Tuesday, October 20, 2009
Is every MMORPG worth $15 per month?
Syp from Bio Break, who is probably the only MMO blogger beating my post count per week, wonders what whether the $15 per month standard subscription fee is appropriate for smaller MMORPGs. He says: "While free to play games are all the rage these days, and quite possibly the future of the industry, there’s still a lot to be said about the stability and full-featured goodness of the subscription model. That said, I think that Fallen Earth is asking a bit too much of consumers to swallow both a $50 initial price tag and the industry standard $15 a month subscription." I totally agree.
Dungeons and Dragons Online reported a 40% increase in subscriptions since going Free2Play, with Turbine reporting some players now spending considerable more than $15 per month. Which is pretty much exactly what the opponents of the Free2Play model complain about. But what would be the alternative? Can small game companies survive on monthly fees significantly lower than $15?
The problem here is something economists call "marginal costs". And no, that doesn't mean a cost that is so low that you'd consider it "marginal". "Marginal cost" in economics speak is what it costs to produce 1 more unit, or in the case of MMORPGs serve 1 more customer. It is easy to see that when going from 0 players to 1 player, the marginal cost is huge, basically the whole cost of development and enough infrastructure to run the game for 1 player. Going from there, the marginal cost for every further player decreases by a lot. Adding one more player to World of Warcraft is very close to zero cost to Blizzard. So while the cost per player goes down with the number of players, the income per player is fixed. Meaning that to have the same profit margin a smaller game would need to ask a *higher* monthly fee from its players than a bigger game. The economy of scale in the MMORPG business very much favors the big boys.
That is something which is nearly impossible to explain to your customers. Smaller games, like Fallen Earth or Alganon, can be an interesting alternative for people who prefer niche games to mass market games, or who are simply burnt out from the mass market fare. But the average customer is going to look at the mass market game and the indie game side by side, and notice that the smaller game has less content, and is less polished, while still asking for the same price. There is a serious lack of price differentiation with the monthly fee model.
In the classic post on price differentiation, Camels and Rubber Duckies, the author shows how to calculate the maximum total profit given how many people would buy an item at a given price. I am not sure that World of Warcraft is at that optimum, I have a faint suspicion that they would make more money if they priced themselves at $20 per month, as they would get a third more revenue, but probably not lose a third of their players. So the conspiracy theorist in me is asking whether that is deliberate, because by deliberately underpricing your high quality good, you effectively keep competitors out of the market.
But the same post of price differentiation also explains why the Free2Play model is becoming so popular: By not going for one optimal fixed price, but by letting everybody pay as much as he wants, the profit is a lot higher. And in the case of Free2Play MMORPGs, the model gives smaller games a chance to escape an unfavorable price comparison with World of Warcraft. I still haven't tried Runes of Magic, but I hear it is very similar to World of Warcraft and nearly as good. At $15 per month the "nearly as good" part would kill it. But as Free2Play the "nearly as good and you can play for free" makes a much better marketing pitch.
So, how do you think smaller niche games should finance themselves? Should we just be paying $15 for every game, regardless of amount and quality of content? Or is the monthly fee business model dead? And if yes, did World of Warcraft kill it, or was it Colonel Mustard in the library with the wrench?