Subscriptions vs. Microtransactions

Chasing the lure of the dollar ...

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.

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13 Responses to Subscriptions vs. Microtransactions

  1. Azaroth says:

    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.

  2. Mavis says:

    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?

  3. 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.

  4. Spitfire says:

    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.

  5. 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.

  6. Azaroth says:

    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.

  7. Swift Voyager says:

    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.

  8. Uulonze says:

    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.

  9. Pingback: MMO / subscription or micro-payment « athanazio

  10. Daniel says:

    I don’t have a problem with multiple business but I do have a problem with a lack of clarity in language. “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.” This may be true but then we need new language because in my mind they are no longer MMO because with the first “M” once stood for *massively*. WoW is a MMO. Every microtransaction gameI have played has not been massive in the historical meaning of the way that word has been applied to on-line games. And I think that calling such games massive is misleading, deliberately or not.

    The second problem, and one that I have experienced first hand, is that while you say free players matter they truth is that the business model pits player against player in the developers mind. In my case, I ran a guild and I got in a dispute with a player who had put over $1000 in microtransactions into the game. Guess who got their account deleted? If you don’t think that people who invest that kind of money into a game don’t understand their hold over developers, you’re fooling yourself. While there is something of a structure in a game like WoW (professional gamers) it’s much easier for customer service to settle disputes fairly because they don’t have a vested economic interest in who’s right.

    My own opinion is that microtransaction games are a fad. They are based upon the false notion that all players are equal when in fact they obviously are not. As more and more people learn the hard way that free means nothing, they will go to where they are better treated. And that means subscription.

  11. Shisho says:

    A comment a year later, but if anyone reads it, have at it.

    The logic and explanation is sensible, but it’s far too sandboxed to even be anything but wild speculation. It’s unclear what position you’re actually taking here, but if it’s that MMOs are actually going to all trend into microstransactions, then I would be comfortable in calling bullshit on this one.

    Too many factors are left out of the equation. Did they ever stop to think that one market creates or allows the other to exist as well?

    Here’s just one simple point though that is going to tip this over. You can’t compare Home Shopping Network (or Television to Gaming in general) to say World of Warcraft and EQ. The more people tuning into the HSN program doesn’t increase their infrastructure and operational costs. They’ll still have their cable / public broadcasting deals and the same handful of people blathering about products and handling the orders. They don’t have to hire drastically more people to do customer / technical services, or buy more servers and bandwidth to handle the load of new customers. They also aren’t broadcasting some non-interactive programming to people. It’s kind of crazy to think the concept of Home Shopping Network could swing both ways. That in theory they could somehow redesign their format entirely to actually make people pay to watch their show and not really sell anything…

    Let’s be real here too. You go to HBO and HSN for two totally different reasons. It’s way too asymmetric of a comparison to make these two business models look like they’re fluid enough to just shift into any container you put them in. Face it the reason most people don’t buy anything off HSN is because it’s garbage and they’re wise to it. The analogies would properly balance out to saying they’re going to make crappy MMOs that only a few people would invest money into.

    If HBO gave up on their corporate mission and made a free show that sold random junk, some other studio would pop up and take it’s place and it’s revenue to do exactly the same thing.

    I personally would never go to HSN looking for a good movie. So, if these MMOs are to be a counterpart of subscriptions in the same way HSN is to HBO, I (as well as millions of others) will never go near them. That isn’t to say no one would be as mental to do that, or that American’s aren’t evolving in that direction as a bunch of drone-like consumers, but as of now and the near future it isn’t likely to have a market large enough to sustain itself at the success margins comparable to the big name subscriptions MMOs we have now.

    WoW and EQ making content is the whole point of making it attractive to players. They need the funding to hire and retain the talent and designers to make the thing justifiable to keep playing year after year. It just wouldn’t fly if they made some kind of budget game that only appealed to people who paid money for bonus content. If you had to pay to get special treatment for a video game that would turn a ton of people off who were initially attracted to the freeware nature of the game.

    Then the issue of how much can you feasibly charge for virtual perks? Probably not much drastically higher than an annual total of a subscription fee. Your game probably wouldn’t have any serious pull to begin with if you were strictly using this model of customer appeasement.

    I’m not saying microtransactions aren’t viable, seen, or impossible in games, but you’ll be hard pressed to find any as successful as WoW, or when we wake up tomorrow they’ll all be that way. It’s a business strategy, and not a game design or marketing strategy. It also doesn’t cohesively support what players and developers want out of the game. The subscription fee if modestly priced provides the developers with the resources they need to make a sensational game (if they can) that is fun to play (attracting players) and make money to support the MMO infrastructure while turning a good profit.

    I personally don’t think business strategies have any… well… business… as a primary role in the philosophy of game design. That’s like saying if the amount of the budget you spend is more, the movie you’re making will be better. The amount spent out of the budget comes after the fact, and the success of the movie is determined by it’s own merits, which may or may not have anything to do with cost constraints past a certain amount to cover all the production costs. Way too many variables to consider.

    You can’t really get a good MMO off the ground without subscriptions to offset the operational costs. The security of the subscription based income is an enabling factor of what allows many MMOs to be as robust as they are and hence as popular. If you could do without subscriptions though, then you could feasibly make a free to all MMO with carefully designed perks that made you a healthy profit.

