Monday, August 10, 2009

Micro transactions

Tobold is having an interesting discussion about micro transactions. The general thrust of his blog post is that micro transactions exist because our generational demographic can afford it. The premise is that our generation grew up playing video games and now that we are older, we have bigger incomes.

In other words, we can afford it now. And of course, while our incomes have increased, our available time has decreased due to work, family and other commitments.

All true. We do have a growing disposable income and have played video games our entire lives. Unlike a teenager or college student, I could afford to spend $5,000 to $10,000 on gaming related activities.

That's really not much different than a sports fan buying season tickets. In fact, many people my age easily spend much more than those sums of money on their primary form of entertainment (golf, skiing, boating, whatever). The gaming market is huge and is only going to continue to grow and grow. I agree 100% that this is why micro transactions EXIST.

Affordability vs. Expected Cost
HOWEVER, most people (including myself) have expectations about costs. In the last 20 years, video games have continued to stay in the same general price range ($40-$70) because that's what we EXPECT games to cost. It doesn't really matter that I can AFFORD to pay much more for a game if I won't pay more than what I EXPECT the game to cost.

It's all about perceived value. Raising prices simply because your demographic can afford a more expensive product is not going to get them to spend more money. And that’s the rub with micro transactions. At the end of the day, most of us just aren’t going to spend more for video games. Not because we can’t afford it, but because doing IT’S A VIDEO GAME.

Changing Perceptions
As a marketer myself, I can tell you that managing perception is arguably the single most important aspect of marketing your product. When new products are introduced to market, it’s the first thing that is marketed to you. Not where to buy it, how much it costs, or sometimes even what it IS. The first ads are all about image and what the marketer wants you to associate with the product.

How powerful are perceptions? What image comes to mind when you think of Harley Davidson? Most likely, a motorcycle. What if I told you they were coming out with a motor oil? That might not be surprising. It would likely be a special grade of oil for motorcycles, right? How about a Harley Davidson road map? Oooh! It would probably have all these cool biker bars and hangouts on a map of the U.S. How about Harley Davidson ice cream? OK, that’s disgusting. What about Harley Davidson soda pop? Eww, also digusting. Mac n’ cheese?

The point here is that it could be the best ice cream in the world, but our perception of the Harley Davidson brand is associated with motorcycles. Ice cream just doesn’t fit in our mental image of a Harley Davidson product. In fact, it’s so far out of our perception that it has a negative effect (i.e. it’s disgusting).

One of our expectations about video games is that they are a relatively inexpensive form of entertainment. In order for micro transactions to appeal to the broader market, they need to change people’s expectations about the value of what they are purchasing with the micro transaction.

That’s really really hard to do. It can be done, but it’s hard. Just ask Hyundai. They’ve been trying for 15 years to shake the perception that their cars don’t break down. Even going so far as to offer a 10 year, 100,000 mile warranty on new cars.

How clever are micro transactions?
In my mind, the real debate about micro transactions is whether or not they fool anyone. In the end, it’s my belief that micro transactions won’t make any significant impact on the gaming industry if gamers view the approach as a price increase.

So are they clever enough to avoid looking like a price increase?

I’ll freely admit that I dislike micro transactions, but like some of the more subtle approaches. Certainly, Blizzard’s fee based character transfer service is a useful tool for people wanting to hook up with friends. The character customization is a bit more borderline but also acceptable in that it doesn’t affect game balance.

And in this respect, Tobold is also right. Micro transactions in some form are going to be around for a while. Of course, these are also all special circumstances that could be termed more customer service than game altering.

The bigger question is whether the micro transaction model is going to be a popular choice when the transaction directly benefits your game character. Judging for blogger reactions, spending $10 for a “starter kit” that includes a larger backpack and another $5 for a horse is apparently also pretty subtle.

Of course, $15 is far less than the expected $40-$70 (or $15 monthly) cost that we associate with these games. But what about when the moment comes to spend the next $15? And the next $15 after that? And what if in order to “keep up”, I need to spend $200 on items or levels?

Spending $10 to get an item that otherwise would have taken you 40 hours of work would seem like a deal to many people. In fact, when you consider the power leveling and gold selling services available from third parties in other games, the perceived market price on some of these transactions has already been set.

The perception of fairness
Fairness is the other major perception that needs to be overcome in micro transactions. Who is willing to play a game in which their effort can be invalidated by someone else that is simply willing to pay more? As I alluded to previously, some micro transactions are subtle in that they appear to be more like customer service requests than game altering.

It’s hard to object to something that ultimately only impacts the quality of the play of an individual. But in an online persistent world, the value of your individual effort is often relative to the achievements of other people within the game. For many people, this is what provides a sense of accomplishment.

Micro transactions have the effect of devaluing the perception of that accomplishment because people who did not put forth the same level of effort are benefiting from the same rewards.

Nickled and Dimed
Tobold’s blog is one of the few that provides an international view on these topics. One thing I recalled from several discussions last year about internet usage charges was that Europeans seem to be very comfortable with the idea of variable rates based on usage.

In the US, we’ve had a long history of overage charges that has led many of us to simply prefer a flat monthly fee. I think we simply prefer the simplicity of the plan to the potential for deceptive charges.

Americans even have a term for getting charged bit by bit by bit, it’s called getting Nickled and Dimed. We hate it and do everything we can to avoid it. Micro transactions strike me as the “pay-as-you-go” type of model that is just another form of getting Nickled and Dimed.

For me at least, I can’t help but look at it as a price increase. It may not even BE a price increase. It just feels that way because of the bit-by-bit nature of it. It’s also probably the number one reason I’m against micro transactions.


Tobold said...

In the last 20 years, video games have continued to stay in the same general price range ($40-$70) because that's what we EXPECT games to cost. It doesn't really matter that I can AFFORD to pay much more for a game if I won't pay more than what I EXPECT the game to cost.

Yes, but did you notice how much shorter games have become during that period? You pay the same price for the box, but there is less game in it. Lots of game are played through in 10 hours or less nowadays.

Tesh said...

You may not like being nickle and dimed, but I don't like buffets. I am a picky consumer, and prefer to do careful research and buy what I need, rather than pay for the option of having more than I want or could possibly use.

I tend to believe that the best system accommodates both type of consumers. Wizard 101 is one game that has both subscription and microtransaction plans, and they get major bonus points in my book for offering both. There are so many different people that play these games, and for different reasons, that it makes a lot of sense to diversify the monetization as well.

sid67 said...

I think we will continue to see micro transactions evolve but I don't see it as "the future" of online games.

The majority of gamers are simply going to shy away from any model where you can pay to improve your character.

I won't disagree that there is a market there for players who want that, I just don't see it as a large market.

Outside of customer service or vanity transactions, I think we are ultimately talking about a small niche of players interested in that type of game.

What I'll be interested to see is how subtle and clever game developers become in order to get people to use the model. I'll also say that I'm rooting against them since I believe such tactics are just an insidious method of jilting the consumer out of more money.