Daniel James - Casual games are a dead-end

[KNau]

I always stumble across these things late so forgive me if this has already been discussed. The CEO of Three Rings (Puzzle Pirates fame) posted this back in May on his blog:

http://thefloggingwillcontinue.com/?p=4

Basically it is a semi-rant against the try-before-you-buy business model and how "in ten years will be regarded as little more than an odd footnote in gaming history"

The problem I have is that Puzzle Pirates allows players to try a limited version of the game for free and I wouldn't be at all surprised if the level of freeloaders were comparable to those in the downloadable space - including the expense of maintaining said freeloaders on their gaming servers.

Plus, plenty of games get > 2% conversion rate and the try-before-you-buy business model is already more than 10 years old. If it hasn't died yet - it ain't dyin'.

I'm the last person to want to defend the "Big Fish 1 hour demo" but I hardly think the nickel-and-diming of the customer to death is the key to our industry's future. The Puzzle Pirates business model is basically on par with the cell phone industry's "I can't believe how dumb our customers are" model. Sure, go ahead and charge me 50 cents to give my character a cool hat - I'm a moron anyways!

But then I've been resistant to the idea of filling a website with ads, even if I were giving the games away for free, so I know I'm behind the curve. There's something about the product / money exchange that just feels more - honest I guess.

Just wanted to see what everyone else thought. Is there room for innovation in our business model that doesn't involve preying on the stupidity of people with more money than sense?

[Grey Alien]

Interesting. I too find the idea of paying for content repulsive. I want to try then buy. Shareware has been around ages and will be around for a while longer. Perhaps the newer generation of kids won't give a toss but the older generation of gamers are still used to the idea of try then buy. It's way better than buy without trying and then discovering you've been burnt!

[soniCron]

Those aren't the only two payment models, guys! ;)

Try-before-you-buy may have been around for 20+ years, but it's also gotten a lot more restrictive over time. What were once given away as full-featured programs with nag screens are now time and content limited, and even those limitations have become more strict over time, dropping from 30-day trials to hour demos, or less. It's clear the model is being preened.

Additionally, I disagree that "many" games are selling with >2% conversion rates, except in highly targeted environments. Regardless, look at it another way: 98% of the people aren't buying. This is 98% that may not want to shill out $20, but may be willing to watch a short ad or pay $0.25 per play. By honing in on these non-payers, a significant amount of income can be gleaned from even a poorly selling game.

To limit your strategy to such a poorly performing facet of what could be a much larger pie is just silly. On the other hand, we don't have much choice at this point. The infrastructure for micro-payments is non-existant for the indie, and advertising solutions nearly so. Once the ball gets rolling, we'll see a lot of opportunities open up - opportunities far beyond try/buy and buying hats. It'll just take a big player to open the door for us, I fear. Perhaps Big Fish will lead the way, as they have in so many other ways, recently?

[KNau]

The base business model for Puzzle Pirates is still subscription-based, which is as old as time itself. While 98% of downloaders aren't buyers I'd like to know what percentage of Puzzle Pirates users are operating from free accounts and how many have paid subscriptions. I'm guessing the percentage isn't that much higher than a high conversion indie game.

I'm no multiplayer mogul but I imagine it's more expensive to run a game server than it is to host a download. The free account users are the equivalent of downloaders who don't buy, so how is that business model really any different?

I'm adjusting to the micro transaction idea but it still seems like primarily a way to obfuscate the total "cost" of the game from the consumer. Sure they can buy only a few levels but your goal as a developer is to get them to buy all the levels.

It also takes a hell of a lot of .25 cent transactions to equal the take on one $19.99 sale (about 80 of them). I would like to see a true accounting of how much it costs to cajole 80 micro-transactions from one customer as opposed to one big transaction.

I guess places like Kongregate will be navigating those waters very soon.

[soniCron]

It also takes a hell of a lot of .25 cent transactions to equal the take on one $19.99 sale (about 80 of them). That's $19.99 more than you'd get from just selling the game alone. Give the player the option of either $19.99 lump-sum, or $0.25 per play. You'll be honing in on two different tiers of puchasers. Even if not one soul bought the game, 80 people @ $0.25 = the equivalent of a 1% conversion rate. Not bad for a game that couldn't sell!

[Coyote]

Minions of Mirth does both ad-supported and a one-time purchase option. No subscriptions, and no microtransactions *yet*.

As a consumer, I don't feel bad playing a game that is ad-supported if there's clearly something in it for me... i.e. the game is free. If I have to see an ad before being able to play Bejeweled 2 online... so be it. No big deal.

