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There seem to be a lot of blog commentary today about Gabe Newell’s comments on pricing games – props to Spinks for drawing my attention to the topic. Since two of my nerdy obssessions are MMOs and economics, I figured it’s time for me to weigh in :)

The standard for MMOs has been, at least until recently, the flat subscription fee. Easy to administer and arguably the “fairest” way of doing things – everyone pays the same to enter the virtual world and once you’re there your Earthly wealth means nothing (unless you break the rules and buy gold – but that’s a whole other debate). The flat fee, however, isn’t ideal for two reasons, both of which boil down to “not all players are created equal”. The first is that each player has their own level of subscription that they’re willing to pay. If I charge too much, I lose that player – if I charge too little, I’m “leaving money on the table” and my MMO doesn’t make as much profit as it could. Note that the MMO making a profit is a good thing – it gives the developers money for artists and content designers and something to show to investors to say “please put up the funds to make our next, even better game”. If you want improvements to your game, and even better games down the line, you want your favourite MMO to show a profit.

The second difference between players is the externalities – fancy economics term there. Basically, it means the stuff you do that affects others but you aren’t paying for (or reaping the benefits of). Passive smoking is an example – I get the benefits of enjoying a cigarette, you pay a price for my pleasure by getting lung cancer. Government, in this case, evens out the externalities by putting a load of tax on tobacco, so I pay a price for my pleasure and the NHS pays for treating your lung cancer (note: this isn’t a perfect solution!) In gaming terms – some players are high maintenance. A ganker’s fun comes at the expense of other players. A content-devouring progression raider requires more dev resources than a casual who still hasn’t hit level 60 in WoW despite playing for 6 years. And some players generate positive externalities – just having this guy on your server makes it a better place and makes other players more likely to stick around and keep paying subscription fees.

Imagine two players – Adam and Bob. Adam is a griefer with a lot of money to burn – he costs me $20 per month (in lost revenues from his victims plus GM time dealing with the complaints) but is willing to pay $50 per month to feed his habit. Bob is a nice guy who would actually be worth me paying $10 per month to keep him in the game entertaining people (thus driving retention) but he can only afford to pay $10 subscription.

Now, with a flat $15 subscription I lose money on Adam and Bob can’t afford to play… I haemorrhage $5 per month until I go bankrupt (this could take a while). If I set the sub at $10 then I lose $10 on Adam and net $20 from Bob ($10 from his sub plus $10 of him being a nice guy and making other players sub), making $10 per month profit. Actually, I’m better off banning Adam’s account and just taking the $20 of Bob benefit. I can make even more money by jacking the sub up to $50 per month to take every penny Adam is willing to pay, offsetting the $20 of grief and still making $30 profit. But my best case is to find some way of charging Adam $50 and Bob $10 – then they both stay and I pocket $50 every month.

The differential pricing thing is coming in as more games use microtransactions, either on top of a sub or instead of it. MTs let players pay as much as they’re willing to. That’s great, at least from the dev point of view – all I have to do is provide enough stuff that players think is worth buying at prices they’ll accept. What’s still missing is fixing the externalities – I need to make anti-social activities expensive and ones that foster community and benefit other players cheap (or even reward them). I could charge some points for players using the convenience of the LFD tool instead of talking to each other to form a group, for example. Maybe tank and healer characters get a discount in the store, or I jack the store prices up by 5% for an individual player every time he uses the word “carebear” on the official forums. The possibilities are endless!

3 Comments

  1. Eve Online already has this developed to a fairly advanced level.

    If you’re a trader/industrialist/mission runner you can play for free. And these folks are useful providing the economy with stuff to play with and get blown up.

    If you’re an ardent pvper you never have to do boring grind, you can just sell plexes.

    I’ve heard of enthusiasts who have 8 accounts all paid for in in-game isk, another who paid for 8 simultaneous accounts and there are a great many who are Paying to Win – flying uneconomic but powerful ships and simply replacing them with real life money when they get blown up. At its most extreme a Russian aluminum billionaire bought hundreds of thousands of dollars worth of isk and founded a national alliance.

  2. Where differential pricing really kicks in is if the provider can charge different people different prices for the same content. If I’m getting $20 worth of enjoyment for a $10 price, the provider has over-served (or under-charged) me. They would have made more money if they could have charged me $20.

    You see this in some industries, for example drug companies charging more in developed countries than in the third world. It works best if there’s some barrier to black market trade in the good in question. This may describe MMOs.

    • WoW, for example, already does this – their Asian players are on a different pricing model that works out at less per player than the Western subscription.

      Arguably, the “sub plus cash shop” model is also differential pricing. $10 to make my starship look like the Excelsior is exactly the same trick as Starbucks charging 30p for a squirt of whipped cream and a few marshmallows – it’s getting people who were willing to pay more anyway to part with that cash


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