Monday, February 22, 2010

Microtransactions: Why YOU need to hate them like I do

If you believe in the old adage that you vote with your wallet, then you need to hate Microtransactions as much as I do. Let’s set aside all the fairness talk for a moment about Microtransactions and examine the economic impact of the model itself.

Ultimately, if enough MMO gamers support the Microtransaction model by voting with their wallet, then developers will see the model validated and successful enough to emulate.

That’s bad. Really bad.

Price to Maximize Profit
Allods Online recently set item prices with their cash shop well above what the majority of players would pay. In economics, we call this line the Demand Curve because it depicts the amount that consumers are willing and able to purchase at a given price. Since supply is completely controlled by the MMO developer at no cost, this means that demand is the only factor to consider when determining price.

The formula is simple: Price * Demand = Revenue at Price. Selling one unit at $1000 nets me the same revenue as 1000 units at $1. But selling 500 units at $5 nets me a $2500 or a 250% higher revenue. So, the trick is finding the price at which demand for that price provides the highest revenue.

OK. That’s all great from a developer standpoint, but what if you are one of the 500 that was willing to pay $1 but not $5? From your perspective, it’s just like the recent Allods Online fiasco. Prices are higher than you are willing to pay or can afford, so the model sucks for you.

So that’s the first reason that you should hate Microtransactions. The pricing is based on what will maximize profits.

And as far as we know, this is exactly what is happening with the cash shop in Allods Online right now. It may be that Allod will change prices, but if not – then it’s because they believe they can make more money off the fewer people willing to pay higher prices.

Creating Demand
The number one reason you should hate the Microtransaction model like I do is because it benefits developers to create demand for Microtransaction products.

This is critical, so it’s worth repeating. Developers benefit by creating demand in-game for Microtransaction products. That means that even if YOU don’t purchase Microtransactions, you feel the impact of the demand that developers are attempting to create for Microtransactions.

What do I mean by creating demand? I mean, throwing up subtle roadblocks that you would rather pay to avoid. Things like not traveling fast enough, not having enough bag space, not having the right weapon or skills, not leveling fast enough and so on.

The more inconvenient they make it for players who haven’t purchased Microtransactions, the more demand is created for them in-game. The more people who pay to avoid these things, the more the developer is encouraged to include such things in the game to create demand.

Now combine this with what I stated earlier about the magic revenue number. If you are outside the targeted paying customer (which may be a small group), then you are pretty much going to get screwed over by every single roadblock and obstacle that the developer throws up to inconvenience you into buying the Microtransaction.

I’ll never understand why people would willingly support a model that actively encourages the developer to exploit them.

And before I hear the obvious “they’ll lose customers” argument, let me be clear that they obviously know they can’t over-exploit players or they are going to lose customers. It’s a balancing act in which they look to exploit players as much as they think players will allow them to exploit them before quitting in frustration.

Validating the model
That’s why I want you to hate this model. I want you to show the MMO development community that players are not going to willingly allow themselves to get robbed blind in an exploitive manner.

Because if you don’t hate this model like I do, then you are only validating the model. You are saying that it’s OK to exploit us as long as they developer is subtle enough about it that you don’t know you are getting exploited.

At the end of the day, I’m not terribly concerned about Allods Online. I’m concerned about the impact  Microtransaction success will have on the rest of the industry. I’m concerned about how companies like Blizzard will continue to experiment with Microtransactions and value added services.

13 comments:

Scott said...

I'm wondering if you've been personally burned by poor Eastern MT's or if some mythical nonexistent idea that gets regurgitated throughout the subscription-only playerbase is the culprit?

Not disagreeing about Allods, mind you. Either Gala-Net (extremely likely) or Astrum Nival (not blameless either) is to blame for this fiasco, and AN being the developers are fully to blame for the recent patch that throws up several roadblocks and practically shoves their item shop in your face. Was the patch done under orders from Gala-Net? Wouldn't surprise me in the least but AN can't exactly admit to it.

