Subscriptions vs. Microtransactions
I’ve been reading quite a bit lately about how subscription MMO games are on their way out, soon to be replaced entirely by free-to-play MMO games with upsell or micropayment features.
I was also reading a post by Seth Godin recently that included the advice “Whenever possible, sell subscriptions.” In particular, he made the comment that:
Few businesses can successfully sell subscriptions (magazines being the very best example), but when you can, the whole world changes. HBO, for example, is able to spend its money making shows for its viewers rather than working to find viewers for every show.
And this lead me to wonder: We know that a game which embraces microtransactions will need to be designed differently from the ground up. But what does that actually mean? What does a micro-transaction game look like?
One big difference is that we’re no longer talking about a democratic society where every player is an equal. (That’s one of the big reasons that players in the US react negatively to micropayments — both Americans in general and RPG players in particular are very attached to the idea that effort leads directly to reward and that money is a dirty shortcut.) But it just doesn’t make sense for a game developer to lavish the same resources on everybody equally when only a few people are actually paying the bills.
Let’s extend the HBO example. HBO is a subscription service; it is most concerned with adding and retaining subscribers. It does this by producing quality shows that appeal to its audience. In theory, HBO needs to provide just enough content each month so that any given subscriber feels that their subscription cost is justified. Once a subscriber is satisfied that the subscription is worth the cost, spending additional resources on that particular subscriber is a waste — it’s better to move on to satisfiying another customer. This is fairly similar to a game like EQ2 in which expansions and regular game updates provide a broad variety of new content, with just enough depth in each area for different types of players to feel justified in continuing their subscriptions.
In contrast, we can look at the Home Shopping Network as an example of a microtransaction model. HSN provides free content to everyone who tunes in, and profits only when viewers make a purchase. The majority of their income derives from a small fraction of viewers who each spend quite a large amount of money. A slightly larger fraction of viewers spends just a bit of money each, and the vast majority spend almost no money at all. In this environment, the most efficient profit strategy focuses all your resources on the big spenders first and foremost. HSN programs are very carefully tailored to appeal to the big spenders, the people who give them the most money. So long as the big spenders still have money to spend, the best strategy is to target them narrowly.
These are both perfectly viable business strategies, by the way. HBO uses its large subscriber base to focus on high-quality content for all the subscribers. HSN can make tons of cash from only a tiny portion of its audience, so it doesn’t need as many dedicated viewers as HBO in order to be profitable.
So an MMO based on micropayments would focus heavily on the big spenders. An MMO like this is unlikely to provide regular content updates: it’s just not an efficient use of resources to provide too much extra content for players who aren’t paying. And for the players who are paying it’s more effective to give them something new to purchase once a week or so (to encourage repeated small purchases) than to dump a whole bunch of items on them all at once. In fact, it’s likely that a micropayment MMO would largely forego expansions (free or paid, boxed or downloadable) as well, for the same reason. Instead, their development model will likely embrace constant small paid additions (which is going to be a real pain to QA, let me tell you!).
More than that, however, these MMOs will be trying to reach each individual player in an entirely different way than we do now. For instance, if enough heavy spenders would really like a particular niche item — say a giant Cat-in-the-Hat style hat — then it might make economic sense to create that item and sell it. And depending on the cost of resources and the purchase price of the hat, ‘enough’ spenders might be only a few hundred! In a subscription MMO, on the other hand, it is much harder to make the case for niche items like that because all the content needs to appeal to a much larger audience — it needs to help justify a broad swath of subscriptions. So one effect of the coming revenue model revolution may be that our games give up some of their vast breadth in favor of highly targeted depth.
Of course, there are plenty of business models for MMO games that blur the lines between subscriptions and micropayments. But in any case it will be fascinating to see what happens to our assumptions about development as we develop into a more diverse ecology of online games.
January 10th, 2008 at 9:25 am
I think people often bypass the significant problem of keeping out the riffraff when thinking about this issue.
Just having to enter a credit card number and real information about yourself really is enough to provide a significant level of relief to the administrators of the game in comparison to games where you don’t have to. I realize that the REAL problem players will get around this, but at least in this case you have some sort of actual legal recourse. Not that the FBI is incredibly interested in tracking down stolen credit cards and such, but something is always better than absolutely nothing.
I totally agree with the point on the attitude of Western gamers toward RMT, though. I find myself falling into the same category. But any time I really think about it, I can only justify the attitude in the event I were to condone very hardcore, very grindy MMOs. And I don’t.
January 10th, 2008 at 10:45 am
I was thinking about a system for helping casual players - when I realised that due to the fact that the game was going to be micro transactions it was just going to be abbused totally…… So I’m with Azaroth.
Where would you put donation supported games?
January 10th, 2008 at 11:47 am
There’s a lot of buzz about it (especially in Dana Massey’s article), but meh. Like I always say, there’s a lot of room for lots of different models in the market.
I, for one, don’t mind paying subs and will continue to pay subs for as long as games I want to play have subscription payment plans. Will I play RMT games too? Sure. But that doesn’t mean I have to be exclusive.
January 11th, 2008 at 1:08 am
After playing Shot-Online (RMT), WWIIOnline (sub) and Galaxies (sub), I have to say that it almost seems that the payment model has a large impact on the gameplay model. It’s difficult to imagine a “deep” MMO built on the RMT model, because the RMT model is based on the idea of getting someone hooked on the free content long enough to get them to pay some real money to be a small fraction better at the game.
