Harder for Developer to make Money?

[Tom Gilleland]

I have a question for full-time developers who have been making games for many years. Are you finding it harder to make money?

We did out first casual game in 1990 and we've made something like 50 different titles, and shipped around 1 million cumulative units. We've always done a variety of self-publishing & working with publishers, as well as licensing and contract deals. Business in the early years picked up very fast and stayed very solid through about 2,000. Then we've seen a decline ever since. We seem to be working harder, longer and making less money. Have you guys had similar experiences? I have a few theories why I think this is so.

1. Increasing quality competition from international developers.
2. Huge volume of games on the market. Even very old software still runs on current machines, thus glutting the market with even more low-cost software.
3. Smaller market size due to so much free stuff on the internet. (Games and everything else.)
4. PC/Mac games losing market share to consoles.
5. Less gross profit for the developer with each new channel introduction. Our cycles of distribution channels since 1990 have sort of been: Mail-order CDs, Trade Shows, OEM Bundles, Small Retail, Big Retail, Online Downloads (direct and portals). The units sold and margins vary through all these, but the profit seems to just decrease.
6. More powerful and easier to use software development tools have diluted the value of us developers.
7. Consolidation and monopolization of distribution channels has reduced developers royalties.

Your experiences?

Thanks,
Tom

[Tertsi]

Don't you think you answered your question?
Games definitely got away with poorer quality back then.

[Applewood]

I think I'm finding it a lot easier now.

Just keep away from all the 100 man team rubbish and there's plenty of work about, especially now with XBLA and a lot of other outlets for small commercial devs.

I'd hate to be working at a big outfit nowadays though. (Moreso than ever I mean, I'd never really *want* to). WAY too much boom/bust mentality about.

[PoV]

Money? Wait, ... I think I've heard of that. Something you exchange for... things.

Yeah, the days of anyone being able to pull a profitable game out of their proverbial behind seem to be over. As a day job, it's a playfield now only for the experienced and the incredibly persistent. I'm probably overly optimistic, but being a console guy, I can't imagine a better time to be involved with or running a team with a size you can count on one hand. It's an odd time now. If you're competing with Popcap, you'll have a more difficult time than if you're competing with Konami or Midway.

[goodsol]

First, we haven't gone anywhere.

Second, I disagree. The difference between today and 10 years ago is that the market is so much bigger now. 10 years ago our market was computer geeks who want to play games - now it is nearly everybody. Even though there is a lot more competition (sort of, people forget there was a lot available 10 years ago too), the potential market is so much bigger.

Just yesterday I was talking to my mother and she mentioned that she was messaging one of her friends, who said she was playing solitaire on Pogo. Of course she had to tell her that she should be playing on goodsol.com. But such a thing would have been unthinkable 10 years ago - my mother and her friends didn't have any idea how to play a game on a computer then.

Its been my experience that profit margins are affected a lot more by individual business reasons than any general market forces. It depends a lot more on your individual cost structure and how you are handling it than PC market share or your distribution method.

Personally, my biggest problem lately is that I've passed up a lot of opportunities simply because there have been so many of them. It takes something that is clearly and obviously going to return a lot to be even worth spending the time on now. Unfortunately, often the best opportunities aren't obvious so I'm sure I've been missing some good ones. In the old days, I'd take chances on long shots (some of which missed, but some of which paid off big).

[michalczyk]

My experiences are very similar to yours with my art site. I went on line with my art work in mid 90's. Until about 2000 I was receiving lots of traffic and many very nice fan emails from people telling me how much they like my work and asking where they can buy posters. All this declined dramatically since then. I now rarely get fan email, traffic is lower, and my poster sales are very low.

I believe the main reason for that is saturation. There is too much of everything. Large quantity and easy accessibility devalues it self.

I speculate that perhaps in the near future all virtual content on line (software, music, video, etc) will be free. Money will be made through advertising and/or micro payments.

I also believe that having a quality product, support, etc, will not be enough to attract costumers. Because there is so much stuff already, and there will be much more, only those who can attract costumers will make money. And how do you do that? The same way you attract people in the real world. If you are boring and keep it to yourself, despite being nice and attractive, few people will be attracted to you. But if you do things that attract other people, you will get their attention. And if you do it right and continually, they will keep coming back for more. But how do you attract people? Hard question, but a lot of it, especially in entertainment, is about emotion. Make people feel good long before they even know what you do or sell.

I think the use of video and sound (or real-time cgi) will be critical for that. Using it to convey who you are and what you sell is so much more powerful than written text and a few pictures. I guess in the near future virtual sales man/woman will be the first contact a visitor will have with your site. The better that works the better your sales. A whole market will open up for making virtual sales man with different looks/AI, etc.

Just a few random thoughts...

[cliffski]

I disagree. Being GOOD still trumps pretty much everything else. I'm in the process of purchasing artwork right now. I have the options of free artwork, or stuff I make myself, stuff done by some hobbyist artists, and stuff done by some very good proffessional artists. In some cases, I'll be paying ten times more for some work, than I have to. But I'll still do it, because its GOOD.
I'll be buying Spore, because I think its likely to be a GOOD game. I dont care if there are freeware / cheaper / easier to get hold of similar games around, they arent THAT game.
I suspect (sticks neck out) that goodsol would agree, after all, he's done well selling a game, that not only competes with many many freeware alternatives, but actually has a free copy preinstalled on every windows PC you buy!

