Revenue Models

Felix Salmon blogging at Reuters has some things to say about monetizing online magazines that has applications to gaming:

Which brings up a fundamental rule of online subscriptions: there is zero correlation between value and price. There are lots of incredibly expensive stock-tipping newsletters which have a negative value… And of course there’s an almost infinite amount of wonderfully valuable content available online for free…

Or look what happened when Newsweek and Sullivan parted ways: both of them started subscription products, at almost identical prices… That doesn’t mean the two products have almost-equal value; it just means that both…came to the conclusion that the $20-a-year range was more or less the point on the supply-and-demand curve where they would maximize their income…

But there’s another consideration, too: the more formidable the paywall, the more money you might generate in the short term, but the less likely it is that new readers are going to discover your content and want to subscribe to you in the future…

…on the internet, people prefer carrots to sticks. That’s one of the lessons of Kickstarter, too. To put it in Palmer’s terms: if you want to give money, you’re likely to give more, and to give more happily, than if you feel that you’re being forced to spend money.

I saw this last note most richly in Kingdom of Loathing, where players would buy the item/familiar of the month as a de facto subscription fee just to give Jick $10. I have donated to quite a few online games, some of which called it “donating,” but I find myself strongly averse to paying for flash games that added a grind you can pay to skip. Games with limited, optional, non-pushy cash shops probably see more purchases that the players think of as donations, and some shops’ opening saw pent-up demand to donate to the game (probably an influence on sparklepony’s revenue).

The third paragraph is most of interest to me. Aggressively monetizing can yield great short term revenue while harming your long term prospects. Without having revenue numbers, I suspect Turbine is seeing this: excellent initial numbers, followed by decline and aggressive monetization of dedicated players, and flirting with blatant absurdity. You can get a feedback loop if players start feeling like the game is being milked before it shuts down.

: Zubon

Hat tip: Marginal Revolution

10 thoughts on “Revenue Models”

  1. Don’t most folks see Turbine’s model as a good one? I don’t play Lotro, but my impression is that its f2p model has a better reputation than that of swtor. In general, I agree with your post. I buy gems from the store in gw2 because I want to support them. I stay subbed to AoC because I want to support Funcom, even if I don’t play it very often. I don’t encourage friends to play swtor as f2p if they really want to experience the game, only if they want to play through a story or 2 (and grind or put forth a month sub once or twice for the xp bonus). Neither do I buy anything from the cartel market, because I don’t see it as providing good value to the customer, nor do I agree with how Bioware chooses to run the game.

    TLDR: agree in general, just surprised that you picked Turbine as an example of what I assume you think is a bad f2p model and customer enticement program, long term.

    1. It’s the suspicions that their model isn’t as sustainable as when it started. The battle Turbine seem to be fighting is too wrest as many points off Lifetimers (which make up a sizeable portion of their committed audience) as they can in order to get them to spend cash on a continual basis. On the other hand premium players get most content for much less than a year’s subscription but may end up turned off by the endless and increasingly ridiculous series of points grabs that are not directed at them. A premium player would be more inclined to think in cash values than a points-rich player, and thus be left thinking ‘you want how many dollars for that?!’. Well that’s my theory anyways.

      1. I think that’s a fair assessment. I much prefer the model in DDO to the model in LotRO, as there’s no lifetime members to deal with so it feels like a more fair model overall.

        1. Which makes me wonder about the economic incentives facing GW2, where everyone is a lifetime subscriber at a much lower cost than in LotRO.

        2. @Zubon Exactly. I suspect we’ll see more “required” purchases like expansions where if you want to play the shiny new content with your friends you’ll have to pony up more money.

  2. I don’t think it’s quite so simple as just “letting” people pay. Yes, there’s a balance where if you make the user pay for everything they’ll start to detest it, but on the other hand if you make payment feel entirely optional then many people will choose the easier route of not bothering to open their wallet at all.

    I think this is especially true when you have ongoing expenses. Tobold talked about putting up a donation button on his site; he doesn’t post regular pointers at it, and said eventually the donations pretty much stopped all together after a reasonable start. It’s all well and good to say, “hey, throw something in the donation cut if you want” when you’re doing a one-off thing, like releasing a CD. But, when you’re trying to run a service, you usually need a bit more strong prompting (read, bribery or “required” purchases) to keep people handing over money you need to keep running the service and to keep eating as a person.

    The trick is to find the right balance. Of course, no matter what you do, you’ll end up pissing someone off.

  3. You say that you think expansions will be released for gw2 and required like that doesn’t happen in other games. Isn’t that obvious though? I didn’t play gw1 so I can’t speak to the playability if you didn’t buy the expansions. I’m also thinking that, like other mmo’s, that really only matters if you are at level cap and / or maxed on gear. I suppose it could provide some sort of winning enhancer that affected spvp / wvwvw, but meh. I’m not trying to sound like a gw2 fanboy, but I don’t see the cause for concern like I would if it was some other company running it, since gw1 seems to have run with a similar model for some time now.

    I think really that 1) arenanet runs a much smaller ship than we assume (aka they have lower fixed costs than other mmo teams), 2) there are a lot of people out there who are buying gems with cash. I do recognize that there are a lot of freeloaders out there who only buy gems with gold. Unless we see some financials it’s really hard to say if the model is working for them, or at least, working enough for ncsoft. Presumably we’ll see something before an expansion is released that will let us better evaluate the situation. At any rate, as opposed to a pure sub game, they don’t have to keep subscribers happy, they just have to have a lot of convenience items (like BL keys, character slots) that somewhat casuals and of course the big fish keep buying.

    Re:LOTRO, thanks for the info. That does seem to make sense. Again, I don’t play it, so I just “know” what I read about it.

    1. Not sure who you’re replying to here, but since you make mention of GW2 expansions, I’ll toss in a reply.

      I don’t think it’s a bad thing that there will be GW2 expansions, but it does go against the “ask people for money, don’t make them pay” bit quoted in the original article. MMO Expansions have always been essentially required if you want to keep enjoying the game. Most of the exciting new content (often including new races and classes) are part of expansions in MMOs, and you don’t want to get left behind when your friends are playing the fun new stuff.

      As for ArenaNet being “small”, that’s not the case. They have over 300 people, and I would assume the vast majority are working on GW2. (Reference: I think what ArenaNet has done well is making sure that the people who write to the public are limited and good at staying on message. But, 300 people is still a lot of overhead, and that probably doesn’t count contractors adding on top of that. Let’s also not forget they have to show enough of a return on investment for the corporate home offices at NCSoft.

      And, yeah, I’m one of those “freeloaders” who has only bought gems via in-game gold; 3 character slots and a bank expansion. But, according to what I’ve read those gems were still purchased by someone and exchanged for in-game gold. I’m just completing the cycle to make sure that gold purchased with gems is a good value! ;)

  4. As a member of a group of folks who played GW1 (and GW2) pretty regularly, paying for expansions makes sense. Buying the expansions (at least in GW1) wasn’t required unless you wanted the rarest, coolest looking goodies and achievements. The game is plenty accessible and I played with just Prophesies and Nightfall for years. I hope ArenaNet follows the same model for GW2 with expansions that are content-rich yet don’t require purchase to have the best-stat gear.

    For what it’s worth, I also kick in about $10 to the cash shop every couple months.

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