Monday, May 31, 2010

Getting Screwed!

I don’t write much about my professional life because I try to keep this blog topical to MMOs. This post is going to feel like it’s not MMO or gaming related but hang with me for a bit and my point will come full circle back to MMOs. I promise.

Marketing was, and always will be, my professional passion. But... I like money and so I spent the first four years after college in a technical sales role that I felt would provide me with equivalent sales experience that I could (and did) transition into marketing.

It was a crazy job. We were a technical services firm focused on large accounts with UNIX datacenters. As an account manager, I handled virtually everything related to the client except deployment and billing. Now the real crazy part is that while we were a technical services firm, we didn’t actually provide any of these product or services ourselves.

I can’t express how much more difficult building out a quote is in this scenario over a traditional sales role. We didn’t have fixed costs. Instead, we negotiated our costs AFTER we had won the business. This means quoting to the client with just a rough approximation of what things are likely going to cost you.

I was responsible for not only negotiating the prices with our clients but also negotiating and managing our costs for any subcontractors we used. Oh – and my commission was based entirely on profit (not revenue) so negotiating lower costs would directly impact my sales performance.

All this taught me A LOT about leaving money on the table.

Trust, Money and False Expectations
If I can provide you a life lesson it’s that when money is involved, trust leads to false expectations.

For example, let’s say that you have a friend that sells furniture. You need a new couch, so you call your friend. Your expectation is that your friend is going to give you a great deal on a couch. However, from his point of view, you are just buying the couch from him because you would rather give a friend your money.

You trust him to give you a great deal, perhaps even at or below cost. He feels an obligation to treat you fairly, but not bend over backwards to get you that great deal.

I’m not telling you to NOT go to your friends for furniture. But what I am stressing is that it is a bad idea to delude yourself into having a false expectation that a person trying to make money to support themselves is going to do anything more than treat you fairly.

And that’s when the person is a friend.

For the stranger, trust becomes a tool. It’s important for them to engender a certain amount of trust in order for you to be willing to spend money with them. You need to believe that goods will be delivered. You need to believe the price you pay is fair. You need to believe that the quality and promises will be kept.

Misplaced trust is dangerous.

This is part of what I think is interesting about the whole Allods debacle. When the prices changed in the Cash Shop, it was perceived as a violation of trust. Pretty much by definition, the Microtransaction model requires a lot of trust from the players. It requires that they trust the developer to treat them fairly and not create artificial incentives to promote the Cash Shop.

However, the unfortunate reality is that none of these developers want to leave money on the table.

Money on the table
Tobold wrote a piece on Monday about a new Microtransaction style Facebook game he had spent an undisclosed amount of money on. I was a bit disappointed with him about it.

Not an entirely rational thing. It’s his money after all. Who am I to tell him how to spend it?

But here’s the thing – paying money for crap games, particularly in these Microtransaction models, teaches the developers something.

It tells them that some people are willing to spend this way. Paying incrementally more in small chunks for content that requires far less time to develop.

As I wrote in the comments of his blog, lets compare the value you receive from one of these games to the value you receive from an MMO like World of Warcraft.  Let’s imagine that Tobold spent a modest $5 on this Facebook game. A month of WoW is three times that cost – $15.

Did he receive 1/3 the relative value for his $5? No.

When I pointed this out to Tobold in the comments, he responded with the following:
Did I mention I spent 10 years of my life an about $10,000 on Magic the Gathering? If you don't count the PC and internet connection, 10 years of WoW only cost about $2,000.

But I don't see what is wrong with that. Why shouldn't somebody with more money be able to spend more on games? Do you think it is unfair that some people drive bigger cars too?
Tobold’s take is not that $2,000 is a better value than the $10,000 he spent on Magic cards. Instead, his take is that he would have been willing to pay $10,000 if Blizzard had allowed him.

In effect, he (and others like him) are telling Blizzard that they are leaving $8,000 on the table.

If WoW costs us 5x the price, would we receive 5x the value?
This is where I fundamentally diverge from the mindset that supports Microtransactions. The justification that you have the money to freely spend on these transactions is not the point. I have the money to spend too.

