When thinking on standard model with retail distribution and boxed packages holding IP called games we can imagine that “simple” business model with strong relation between game developer and publisher including negotiations for the revenue split, responsibilities for marketing the product, responsibilities for on-time, on-quality production and so on. Finally there is a consumer who can buy the box in Best Buy, Game Stop or other store. Last decade revealed alternatives very successful and I’d expect them growing even more in near future.
We hear more often about cloud computing. Microsoft offers Windows Azure very soon, enterprise ready competitors do not sleep either. Games industry known personas refer to that term too. What cloud computing means, if we ask for business models in gaming? I see three big options worth mentioning.
In past years we have noticed several successful examples. Xbox Live Arcade or PlayStation Network Store are good for hardcore gamer who seeks for small entertaining titles for cheaper price. Apple’s Store gives amazing opportunity for many different types of applications to land in consumer’s mobile device. Sony is learning on that releasing their PSP Go with Digital Distribution as the only way to play new games. On regular PC, Steam from Valve established itself as the leader. This business will grow definitely and I believe, in future, we will be educated and accustomed to buy license to play rather than physical CD for our collection.
This model has two sides of course. I don’t want to call these sides Bad and Good. I’d rather describe them as opportunities and challenges. For example, digital distribution seems to be great opportunity for Independent Developers to succeed. In fact it has already made itself one of two major directions Indie Game Developers look for. Second is what I call “Gaming inspired by Web 2.0″ which means successful monetizing from the traffic rather directly from customers wallets. Challenges are also visible. Publishers think that digital distribution will kill piracy and used-games market bringing them more money. It’s very optimistic I’d say. History has shown that every new brute-force anti-piracy method was broken. I’m against piracy with my heart, but I have not seen good way to eradicate it yet. I doubt that it can be killed completely and sometimes I read between the lines that many industry leaders believe in that utopia. Personally, I’m more toward education and equalizing the chances in gamers community coming from countries with different economies, but this is different topic so I don’t want to go deeper into it, this time.
Used-games market is more interesting. Many players who can’t afford launch pricing, wait for cheaper alternatives. Used games are painful for publishers, but it’s natural counter-play from retailers who react on that demand. Seems like publishers perceive less and less opportunity in Platinum (PlayStation) and Classics (Xbox) sales. I believe that if digital distribution wins, it will immediately teach publishing platform vendors to extend sales life cycle with different pricing options over time. One of the reasons Apple’s App Store has won, is average $2-5 price for many apps presented there. They have no need to discount more. $59 price, a year after launch looks ridiculous in my opinion.
Monthly Subscription Fees
I can bet that 99% of gamers asked simply, if they prefer to pay once or many times for playing the same game would answer rhetorically, ONCE. World of Warcraft for a change showed that subscription model can be very successful. Subscription model is still most popular in MMO branch of gaming. Other ways are also tested, like once again monetizing from the traffic with micro payments for example. Another type of games that had tested subscription model is browser games. In late 90ties I found many examples of those. Mainly strategy and role-playing games. They seem to be still popular, but in this case failure of subscription model is pretty much visible. I checked latest examples. Many titles developed by German company InnoGames are strongly advertised in Poland right now. If you don’t recognize titles like Tribal Wars (Polish title “Plemiona”) or The West, maybe you should check them out. These examples go through micro payments now, giving you free opportunity to start. Micro-payment seems to be natural transition from Subscription Fees. Although many would like to see subscriptions dead, I’m expecting it, to be one of three major revenue streams in cloud computing. MMOs and browser games still consider it and even if this outpost fail, I see new opportunities somewhere else where subscription can reestablish itself. One example is games over cable TV. In Edge Magazine (December 2009 paper issue numbered 209) I read about very interesting example. Imagine high quality (AAA) mainstream games available for you through standard cable TV decoder. No game console, just extra game pad additionally to you remote controller. Everything rendered in huge data centers and only graphical data is streamed to you through very strong network. Regardless if you think that this can win or fail, one company from Israel is right now testing it in their own homeland. Business model is exactly, based on monthly subscriptions added to your standard bill for cable TV.
Sad thing, we still have terrorism on our planes. US government after the latest act of terror is considering to ban all electronic devices from the deck during flight. Sounds extreme and I’m personally against it, but if this happens, why not try to duplicate that cable TV model for all Nintendo DS and PSP gamers playing on the planes right now. Technically solution should be even easier to develop than over TV. Scalability is the key, so compare 200-300 passengers, maybe 1/3 representing gamers to multimillion cable TV subscribers as an average for a country in size of Israel. What I’d change on a plane is payment model. Subscription would not work there. I’d go back to digital distribution with credit card swiping to pay for your gaming time.
Monetizing from the Traffic
Fair, if you can pass some conditions. Nobody likes advertisements which are invasive. If you are able to design your game to mix game content and commercials fluently, bonus is on your side. This achievement is much easier of course, if you plan adverts for a game designed to be modern ARG rather than fantasy. ARG stands for Alternative Reality Games. Billboard in GTA looks natural, billboard in World of Warcraft would look just ridiculous. In browser games, advertisements usually are represented by separate frame filled up with banners. Biggest challenge for developer of such games is, that it always looks invasive. I’m not surprised then, that micro payments for various things appeared.
Micro-payments are related to another gaming experience which is still not defined very well. It’s especially true for MMOs. Black market of items, characters, in game elements on various online stores. Opinions on this phenomena may vary from unregulated to illegal. I personally perceive it as a great puzzle how to bind it into regular industry business. Biggest challenge now in that is that it’s closer to gambling right now than regular trading. I have no good answer how to manage in-game trading. I see one example where it seems to be regulated. Well sort of, I mean of course game called Second Life. This is the only example I know where in and out of game economy is bound bi-directional.
Huge traffic can be the trigger to many different concepts, but first while making a game, developer has to be sure that he implemented all tools that may bring that traffic to his game. Choice of good platform may be critical. I mentioned in-browser games. Tribal Wars have been released in about 10-15 countries, average traffic seems to be 100k per installation. Not so big comparing to Facebook’s hits. Facebook gathered about 350 million users. Multimilion of them are gamers for sure. Games like Mafia Wars or Texas Hold’em Poker hit the board. Mafia Wars has more than 25 millions of fans, Texas Hold’em only 5 million. Fans are not equal to active players, but definitely show the reach. Electronic Arts has quite recently acquired a company called PlayFish, for 350 million dollars. I checked what has done the unknown company worth so much. They had released games for Facebook only. Most popular I found, is called Restaurant City. This game has about 15 million active users. For the next generation browser games, I’d strongly consider Facebook instead of promoting your own site. FB has users right now, your dot-com has to build its base.
Traffic as I wrote is an open door to many different concepts. I think that successful platform with huge traffic can reshape the industry not only in relation between game developer and game consumer. Imagine the press. Instead of paper and own electronic platforms to distribute news, reviews and other journalism I imagine dedicated channels on Xbox Live, PSN, App Store, Facebook and Steam. In this case I perceive URL rather a data source than destination address. It’s slowly happening right now, I believe future may only bring maturity in that.