Now, I do have objections to paying good money for the privilege of being marketed to. I have zero interest in Battlefield 2142. My interest was low to begin with, but after hearing how it's a full-price game WITH advertising, my opinion dropped to negative. Even (if the rumors are true) it doesn't have an invasive advertising system (my opinion is only less negative).

Now, if the advertising was non-invasive and the game was available for free (or at a drastically reduced price) --- sure! No problem! Sign me up!

[KNau]

I agree soniCron. The more options you can give the cutomer the better - although I suppose there's a point where you will just confuse things. People who sell application software have been dealing with that for years, customers complaining about paying for small upgrades or buying the wrong license "version".

I guess the big problem with the Puzzle Pirates rant is that without even seeing their books I can guarantee that the majority of their income comes from subscriptions. I'd wager to 75% or more. So how is that really any different than what's been going on in the industry for over a decade?

It's also foolish to argue that every game should be an online community experience. I've seen as many game players (old/young/male or female) say they hate dealing with online idiots and crave single player experiences.

There is no one size fits all solution, so proclaiming the subscription / micro-transaction model as the holy grail and downloadable games to be some kind of ghetto is, well, being a dick!

[Phil Steinmeyer]

That's $19.99 more than you'd get from just selling the game alone. Give the player the option of either $19.99 lump-sum, or $0.25 per play. You'll be honing in on two different tiers of puchasers. Even if not one soul bought the game, 80 people @ $0.25 = the equivalent of a 1% conversion rate. Not bad for a game that couldn't sell!

The problem with $0.25 micro-transactions is that the real cost to the consumer is much higher - the cost to dig out their credit card, enter a whole bunch of stuff on some DRM page, and then keep an eye on their credit card to make sure the game maker (or an employee) hasn't gone 'rogue' on them.

In other words, a $0.50 transaction is not twice as expensive to the consumer as a $0.25 transaction - they both have an implied cost of dealing with the transaction hassle itself. For me, for a new site I haven't dealt with before, I'd estimate that at about $10.00. So a $0.25 transaction really costs me about $10.25.

Of course, in mobile, that transaction hassle is MUCH less, because you're generally already billing them monthly. It isn't quite free (because I still want to keep an eye on my cell phone bill and make sure the cost is what it was purported to be), but again, for me personally, it's closer to $1 or so versus $10 to get setup with a new vendor.

For a game where I am making many micro-transactions, if I can buy a bunch of 'scrip' for say $10, then I'd be fairly content paying $.25 worth of scrip for a funky hat.

Also, this transaction cost to the consumer is one reason why $10 or $5 is a dubvious price point for casual games. It's not really 50% less or 75% less to the consumer, because of the transaction hassle.

But at brick 'n mortar retail, where you've already stuffed a bunch of stuff in your cart, there isn't much/any incremental transaction cost for another $5 item, so low price points at retail do attract consumers at a level that sometimes compensates for the lower net realized by the vendor.

[Coyote]

Ba-weted! (Dupe Post due to dah intarweb thingie being broke).

[soniCron]

Don't get me wrong, Phil. An individual $0.25 charge for each play is ludicrous. There would have to be a means to invest in a quantity of "tokens," just like a real arcade. (E.g. $10 gets you 40 plays.) Unfortunately, I don't think it's possible for an independent developer to offer this because of the inherent limitations. It would have to be done on a large scale with a variety of games to spend the tokens on. This could be done by a single portal (like WildGames) or with some sort of PayPal equivalent for micropayments, but the latter is unlikely to explode until the rest of the Internet adopts frequent micro-transactions. I think we have to push content aggregators to offer this type of payment system, otherwise we'll likely not see it for some time.

[Tom Gilleland]

I thought his statement about advertising was interesting. "that’s where many of the portals make their real money."

Does anyone know what kind revenue percentages the portals make from advertising? I would think around 30% from snipets I've read here and there.

Tom

[Rainer Deyke]

Experiments with different payment methods are nice and all, but in the end there is an upper limit to how much people are willing to pay (per month) for games. In other words, the pie is only so big. Things look bad when too many people try to get their share of the pie, but the pie is still there and it isn't going to away.

People are going to go where they can get the best value for their money. This means that the generic mainstream indie casual game market is doomed, regardless of payment method or business model. Right now there are hundreds of more-or-less identical match-3 games, all going after their share of the match-3 pie. A bigger developer can trump all of these indie efforts with a single match-3 game that has unbeatable production values. The indies can't compete, the bigger developer gets the whole pie, and because they get the whole pie, they actually have higher profit margins than any one of the hundred indies even if their game was much more expensive to produce.