    The problem, as sort of hinted upon in the article, is the issue of inequity among gamers. You can’t give the impression you’re short changing your player base in the interest of making a dollar off them. You can’t have your larger base of players being cornered out of areas of playing interest because someone decided to pay to buy some kind of legendary items to smoosh them and negate their efforts. It is viewed as cheating, because when your premise of playing is: Hey it’s free. That’s what you’re selling and setting expectations for to draw those numbers to begin with. When they see, oh, it’s not so free after all. It opens up a variety of cans of worms.

    It can easily rain on people’s parades if you’re not careful with how the cash incentive based content affects them. Then if you’re too light, no one will care enough to even bother paying money for it if they feel it’s worthless. So you have a very tough job ahead of you in that kind of customer base.

    The non paying people are customers still, and still add value to your MMO. Them being there is what fuels that type of game too. So it’s flawed to overlook the necessary ingredients in this affair when trying to pin some kind of speculation to it.

    The only method I see as working is rather dubious. You’d have an MMO that you setup a credit card payment option at the point of first purchase, and then have it allow you to autopay thereafter for “convenience”. Then make all the incentives extremely cheap, but frequent. Such as 10 cents to go gain access to this and that. Then you would feel the pressure of other gamers most likely to go join up with them. Come on it’s just 10 cents, you can’t be that cheap. The more and more this happens it could add up like a long distance phone bill, or a cell phone plan that’s gone over it’s minutes. That’s something I’d most expect out of the corruption of business motivated profiteering injected into the retail of MMO video gaming.

    It could work, but will it end up exactly the way people are speculating? Doubtful.

  12. Matty says:

    My initial thoughts on an MT is a lack of substance and quality. It’s all marketing jizzum for the purposes of more coin in the pocket. The difference between MTs and Subs is clearly the difference between an instant gratification low-quality game and a game that is truly worth paying. It’s very much like the difference between HBO and HSN, but I see it from the perspective that I know with HBO I’m getting a quality, unfiltered viewing experience, whereas with HSN your getting all this surface-quality crap shoved in your face and they’re saying “Look! Look! Aren’t I God? Don’t you want all these little doo-dads? Please, I’m your friend? Look I’m free and you can buy my HSN themed duffelbag. Look at all the things I have to offer.” Give me something high-quality and I’ll gladly pay for it on a subscribed basis, but don’t expect me to give two shoots about you’re free game that has “cool” stuff that I can buy. These Marketing mothafeckas need to choke on their own shet and leave the world alone.

  13. PJC says:

    There is a world of transient gaming that feels closer to ringtone purchases than anything resembling MMOs today, and I can’t speak to that market. Not my area. With regard to things that look and feel something like MMOs — persistent, grouping, social, usually RPGish games — I have two assertions:

    a) MT is not an alternative to subscripton; you can do both.
    b) You CAN avoid “free to lose, pay to win” if you’re not greedy

    First let me posit that, in an MMO world, people need to feel that they are playing essentially the same game as all the rest. So the issue isn’t MT per se, it is doing MT in a way that preserves some sense of fairness.

    People in subscription games already pay more for some small priviledges. For example, though hardly “micro” in cost, consider Blizzard’s special in-game items offered with the deluxe packaging of their games, or the XP bonuses offered for teaming with a buddy who starts a new subscription, or the pay-to-change character renaming and re-gendering.

    Could they go further without alienating tons of people? I think so. Pet-of-the-month-club for an extra $2/month. Perpetual blue bar (double XP) for the first two months for new subscribers. Old-world faction bonus tokens for BlizzCon attendees. I speculate blindly; good times. But I think that even WOW, with its direct time-played-gets-you-power world, shows that there is room for revenue generation.

    If you design a game from scratch for MT, I think you can provide a way for “base” subscribers — be that free or just cheaper — to feel like they are still in the same league as the rich people. I can’t prove that yet, and I realize that there are numerous pitfalls. However, I think the extra revenue is worth it. You can lower the subscription price, which attracts more people to try the game and may retain more. You can also extract extra money from people who are happy to give it to you. Needing to maintain “fairness” may mean that you can’t have as big a spread between the two groups as logic alone might dictate, but still enough to pay off your dev costs (he asserts!).

    Clearly this is a sensitive area. You need to understand the emotional reactions and not just apply some logic. This is not the kind of thing most people analyze logically. And that’s not a slam; that is human nature. “Fairness” is a powerful force for good, and part of its power is that it is willing to react disproportionately when triggered. Know this and respect it.

    One bonus: if you create a game with MT in the design, you can use MT-style rewards in all kinds of other ways. Contests, events, giveaways, promotions. All need some kind of mechanism that lets you associate item X with account Y, outside the normal internal game mechanism. If you don’t have that mechanism, the first time you want to do something like a “bonus item for people who buy the deluxe box” you need to invent it anyway,

    For anybody seriously thinking about this kind of mixed-mode or multi-tier pricing, in the sense of betting your company on it, do some reading about differential pricing. The idea is not new, and has seen many successes and failures.

    I apolgize to any gamers shocked by my profit motive. Non-paying customers are overrated. For every big-name success that worked using “free” as a model, thousands of others die in obscurity and a few blow up spectacularly.