You get skeptical of Blizzard but consider this: We've been paying the exact same $15/month since 1999. Can you name a single product or service whose price has remained steady for 11 years and counting?

If we think of MMO's as a product (hint: they're not) then compare them to video games in 1999. A PC game ran around $40, and $50 for console games. In 2010, add $10 to each of those. Are we still paying 1999 gasoline prices at the pumps? A carton or pack of cigarettes?

Thinking of other services (which is what MMO's are) what was your phone (land, mobile or both) bill in 1999 compared to today? What was your cable bill? Electricity? So on and so forth.

Yet we insist that despite inflation and rising costs of living and development, that MMO development studios give us bigger and better games than before, requiring bigger teams to build them, with better graphics, better soundtracks, more "immersive" environments, and tons and tons of content and constant updates.

We want our MMO's to have an Avatar budget but we're only willing to pay them a revenue on the order of I Love You Beth Cooper or at best, GI Joe.

I don't like it anymore than anyone else, but at some point we have to acknowledge that $15 in 2010 doesn't buy what it did in 1999. But if anyone dares grow balls enough to even suggest raising the fee, like Mythic did while WAR was in development (keep in mind, that was still during the time when the slathering, slobbering fanboys were still drooling over everything Mythic said, WAR would be the glorious Second Coming of MMO's, etc.) and we loudly raise our torches and storm the castle in protest.

Is it truly a wonder that studios try to find other ways to raise much-needed revenue without touching that monthly fee price? Blizzard has enough customers that out of them all, they're the one can that most likely afford to slide by on that monthly subscription and nothing else. But they're not, are they?

Ben said...

@Scott

10 years ago most video games cost between 40-60 dollars, same as now. Over time it's just become industry-practice, a "cheap" game connotates bad quality in the eyes of discerning consumers, and moms won't buy little billy any game over $60. Games like WoW actually cost less than $15 a month if you subscribe to a multi-month plan.

sid67 said...

@Scott: Not burned, just aware of the trend that more MMOs are adopting the Microtransactions model.

In my mind, it's not about paying more -- but HOW we are paying more.

I'd rather pay more using a model that doesn't encourage the dev to create artificial barriers that I need to pay to avoid.

Scott said...

I'd rather pay more using a model that doesn't encourage the dev to create artificial barriers that I need to pay to avoid.

Finally! Now we're on the same page. Again I'll refer you to Guild Wars (again, perhaps not "micro" but it's still done right) and DDO, which has even removed leveling sigils from the cash shop which was required for Free players to level up past a certain point. (Note: the sigils also dropped fairly frequently from the chests at the end of the dungeons too.) The recent patch added more free content as well, and I'm reading post after post that now free players can get all the way to level cap without spending any money on the extra content packs (which have some great content though).

Microtransactions CAN be done right, but I'm still extremely wary of the Eastern variety which is the "F2P" we're all used to.

I will note, however, that all I ever read is Western bloggers whining about F2P and microtransactions. I'm really curious to hear from Eastern players on how they view the practice since it's a lot of what they've been raised on.

Chris said...

@ Scott

I would gladly pay more for a game like WoW if but a few simple changes were made to how the current sub model is being implemented:

-Setup hard-difficulty or competition servers where players are tested on class knowledge and skill.

-Implement achievements associated with the above, either in the form of titles or actual rewards for completion.

but at some point we have to acknowledge that $15 in 2010 doesn't buy what it did in 1999.

I dont think this is the issue at all. I've been gaming for 30+ years now, and my costs associated with gaming has always been in a state of flux. The problems with game development costs these days are associated with the man hours needed to produce content, server infrastructure(where the online component is concerned), testing, marketing and most importantly, those dreaded middlemen known as publishers, and the cut they require along with retailer cuts.

There is no doubt that Blizzard is making money hand over fist at the $15 a month subscription price point. So why cant other companies do the same? It's because the bussiness model of getting a game to retail is so costly.

I'm also seeing the "lofty goals" effect in play here also, where poor management eventually leads to a project going over budget and unfinished as a result.

Do game developers even use/adhere to design docs anymore?