This is a horrible generalization and anecdotal, but my experience has been that the RMTs have been shallow games that I play for a month, two tops, and pay maybe $30-60 into, and the subscription models I wind up playing for a year if I’m hooked and pay around $140 (for the year).
Short term, month to month, the RMT got more money, but long term, the MMO made more. I haven’t seen an RMT yet whose model had longevity and a long term hook (for me, anyway), yet.
January 11th, 2008 at 4:41 am
The problem is that your free players aren’t worthless. I think a properly designed game from Western developers exchanges money for time. This means that while your “big spenders” have a lot of cash, your free players have a lot of time. This time can be used to establish a strong social fabric in the game, for example.
I think Spitfire’s problem is that most of the graphical “item sales” games are not made by Western developers. There’s a very different focus in non-Western games. For example, I’ve yet to find any of the Asian games that seems to facilitate the social fabric we have in the U.S. Part of this might be explained by the different Asian conventions for games (the focus on internet cafes and a pictograph language means that you don’t need much chat space, for example). I do agree that having a free-to-signup game can also cause problems. I think charging a small fee to set up an account isn’t too outrageous, after all, people do it for single-player games and Guild Wars. This would create a barrier to entry to keep out the “riff raff”, including cheaters who have banned accounts.
So, I’d still really like to see a Western developer do a smart item sales game. I think it would work if done right. But, part of me worries this is like those people who want “PvP done right”.
Mavis wrote:
Where would you put donation supported games?
In bankruptcy court? Seriously, most people don’t give money if they don’t have to. We did donations for Meridian 59 before we relaunched it in 2002. We got about $500. It helped us out a bit, but given the number of fans it wasn’t really very much. We made about the same amount of money in a few days of charging subscriptions that we made in all the months we told people we’d take donations.
January 11th, 2008 at 10:25 am
Well, we did donations on IPY. Sometimes we covered our costs, sometimes we didn’t. There was certainly no profit to be made, and our playerbase was totally unprecedented for what we were doing. It’d definitely still be running if I were charging a subscription or had decided I wanted to sell items.
So there’s definitely no profit to be made taking donations, if that’s what you’re wondering. If it’s not, one wonders why you’d even consider running an online game for free. As someone with experience doing just that, I wouldn’t just recommend against it - I’d fly to your house and smack you across the face.
Plus, there’s the whole thing about people not enjoying when you take donations as profit.
So I’d say that it’d be best if you left the whole donations thing up to the professionals. The risk of a lynching is never a good thing, either. And when you’re running an online game and a certain segment of the population will always need some angle at which to attack you, trust me, if you’re accepting donations, they’ll scream until they’re blue in the face about how you’re stealing tens of thousands of dollars every month and how the entire thing is a giant scam.
Brian:
On requiring a small purchase to set up an account (download fee, whatever) - I’m not sure this will work.
I was going to suggest requiring nothing more than the entry of a credit card number to open an account. Not only is it effective against cheaters and such, but when a player decided that he might like to purchase something - quick, easy, single click purchases are going to be a whole lot better for everyone involved.
But the problem is that prying the wallet of a customer open for the first time is the more difficult, and you’re effectively causing barrier to entry. Possibly significant barrier to entry. Especially for people who came to play a free game.
On top of that, are the people who won’t have a problem entering their credit card number right off the bat the same people who wouldn’t care if they were paying a subscription or not? And are you driving away a large enough population of players who would hesitate to enter a credit card number (or can’t?) that you’re not only harming potential long term profit, but also driving away a sigificant benefit OF the free game? That being, of course, the larger population that works wonders in self-recruiting more new players and making your game look automatically attractive to those who stumble upon it.
A lot of things to think about, for sure.
January 15th, 2008 at 2:39 pm
Another important factor is perceived value. People tend to like things that they pay for. If you have two shirts, one that cost $50 and one that was free, which shirt is most likely to end up in the rag bin first? When you start talking about free to play MMO’s I immediately have an image in my mind of a game with less appealing features, or a game that’s not as meaningfull to me.
There was a recent blog on Keen and Graev’s site that talked about how he was “in between games” and was looking for something free to kill some time. I think that about sums up my initial reaction when you say “free to play MMO”. I have a picture of something casual and temporary to mess around with until I find another “real game” to play.
Aeria Games seems to make a whole series of free to play games which look suspiciously like the same game engine with different paint jobs. Kinda reminds me of the Home Shopping Network vs HBO comparison above. They seem to be churning out loads of cheap games to keep people spending, in stead of creating good games to keep people hooked.
January 21st, 2008 at 3:31 am
I play sizable of micro-transaction game on the market today, unfortunate; they are here to stay until we figure out something different.
I found no different in game play than other western MMO. Granted, most of this game was localizing to US so is profitable to them. If you look closely to the nature of the game, it all about leveling, get best items etc.
I do, however, felt that micro-transaction is not a long term solution to any MMO if it has long term objectives.
Something you might be interested:
http://www.danwei.org/electronic_games/gambling_your_life_away_in_zt.php
The game makes millions by exploiting China gamer’s weakness and greed.
February 22nd, 2008 at 3:04 pm
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