Tobold's Blog
Monday, November 14, 2011
 
Out of dopamine

Yesterday I wrote about the idea that games of advancement which aren't inherently fun, but only keep people playing with a dopamine rush, will hit problems once players get less and less receptive to that dopamine. There are indications that this is already happening. The world's biggest dopamine pusher, Zynga, is facing decreasing profits. Their $306 million of quarterly earnings are close to what Blizzard makes with World of Warcraft, but their profits are down to a measly $12.5 million, just 4% of earnings. WoW's profits are about 50% of earnings.

The difference is probably due to how the different business models deal with disengagement. For Zynga drops in profitability are a leading indicator of player disengagement, because players stop being interested enough to fork over money before they totally stop playing. For Blizzard it is the other way around, players often stop playing before they stop paying. I'd also argue that for all it's flaws World of Warcraft is still inherently more fun than any Zynga games. Players burn out a lot faster of Zynga games: Farmville had over 80 million users at it's peak a year and a half ago, and is down to 30 million users today. Zynga keeps being the leading Facebook game producer not by having one game everybody plays (like Blizzard), but by making new games every few months. They are even about to enter the domain of fantasy games with their soon-to-be launched Castleville. And while their games are getting "better", that is from such a low base that players aren't staying beyond the new and shiny, the first dopamine rush. Having to keep players with the company by producing and running so many games is expensive, thus the low profit margin, although each individual game is relatively cheap.

But there is also an alternative explanation for the decline in player numbers for Zynga, Blizzard, and many other players: There are now too damn many games out there! When World of Warcraft came out, it sold more copies on days one than what the analysts had said was the overall cumulative size of the European MMORPG market. Or as Azuriel shows on his blog, WoW basically doubled the overall market size. But very few games manage that feat, and having twice the market size isn't of much help if you have ten times or more the games. Due to their lower barrier to entry, Facebook games suffer much more from this than MMORPGs, there are already over 3,000 games on Facebook. And there are tens of thousands of games on iPhones and Android. Wikipedia write about the North American video game crash of 1983: "There were several reasons for the crash, but the main cause was supersaturation of the market with hundreds of mostly low-quality games which resulted in the loss of consumer confidence." Does this look familiar? History repeats itself.

Comments:
"Zynga revealed that the last financial quarter's $306 million in earnings were record-breaking, but net profits were down from last year by almost 54 percent to $12.5 million."

Their profits may be down, but their earnings are record-breaking. That doesn't mean people aren't playing their games. It means the company is re-investing a higher percentage of its income back into the company (operating costs, wages, etc). Not the same thing at all.
 
You make a great point. The conditions are perfect for mass-market dross to hit the market. Internet is ubiquitous, Flash is on almost all desktops, iPhone and Android devices are everywhere. If you want to develop and distribute on the cheap, now's your chance.

Except...

We also have much more data at our fingertips. Reviews, word of mouth, even the ratings on the app stores. We're more empowered as consumers. Well, everywhere outside of Facebook at least.

There is a risk we could drown in a sea of crap games. If Facebook was the only gig in town I'd be worried.
 
I don't disagree with you but would like to add a couple of additional points:

1) I agree that Blizzard going down does not mean that MMOs are going down if there are enough alternatives grabbing customers. But I am guessing there is a strong "network effect" for MMOs where you play with/against friends. Customers get more value with one MMO/social game of 10m customers than 100 games with 0.1m customers.

2( I think there are some analogies to be drawn with movies. E.g., I have read analysis where the critics said this year's decline did not say much systemic about the movie industry; rather this year's movies were just below average (*cough* Cataclysm *cough*)

The timing of alternatives matter: we are all blasé after all the AoC, WH, Aion, Rift hype. But I think Skyrim (not an MMO but definitely a time consumer) and TOR will be above average ripples in the pool. I am not at all sure Bioware has enough elder gaming in to be a long term success. But if TOR makes two million prerelease sales, that will be quite impressive and will not all be zero-sum poaching of WoW subscribers. It will grow the MMO market.
 
I almost wonder if Zynga would make more money selling in-game advertising rather than the cash shop model. The F2P model, at least in MMOs, seems to work only when a game cannot sustain a stable population - otherwise the designers would go the subscription route, right? So what does this say about a game company with "only" 30 million players?

It's not like the these games have integrity that can be compromised, ala the Battlefield 2142 experiment.
 
It means the company is re-investing a higher percentage of its income back into the company (operating costs, wages, etc).

A lot of that operating cost is for marketing. Looking at profits is valid, because it might well cost Zynga nearly as much to get somebody to play their games as this player brings revenue.
 
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