The only real way for indies to compete is with a game that is unique - either because nobody else thought of the idea, or because it targets a small niche that nobody else is targeting, or because it is a content-based game for a content-based market where players are expected to repeatedly buy a game, play it to the end, and then buy another game.

[Dan MacDonald]

I thought his statement about advertising was interesting. "that’s where many of the portals make their real money."

Does anyone know what kind revenue percentages the portals make from advertising? I would think around 30% from snipets I've read here and there.

Tom


Sometimes in excess of 50% :)

A lot of the big portals split roughly 50/50 between game sales and revenue. But online advertizing rates have been on the rize in the last year so it could be that the add revenues have passed up revenue from game sales. I wouldn't be suprised at all.

[Allen Varney]

The Puzzle Pirates business model is basically on par with the cell phone industry's "I can't believe how dumb our customers are" model. Sure, go ahead and charge me 50 cents to give my character a cool hat - I'm a moron anyways!
Hey, KNau, nice clothes! Did you buy those new? Why? There's cheap used clothing at the thrift store. And did you spend any amount of time, any time at all, choosing a color and style? Why? That's a waste of time, isn't it?

Me, I've been invited to a wedding. I think I'll just wear my pajamas there. Dressing up for a wedding! What kind of morons do that?

Matt Mihalyi of Iron Realms, which makes several long-running text MUDs that thrive on virtual asset purchase, posts in his blog, The Forge, about a player who paid US$240 for a virtual cherry pie (http://forge.ironrealms.com/2006/08/11/cherry-pies-and-virtual-asset-sales/) -- a non-functional game item that consists of nothing but a few unique custom text messages. What a moron, right? Mihalyi makes a point all non-moronic game designers should consider: "All assets are valued within a context. Virtual assets are literally no different. Her pie is valuable to her because the context Achaea [the MUD] provides gives the pie value. ... her “non-functional” pie helps her to be more effective at an activity she cares about. Sounds a heck of a lot like a virtual sword to me, and the way it helps someone be more effective at an activity she cares about."

[soniCron]

@Rainer: Casual games aren't the only ones that can benefit from exploring additional sales models. In fact, the entire industry has a long ways to go...

[Tom Gilleland]

Sometimes in excess of 50% :)

A lot of the big portals split roughly 50/50 between game sales and revenue. But online advertizing rates have been on the rize in the last year so it could be that the add revenues have passed up revenue from game sales. I wouldn't be suprised at all.

50%+ and increasing! :eek:
So it's moving toward the games just being the content to drive the advertising revenue.

Tom

[Aldacron]

The problem I have is that Puzzle Pirates allows players to try a limited version of the game for free and I wouldn't be at all surprised if the level of freeloaders were comparable to those in the downloadable space - including the expense of maintaining said freeloaders on their gaming servers.

They don't just allow players to try the game for free, players can play for free indefinitely. They also have the options to pay for a montly subscription, or to play on a "doubloon server" where they can purchase doubloons to use for in-game goodies. This is not at all the same as the try-before-you-buy model as it currently exists, i.e. a crippled demo intended to upsell the full version of the game. This model most likely will die out as more and more games move to subscription-based and item-based models.

The Puzzle Pirates business model is basically on par with the cell phone industry's "I can't believe how dumb our customers are" model. Sure, go ahead and charge me 50 cents to give my character a cool hat - I'm a moron anyways!

Such a business model doesn't treat customers like morons. Some people aren't into it, but a great many are willing to pay extra money for in-game items. That model has been very successful in Korea. Then when you look at companies who exploit the MMOG market, like IGE, and sell in-game items, money, even power-leveling, to players, it's obvious that some people in the US are willing to pay for extras to give them advantages in games they are already paying a subscription for. Three Rings are bringing that to the casual space.

Three Rings' next game, Bang! Howdy, also will operate on the micro-transaction model. IIRC, the game itself will be free to play, but players will be able to purchase new units and areas to enhance their game experience.

Daniel is giving a talk on that business model (Bringing the Item-Based Model to the Western Market) next week at the KGC (http://www.kgconf.com/eng06/). From the summary of the talk:

The pay for item business model has rapidly established itself as the de-facto standard in Asian markets, but has yet to achieve widespread adoption in the US and Europe. Presented is a survey of games utilizing the pay for item model that have been commercialized in the US and Europe. Where available detail on the business model and commercial results will be exposed. In addition to games, the pay for item aspects of social networking and avatar sites will be discussed as these begin to roll out in the west. Considerations for Korean developers migrating games to the US will be discussed, along with future directions for the world market.