I’m just not willing to pay more for the same thing I was already getting.

My point being that Tobold and his $5 is getting incrementally less for his money supporting these types of games. His willingness to spend 5x the amount on these games won’t buy him 5x the value. Quite the opposite.

His willingness to spend so much more is just telling Blizzard and the other gaming companies that there is a willing market of people who are willing to overpay relative to the services and products they have been receiving.

Negotiating the Price
I don’t begrudge Tobold’s right to outspend me. I DO begrudge him for teaching developers that it’s OK to provide less for more.

Right now, game developers are realizing that players are willing to spend more on games. I think of these Microtransaction models as a negotiation of sorts. Developers are testing this new market trying to find the line that makes them the most profitable.

Sadly for me, Blizzard and other are learning that YOU are willing to spend much more for little content. The Sparkle Pony is not dangerous because it offers some unfair advantage but because it teaches these developers something about a market willing to spend money on almost nothing.

At the end of the day, the trend is that collectively we are going to spend more for games.  I can't change that, nor do I really want to change it.

I would just like to see us negotiate a much better deal.


Carson 63000 said...

Really enjoyed that post, Sid. That's about the clearest explanation I've seen yet of that point of view, and I've seen quite a few people try to explain it on forums etc. and not really succeed.

Klepsacovic said...

Do gamers need to make a consumer protection agency? The idea makes me laugh, but somehow I can't see it as being completely ridiculous.

Tobold said...

If you buy a car that is twice as expensive as the one you are currently driving, will you get twice the value for money? Of course not! Luxury in every market has extremely diminishing returns, you pay a lot of money for a just slightly better product.

But just because some people buy a Rolls Royce, car makers don't conclude that making a Honda Accord is leaving money on the table. Read Joel's famous piece on Camels and Rubber Duckies to see how money is being made through price differentiation: Having a basic product which gives most of the functionality for a small price, and then offer different luxury versions with small incremental benefits for large increments of price.

That is how most markets work, and the MMORPG market is moving in exactly the same direction. A $25 sparkle pony or CopyKat is exactly this!

And the people who pay little for the basic package actually benefit from this, because the outrageous profits the companies make on the luxury version are reinvested and end up helping the basic version.

sid67 said...

@Tobold: I don't entirely disagree with you. I understand the purpose of luxury products and price differentiation.

My issue here is that you and others are defining "Luxury" as some crap game on Facebook or a "Sparkle Pony".

I accept the inevitable that developers are going to chase these dollars. I don't like it, but I accept it.

But what I don't accept is negotiating such a lousy definition of "Luxury".

$25 for a Sparkle Pony?! Really? Shouldn't we be asking for so much more for our hard earned money?

Anonymous said...

Its also worth considering that perhaps the old MMO formula of $15 a month is unfair towards the devs. I'm not saying we all start buying $25 epeen ponies to support the needy, but don't we all realize that paying $15 a month is peanuts compared to any other form of entertainment, other genres of gaming included?

My point being that SOME re-balancing is probably needed, and I think right now we are going through an awkward phase of figuring it all out. $15 a month is perhaps a little too player friendly, while the current RMT model is not a good balance of cost/service in most cases. We are still looking for that happy middle.

Callan S. said...

Where is it a rule that luxury has diminishing returns?

But talk that way and as sid says, yeah, the companies are happy to give only a tiny bit more luxury for alot more money.

No, sometimes alot more luxury costs only a little more. But if you don't want to check whether it does, the company is happy to supply the tiny amount of luxury for large amount of cash.

Indeed I've thought about how much it cost them to make the burning crusade expansion, or the lich king expansion. These cost about $90 Australian.

Now compare how much it cost to develop those to recoup just $90 per person, with developing a sparkle pony (what, maybe cost them $300 to make? Prolly less) and recouping $25 from each person?

I think sids right - it teaches them sparkle ponies, hand over fist, make more money than real expansions/content.

Your buying your way into a style and no substance future.