Battle of the Business Models

I’ve been seeing a lot around the subject of business models in MMOs.  Specifically that the “sub” or subscription business is old, antiquated, and will totally burn out sooner rather than later.  To be, of course, replaced by the Free-to-Play model that’s been making such a break out recently in the gaming world.  For what it’s worth, the $15-a-month model might be getting a bit up there, but I don’t think it’ll ever actually go away.  I think, like in most things, there must be a balance maintained between the subscription market and the free-to-play market.  There’s a couple reasons for this — first is content creation, second is barrier to entry, and third and stability of income. 

Content is King

Content is king, and one of the benefits of the subscription model is the impetus to keep the content flowing to keep those subscription numbers up.  Please note, that when I say content, that does not necessarily imply endgame content–there’s more to a game than the endgame.  Anyway, the incentive for the developers is to keep iterating content to keep players engaged and subscriptions numbers steady or increasing. 

In a free-to-play environment, the same content creation impetus isn’t there within the game.  Sure, there are periodic updates to the game itself, but large content releases have been noticeably less than in subscription games.  There are exceptions to this, but when painting with a broadbrush, this remains true.  What you have are tons of little micro-updates, generally to things that appear in the Cash Shop (the primary way of making money for free-to-play game).  These items generally cost an in-game currency, which can bought with real money, out of game (my cynically side says that this conversion process is to make people more willing to part with their money if there’s a buffer between the item they are purchasing and the actual amount they are spending).  The developers spend a great deal of time on these items, and less on large content updates. 

The result here, in my opinion, is a more “fluff-y” game.  Don’t get me wrong, there are some great free to plays out there that have perfectly sustainable incomes on this model, and people are happy.   That’s really all that matters.  But I think there will always be a market for those people who want large content updates more frequently that a subscription model tends to endear. 

Easy in, Easy out

The next consideration is that the barrier to entry in the subscription model–that is there’s a monthly fee to go with your gaming.  This barrier to entry keeps some people out, but I would argue the inverse is true as well, it keeps people in.  Obviously, the people who don’t enjoy the game are going to leave it whether there’s a monthly fee or not, but for those on the fence, having that barrier to exit works just as well.  It’s the idea that because I paid, I want to stay and continue to play even if there are things in the game I’m annoyed with because in the player’s mind, my monthly subscription entitles me to request changes which I expect to happen. 

With a free-to-play game, it’s much easier to mosey into the game and mosey out of the game.  With the microtransactions from the cash-shop, in a lot of ways what I buy is … what I buy.  As a gamer, I don’t have the expectation that my purchase of a vanity item from the cash shop enables me to demand a change in the game.  Instead of paying for a service, I’m paying for an item which is much more discrete spending experience.  The paying for a service is very diffuse — its not very clear where my influence of my subscription stops.   Since I didn’t *have* to pay anythign to play the game as it is, and am only spending money on discrete, 1 time items that are static, it’s much easier for me to leave the game because I have less holding me — I have no barrier to exit outside of the items I’ve purchased, which are never really going to change.  They are what they what they are. 

 Again, this isn’t likely true in all cases, but I think it’s a fair argument to make. 

 Stability

Ultimately, a subscription model is the more stable of the two models.  It relies strictly on the players who playing the game to forecast how much it needs to make to remain profitable.  So to a certain extent, it’s easier to understand a subscription based game’s health.  Rarely do we know the number of active subscriptions required to turn a profit, but ultimately it boils down to “we need to have X number of subscribers.” 

In a free-to-play game, subscribers are much less relevant (not to say they are irrelevant).  In a free-to-play games, everything boils down to, on average, how much each player spends.  Now, most people spend far less than the 15 a month (I wish I could find the article that had the stats — oh well, ancedotal it is) on the cash shop in a free to play game.  But, there are a few that spend far, far more.  So what that boils down to is on average, in a free to play game that each active player generates more money than each active player in a subscription game.  But its fewer players playing far more.  The subscription model is far more socialist, per se.  Everyone pays the same amount, regardless of how much you utilize the game.  The free-to-play model is capitalist — everyone can play for free, most people will spend very little, a few people will spend the amount they would in a subscription game, and a very few spend far more. 

 My argument is that those people who spend far more, who *make* free-to-play games profitable for companies are not an unlimited resource.   A free-to-play game that doesn’t have the right number of super-spenders in game won’t be profitable.  The game isn’t designed for the spend-a-little bucket of people, or even the spend-the-same bucket of people, but really for the super-spenders.  Without the super-spenders, the free-to-play model collapses. 

Ultimately, I think that’s why there won’t be an all-or-nothing scenario.  The economics just can support a system of *only* free-to-play games because the number of people who can/will spend a ton of money in a single game to make up for the spend-less and spend-same buckets is not an infinite resource, especially in today’s economy.  I think we’ll eventually find a nice balance between choices of subscription based and free to play based. 

More Diablo3: Buying and selling items for Real-world money

Not how I feel about this one.  It came out today that in Diablo 3, the Auction House in game will allow for the buying and selling of virtual goods.  No biggie, right?  Well, kinda … Blizzard is actually going to open it up to real world money.  That means that I could put my epic purpz up on the auction house, and make real money.  Yeah….uhm….yeah.

Blizzard made sure to point out that they would not be selling items on the Auction House, that it would only be player-to-player. It’s not meant to be a revenue stream for them (like they would need it anyway).  However, they did leave it open that they could potentially sell cosmetic items in the market.

Rob Pardo told Joystiq that no one had actually done something like this before, which I think is a little bit of selective remembering, since Second Life from Linden Labs has had a very similar (though not exact) model for virtual goods for real money in place for years.  So they aren’t the utter pioneers in this instance that they are at least presenting themselves to be outright.

But I still have to wonder what exactly this is going to do–to gaming, to gold-sellers, hell to even our real world economy.  This is an unprecedented change in the way that games work – Second Life, while similar, has never had the following that Blizzard does, and therefore hasn’t had the potential for massive change and massive impact on the industry that this does.

I can’t help but think that this move along with several others are Blizzard’s response to the rampant hacking and exploitation of the previous games, even though Diablo 2 though it remains a strong, heavily played game today.  Or maybe something to try and mitigate the gold-sellers that are so prevalent in every online game nowadays, but especially in the cultural phenomenon that is World of Warcraft.

Either way, it’s a bold move.  If Diablo 3 carries the kind of rabid following other Blizzard products have (which really, it’s been in development for about a decade, it’ll probably have more), players buying and selling virtual items for real money has the potential to change a lot of the rules of the gaming industry as they stand, which is always good.  But I’d be lying if I said it doesn’t make me just a little bit uneasy.

via Ars Technica – Diablo 3 will let you buy and sell items for real-world cash