There is simply no reason for the number of titles that are being shut down due to internal foul ups and bad bussiness decisions.

Simply saying that we as players need to get use to the idea of paying more per month is true, but to dismiss or glaze over the culpability of the entire bussiness model is not doing the debate justice. I'm not saying that you are doing this, but it would be nice to see pundits at least acknowledge the state of the industry in those regards.

sid67 said...

I just made a follow-up post about the trend I'm seeing on some blogs commenting about how it's the implementation not the model.

http://serialganker.blogspot.com/2010/02/microtransactions-follow-up-to-todays.html

@Scott: As I put at the end of my post, I think paying for progress is what I dislike about Microtransactions.

I don't really consider 'paying for dungeons' a Microtransaction. To my mind, that's paying for usage and not paying for progress.

In that sense, it's no different than paying for new content as you do with an expansion. That's a perfectly acceptable way to charge players for content. Not really a fan of that for other reasons, but I'm not philosophically opposed to it.

However, I think it gets fuzzy real quick when we talk about 'premium content' that provides quicker advancement. That's when the line starts to get crossed in my mind.

Zubon said...

Does it get boring always eating at buffet places, rather than the ones that try to maximize a la carte prices?

sid67 said...

Does it get boring always eating at buffet places, rather than the ones that try to maximize a la carte prices?

I assume you are referring to some model where people pay based on usage?

Using your analogy, a subscription based game is a buffet because you pay one price for a full month regardless of usage. Whereas, a la carte only spends for as much usage as they choose to buy.

Such systems exist, but it's a myth that Microtransactions support that concept.

In an MT model, you pay to AVOID content -- not play it.

It's about avoiding obstacles, not buying usage.

That's distinctly different than a 'pay-by-the-hour' or 'pay-for-dungeon' model.

heartlessgamer said...

@Sid67

Only in bad MT games do you pay to avoid content. There are good MT games out there and up until these changs, Allods was one of them.

sid67 said...

Only in bad MT games do you pay to avoid content. There are good MT games out there and up until these changs, Allods was one of them.

You mean up until the point at which Allods actually implemented MT?

XP potions, skill unlocks, and anything else that directly impact progression are all shortcuts. As such, you are paying to avoid something.

And once you buy into that idea, all you are doing after that is negotiating the price of how far you are willing to be exploited.

Porter said...

I see every aspect of why you hate microtransactions, but there are cases in which they're excellent. Games that simply offer you additional content (in the form of a mini sequel, or side quests) are great. This is generally seen in a properly built flash game however, and most MMO's and other platforms have developers who abuse the hell out of the model. The concept itself is perfectly fine, it's greed consuming the minds of the developers. I actually just wrote an article on microtransactions, a bit off topic, but interesting none-the-less, check it out if you get the time.

sarahmaza said...

Hope you still read this from time to time.

3 years later, Allods still has microtransactions. World of Warcraft has microtransactions. Guild Wars 2 supports it. NEARLY EVERY GAME ON THE IOS APP STORE HAS IT.

It's pissing me right off, it is. I want it to end. Soon we're going to see microtransactions in everything we do, from arcade games, to restaurants to anything. Expidited and microtransaction options for those too lazy and too rich to bother.

Microtransactions don't even feel like we are supporting the company, at all. It feels cheap. The door the lethargic use that you have to pay every time you use it.

I'm scared to see what happens in another 3 years. What will it be like then?

sarahmaza said...

Hope you still read this from time to time.

3 years later, Allods still has microtransactions. World of Warcraft has microtransactions. Guild Wars 2 supports it. NEARLY EVERY GAME ON THE IOS APP STORE HAS IT.

It's pissing me right off, it is. I want it to end. Soon we're going to see microtransactions in everything we do, from arcade games, to restaurants to anything. Expidited and microtransaction options for those too lazy and too rich to bother.

Microtransactions don't even feel like we are supporting the company, at all. It feels cheap. The door the lethargic use that you have to pay every time you use it.

I'm scared to see what happens in another 3 years. What will it be like then?