[MrQ]

I think that the casual market is only going to increase as more and more people embrace digital distribution. Micro-transactions have already proven to be quite successful with various games such as BF2, Cod2 and other core games. Finding a way to leverage this model for casual games is definatley worth looking into.
This is also brings me to the question, Is there a service out there that lets users pay via sms mobile bill? I know this is quite widely used in Australia where people sms to purchase mp3's and all sorts of junk from TV commercials. Can anyone point me to a company that provides this service?

[zppz]

Just wondering, what is the state of WebMoney and the likes in the US?
Here in Japan, you can walk into a convenience store and buy a prepaid card, priced between $10 - $100. You type the number on the card into the website of vendors who support WebMoney, and buy stuff. There's no sensitive data transmitted and you cannot be billed for more than you intended. In this cash-only country where getting a credit card is as difficult as giving birth to a horse, this system is a real life-saver. It's great for the micro-payments model and provides access for kids who won't have credit cards in the first place. I don't know about Korea but I would expect there is a similar kind of system there.
Entry to the system for a vendor is a one-time 200,000yen or around $1700, and they scrape 13% from your earnings, or 9% if your earnings exceed around $4200 per month (iirc). As far as I can tell, you install a cgi program on your webserver to be run through https, and that's it.
Are there any equivalent systems elsewhere?

[DFG]

98% of the people aren't buying. This is 98% that may not want to shill out $20, but may be willing to watch a short ad or pay $0.25 per play. By honing in on these non-payers, a significant amount of income can be gleaned from even a poorly selling game.

What I think people are always missing in noting the non-paying 98% is how many of them don't have the capacity to buy - they are children or they don't have a credit card or they are from another country and cannot purchase. Nobody is doing any kind of study to try and determine what percentage of people that download are actually qualified prospective customers. Until that is determined, trying to monetize an unknown.

<added>I do take your point however that so many are not being monetized and there is alot of work being done on that right now. i think in the next 2 years a couple more revenue models are going to emerge as standard.

Also, Daniel James also declared the death of single player games at a conference last year :) I think the guy would like to see the death of anything that isn't Puzzle Pirates :)

[Rainer Deyke]

I used to download tons of games when I was a kid with lots of free time and no money. Nowadays I rarely download games, but the 2% conversion rate still sounds about right. The reason: 98% of the game demos I download are either crap, or just not my cup of tea.

[Sillysoft]

I personally love the try-before-you-buy model, and don't think it's going away anytime soon.

It lets me (as a customer) try lots and lots of different things, and I know that whenever I'm spending money it's on something I like that works on my computer.

As a developer, try-before-you-buy let's me give away something for free (which people love), and make money from people who really like the product. Every one of them has made the (hopefully informed) choice that they liked the trial enough to buy the whole thing.

I'm sure that play-for-free with item purchasing system that Three Rings is moving to will be a viable model as well. It doesn't mean that try-before-you-buy has to go away.

[KNau]

Like I said, I know I'm behind the curve. I know there should be no transaction format beneath me as long as the end result is getting more money out of the customer.

Subscriptions are a great and all but in the current environment there are more MMOs dying than succeeding, so the customers can't be too hot on the concept. There is a very real cap on the number of subscriptions a person is willing to maintain and it's far fewer than the number of straight-up game purchases they make. I don't know anyone who is maintaining more than 2 - 3 MMO subscriptions, most only have 1 and cancel it when they find a new game to play. The end result is that, in a real analysis of the market there are fewer potential customers.

So, if you're an MMO micro-transaction provider you are banking on becoming 1 of the maybe 3 games any customer is willing to support. Puzzle Pirates and Bang Howdy are in a very good position in the casual space but when real competition comes online for the same customers they're going to feel the hurt.

The psychological leap required to make a sale is the same whether it's for $1 or $20. If the WebMoney concept takes off in North America I can see it being a huge boost to the indie game community - but equally for full price game sales as micro transactions.

[zoombapup]

Hmmm.. interesting discussion thats forming here.

My take on the whole business, is that micro transactions clearly ARE going to take a lead versus subscription models. Why? because players are then in control of thier spending. Nobody likes subscribing to something and then getting nothing for it (i.e. the tie in where you get billed no matter what, it reminds me of the "f*** you pay me!" scene in goodfellas).