[Jack Norton]

I agree and I want to add that goodsol is the living example that there is -NO- market saturation (if isn't saturated the solitaire market...!!!). Tougher and tougher competition yes

[indiemaker]

I think the reason GoodSol is successful is their product is an exceptional value. Something like 600 solitaire games for 20 bucks?

You can't beat that.

People always will like what they feel is a good deal.

[LilGames]

I disagree. Being GOOD still trumps pretty much everything else. I'm in the process of purchasing artwork right now. I have the options of free artwork, or stuff I make myself, stuff done by some hobbyist artists, and stuff done by some very good proffessional artists. In some cases, I'll be paying ten times more for some work, than I have to. But I'll still do it, because its GOOD.
I'll be buying Spore, because I think its likely to be a GOOD game. I dont care if there are freeware / cheaper / easier to get hold of similar games around, they arent THAT game.
I suspect (sticks neck out) that goodsol would agree, after all, he's done well selling a game, that not only competes with many many freeware alternatives, but actually has a free copy preinstalled on every windows PC you buy!

You disagree with Michal? In my opinion what you said supports some of his argument.

First, he was talking about general art and regular people as consumers of art (he wasn't talking about game graphics). And I believe his claim... Everyone is on the web now, so there is so much MORE art out there, and also everyone has a color printer now. It negates the need to purchase prints (at least for consumers happy with 8x10's)

Next, he said "only those who can attract costumers will make money". Your argument that you're buying Spore supports his claim. Spore is not even out yet. You don't really KNOW that's it's good. But it has received so much press that you've been attracted to it and want to buy it already. ergo, those who can attract customers will make money.

[george]

i just had to get my 2cents on this post....

the market IS SATURATED, the most it has ever been. yet the market is the BIGGEST it has been also. a lot of people just don't get it. i had to get it the hard way:

INNOVATION INNOVATION INNOVATION !!!!!

my first product was crap. my first website i sold my product on was crap (i was about 16 years old, this was around the year 1999). i did no marketing shy of uploading my product to free download sites like hotfiles.com and download.com. yet I relatively made LOTS OF SALES, especially compared to to many of your situations today. well that doesn't work anymore. There are 5000 different versions of virus scanners, spam blockers, and puzzle games. Microsoft and Real and other million dollar/billion dollar companies are dominating the market with their case studies, market research, and millions in advertising costs.

DON'T YOU GUYS GET IT YET? You cannot operate the way we used to 10 years ago. And you cannot play on Microsoft's or Popcap's playing field. Sure you can play a little bit and get some bread crumbs, but that's about it. even companies that are spending millions of dollars a month in expenses are coming out with failing products. And you can't compare yourself to goodsol if you are stating out now, since goodsol started out in a very different time than now. So just stop comparing yourself to others and do something new!

Take advantage of your situation and size and skills. Be AGILE, SMART, INNOVATIVE! Come out with some new ideas and run your business smart, you will succeede. People are doing it everyday. And with all these new tools and opportunities (most FREE, even from Microsoft!) you have a whole new world of possibilities, all you need is your brain and a strong will, and a clear understanding of the market and what you want to accomplish.

AGAIN, INNOVATE! enough said...

(this is not a bash, i hope some of you will find inspiration in this post)

[PoV]

I think the use of video and sound (or real-time cgi) will be critical for that. Using it to convey who you are and what you sell is so much more powerful than written text and a few pictures. I guess in the near future virtual sales man/woman will be the first contact a visitor will have with your site. The better that works the better your sales. A whole market will open up for making virtual sales man with different looks/AI, etc.

Ahh yes... so we'll soon start seeing flashy new portals with stereotypical radio style openings like this:

Fantastic!



Appologies to Mark, Mike, Dan, and Daniel for making them "fantastic", and to everyone else for not.

[terin]

I can't really comment on if it is harder or easier, I've been doing this three years and it's always been "hard" to make money- but that is just like any business. No more difficult than running a pawn shop (in fact, I would say quite a bit easier)

I can comment on this:

5. Less gross profit for the developer with each new channel introduction. Our cycles of distribution channels since 1990 have sort of been: Mail-order CDs, Trade Shows, OEM Bundles, Small Retail, Big Retail, Online Downloads (direct and portals). The units sold and margins vary through all these, but the profit seems to just decrease.

Wow that's downright wrong

Mail Order CDs and Trade Shows were and always have been bottom of the barrel in both net profit and pure profit. OEM deals are always bad profit per unit but ... if its a good deal, huge net revenue. The original "small" retailer was a nightmare as I understand it, the margins were ok but the volume was piddly. Big retail saw the greatest potential profit, but the costs of doing business grew so rapidly few independent developers ever cashed in on it. Online downloads represents the highest margins for direct sales and some of the highest income levels. Portals represent crappy margins again but volume makes it relatively profitable.

