it will drop out of the market, like the downfall of the fidget spinner trend.
One product that is heavily dependent on network effects are multiplayer online games. You need a large population of players to be able to create good gameplay matches and word of mouth and online really help boost the perceived value of the game. Multiplayer capabilities, however, can be an expensive endeavor with high development costs. To offset these, an inclination would be to charge more for the game.
Charging more, however, may not have desired results. Fewer people will deem the game valuable enough at its price point, and even though the per-unit revenue increases, overall profits may decrease. Instead of doing this, the Bioware introduced loot packs in Mass Effect 3 about five years ago. While this was a bold choice back then, there are currently lots of examples of it happening today.
The article cites the movement stemming from China, where free-to-play was an obvious market choice in an area with low disposable income and high piracy. Instead, in-game purchases of randomized loot generated revenue. In 2009, Zynga made at least $50 million, mostly from in-game item purchases.
In the next few years, game publishers noticed profitability of microtransactions versus ads. Instead of revenue from a more expensive game, a wide-net of players can be acquired with the free-to-play model. Network effects only increase the likelihood more people will get the game. Then once you’re playing, seeing other players with loot will increase the value of the randomized loot, which will make you more inclined to buy it. This seems like a great business model, but is also part of the pay-to-win controversy games face. At what point do those who spend the most money to get rare loot end up being too overpowered. Can you even get to that point by just playing the game without any in-game purchases.
This RollingStone article also discusses DLC like map packs that cost money. Like in the case where the game itself is expensive, the amount of people who end up playing can be too low for network effects to help justify the cost. At that point, if you buy an additional map, you can only play with others who have also done so, and if there aren’t very many, you won’t want to play either.
The article talks about treating the game as a service. The initial cost isn’t the main profit driver. It’s all about getting a large user base to drive profits later. The upfront cost gets the consumer interested, and once a lot of people are using the service, prices for additional, non-population excluding things can be introduced.
It’s likely that game publishers are thinking about network effects in terms of business, but not necessarily in terms of making the best game. As a business, they goal is to drive up profits. It this means devaluing the player experience by having some very wealthy players buy good loot in-game but not to a complete point where everyone else stops playing, that’s not a bad thing. Microtransactions are still a contentious subject. Are they actually good for the game, or are they just a mechanism that takes advantage of network effects for a product that relies heavily on that network interaction. It’s not a clear answer, but the concept of not being as profitable upfront to build a user base that will pay later definitely works.
http://www.rollingstone.com/glixel/features/loot-boxes-never-ending-games-and-always-paying-players-w511655