Micro transactions ARENT a problem with someone who can provide a server-based model, or a larger game. Ideally there would be a single provider of micro-transactional payment, where things like chargeback etc isnt allowed.

Anyway, to get to the point, I really VERY STRONGLY suggest you check out the indefinitely free to play example of www.albatross18.com (realms of pangea in korea). Thier payment system is exactly the kind of thing I see as being the future of online games. Its also a fantastic game AND has some great examples of usability in casual games.

You basically pay 10 or 20 dollars etc.. and get currency, that currency is used to buy items/apparel etc.

The reason why I really like this model (and we're designing a game to work in this fashion for our next title) is twofold:


There is no upper limit on the amount someone can spend if they wish
Payment processing is still a relatively small %age of costs
You can generate extra revenue relatively cheaply


The one-time payment is cheaper as you dont lose the %age for payment processing each time a transaction goes through, its basically converted once en-masse and then essentially held in escrow for the player by the game.

The upper limit a user might spend with the system depends on thier playing habits. Regular players are more llikely to spend money to up thier skill/ability, which is directly relational to thier usage of the game (i.e. as your costs for hosting them increase, youre revenue increases, which is good). You also benefit from the "casual" players buying extra items to give themselves a bit of a boost in level, or to "stay competative" with thier online buddies.

Finally, the biggie (in my mind) advantage for indies. The cost of producing the items that are being paid for, is relatively small.

Look at the items for purchase list in the shop in albatross... what do you get?

Clothes.. ok, so its a texture on a model and an icon with some text. It might cost $2 per player.. many items like that and you should soon be hitting profit. PLUS you get the bonus that it adds to the customisation factor of the game, which is a big draw for many players. Essentially, you monetize content, which is where the biggest cost is involved. So again, as costs increase, so does profit.

I'm not trying to say that this is the only model that is going to work, clearly not all games work with this kind of model. But for certain games, this is really the way to go to generate significant revenue, if you can create a game that attracts players that care about customisation, care about skill and increasing skill/level/rank etc.

Its an exciting time, because I think we are at a crossroads in the west. We are probably going to stumble through the online models that Korea has already gone through, so hopefully some of us can miss out the middle step (online subs) and go directly to the endpoint (free to play, pay to upgrade) model.

[Dan MacDonald]

I agree that casual games are a dead end, but for none of the reasons he specifies. :)

[Fost]

I think he's right in that the world is moving towards a service based industry. People want everything for free, and will suffer advertising if that means they get it free. Even services like gametap take a huge chunk of hassle away for most people - the game browser is much easier to use to find games you might like than the internet is, and if you have already filled in your card details, there's no payments hassles to worry about.

It makes me sad, because it means single player offline games (which I generally have far more fun playing) don't work so well in that payment environment - at least not if you want to sell things yourself.

Still, we are indies - we can do what we want, in fact, its probably better to be doing something that the mainstream isn't doing as there's always a small market of people out there who don't want the same stuff as their neighbour.

[zoombapup]

I'm happy.. I much prefer the online gameplay experience.. But I think your right there Fost, people will look for thier personal preference.

Now all we got to do is find out a method of infiltrating thier brains in order to let em know :)

[electronicStar]

-"This payment model is good for the consumer"
-"what the consumer really wants is to make 80 microtransactions to buy online hats or nice online shoes or online apple pies. I can guarantee you that he will be doing all that every month and he won't want to stop doing it. This business model is the future! Adopt it or perish."
-"The consumer is not a moron,we are not taking advantage of him.The consumer likes to buy our stuff and that's why we sell it, we are responding to a need."
-"Micro transactions will lower the cost of games because the consumer pays for what he really wants. We are not going to add advertisement later on during the life of the game, neither are we going to increase the overall price if we ever arrives in a position of market dominance."
-"Noone likes single player games anymore. Why would you want to waste ressources doing a RPG or a complicated game when you can jut churn out a match-3 and sell fancy online hats on the side? The videogame industry is taking a whole new direction, and that change is for the better!
Consumers don't have time to play complicated games anyway."
-"I as a consumer would love to be able to buy online clothing for my character. I'm not saying that because I am trying to succeed with this business model. This is why I had dreamed of at the time I was still playing games."
-"people are going to pay. Come on! It's not so difficult to take your credit card and type the numbers. And it's just $0.25 !"
-"Every develloper hopes to become an overnight millionaire with this industry"

One of these statements is not a corporate lie, can you find it?

[Pyabo]

Just wondering, what is the state of WebMoney and the likes in the US?

Non-existent.