I see NO downward trend at all. In fact, I see a LOT more opportunity now to make more money. Not only do you have online sales (direct and portal) but you can STILL sell at trade shows, still sell to small retailers, still sell to big retailers, still get OEM deals. The only items on the list that have become truly obsolete are mail orders.

Btw, you're not likely to turn profits at trade shows though Not without a good plan!

[Tom Gilleland]

Thanks for all the discussion. I like posting some thought provoking question once in awhile to help me think "Big Picture". So often it's hard to see the forest thru all the trees. Business for us is still good, it's just not great like it had been in the past. It's probably time to stir some stuff up. Nothing like getting beat up on a posting to get you in gear to prove everyone wrong!

All business is hard, and things change. We've certainly gone through at least three major shifts since we started some 16 years ago. All other things aside I was mainly asking if other small developers where making less money currently, than in the past. Just make a little spreadsheet of company profit for the last 10-15 years and graph it. And It's also great to discuss this stuff, it makes you think about it and take logical positions.

And on a reply to Terin,

Wow that's downright wrong

(Refering to item #5) It's not wrong for us, this has been our experience. I'm talking profit here. Sure when we sell currently direct online our margins are huge, it's just that our volume is low. And when I've had a couple of our titles in Walmart last year the volume was huge, but the margins are tiny. It's all about profit. I was asking if other developers have had similar experiences.

Around the early 90's we made tons of money from mail order and trade shows. Though it only last for a few years and then the market shifted and these channels were no longer profitable. It seems like there are big shifts every 4-5 years and everythings just changes. At each shift many software developers seem to go out of business. My guess is that we are in a shifting period now.

Tom

[val]

After all, you can write a book about casual games development, and sell seminars/workshops on this topic for other market players. Or you may give up games industry and start personal development blog like Stive Pavlina did

But I still hope there will be enough space for developers that create quality products. Even if they have to join their forces into organized powerful teams for that.

[terin]

Well, I wasn't in the biz (in fact, I was like, in middle school) in the years you're talking about with mail order and trade shows... but the end-all is I am amazed you could make money at a trade show at all... and mail order? I must say I am literally shocked but you were there and I wasn't, so I defer to you on this one

-Joe

[michalczyk]

Well, I wasn't in the biz (in fact, I was like, in middle school) in the years you're talking about with mail order and trade shows... but the end-all is I am amazed you could make money at a trade show at all... and mail order? I must say I am literally shocked

Those were different times. Ordering shareware via mail order was normal back then. I know it seems strange now

[Bad Sector]

Well, I wasn't in the biz (in fact, I was like, in middle school) in the years you're talking about with mail order and trade shows... but the end-all is I am amazed you could make money at a trade show at all... and mail order? I must say I am literally shocked but you were there and I wasn't, so I defer to you on this one

-Joe

id Software and Apogee (3D Realms) are what they are now because of people doing mail orders in the early nineties. If you have played any of the shareware games released at early nineties, you'll see that all of them had mail ordering information somewhere (usually as the only option to get the full game).

[LilGames]

You also had 1-800 ordering, and BBSing downloading.

Um regarding the complaints of small retail margins, this is nothing new to modern days. I worked in the console industry in the early 90's and retail was the big complaint from upper management regarding profits. They kept saying how much more money they could make if they would sell directly to customers, but they couldn't risk doing that because then the retailers would just stop selling their product.

[Tom Gilleland]

We had booths in MacWorld for many years and sold our CDs at the show. One year we sold around $14,000 in $10 cds over in about three days. The cost of the show was about $7,000 total. Comdex was also a big show for us, and we also did many other smaller 1-2 day shows. You can't do that currently, now all the shows are like flea markets, or crazy E3 hollywood productions.

As for mail order CDs, they were huge in the days before the internet. We probably sold around 100,000 copies of a title called "Shareware Breakthrough 1,000 Games". Basically it was a game portal on a CD. It took a lot of work collecting all the shareware games (pre-internet), write game descriptions, and installers. We did this for a bunch of different categories. We also sold tens of thousands of CDs that we wrote from scratch including educational, clip media, games, fonts, and even self-help CDs. I missed a huge opportunity by not migrating the shareware collections over into a game portal. It just didn't make sense because there was no revenue model there at the time - everything was free online. It's kind of interesting that the new game portals are really just Shareware 2.0. This lesson deserves a Business Tip

Business Tip #166: Review old business models, as old bad ideas may become new good ideas when things change.

The distribution model for ID was brilliant. They let scores of small developers distribute their shareware game Doom, and the developers would add content in the forms of custom maps. Each of these small developers would be a sales force for ID because they had an interest in the product as a package. Distribution was huge because of this. I've not seen anyone else do anything that is similar since then.

Tom

[goodsol]

Mail order was crazy profitable. You get 100%, no credit card fees or anything. In the old days all orders were mail orders. No problems except the occasional bounced check.

Mail order isn't dead - I still go to the post office every day to pick up checks. But the days of having the box stuffed and having to go up to the counter to pick up a bundle of mail are over. Still, it's worth putting on presentable clothes and driving to the post office.