Tobold's Blog
Friday, November 30, 2012
Here come the whales!

I received a closed beta key for City of Steam, in time for the beta session starting today. And while looking through their website I stumbled upon the page offering collaborator packs, selling both beta keys and various advantages like virtual currency for the final game. And what I found notable was that there were packs for up to $500 on offer. Even higher, the Kickstarter page for Elite: Dangerous offers advantages for backers up to $5,000. And the $5,000 pack is marked as "sold out", having been bought by 5 people.

Who spends $500 or $5,000 on a video game? If you would take the same money and spend it on Steam or a selection of MMORPGs, you would get quite a nice library of quality games which probably would entertain you for much longer than one single game. Many gamers spend less than $500 per year on games, and only very few spend $5,000 or more per year on games. In casino parlance the people spending far more than the average person are known as "whales". And it appears these whales now exist also in video games.

In a way these sums are probably a sign of the maturity of the hobby. Video games aren't just for kids any more. A good number of gamers is now middle-aged, and in today's economy, which is characterized by its inequality, some of these middle-aged gamers are rich enough to spend rather large sums on their favorite game. In the end a $5,000 video game purchase isn't any stranger than a $5,000 set of golf clubs.

Nevertheless the number of people spending hundreds or thousands of dollars on a video game is very small. More significant is the number of people who are considered "whales" by the Free2Play game industry, although the average monthly revenue per paying user (ARPPU) is more likely to be around $50. Because only around 2% of players of a Free2Play game actually pay, the average monthly revenue per user is just around $1. Personally I tend to spread my money around, but I don't have a problem to pay up to $20 in a Free2Play game in which I am having fun. I'm not likely to buy a $500 collaborator pack for City of Steam, if I find out I like that game.

Whales have consequences for game design. There must be virtual items in the game that are highly desirable and either not attainable by playing at all, or demands a very long grind to achieve, if you want to sell these items for big bucks. But then again, the old MMORPG model also revolved about a design for just 2% of the players, and those weren't even the best customers. Rewarding those who pay most makes business sense, even if it angers some entitlement kids.

I always thought it had more to do with the fact that these sort of things where tax deductible, so if you where a creator of a kickstarter game, you would get the epic rewards a) to make the game look attractive (whoa someone spend 5000$ on this game, it must be great and I can spend 50$) and b)cheap way of getting merchandise for yourself for a game you spend all day working on and caring for.
I don't doubt that such things are sometimes done, but it is at least skirting the borders of fraud and it could backfire quite nastily.

Indeed, I haven't looked at Kickstarter's TOC but I'd be surprised if it is not expressly disallowed.
It's only deductible if it's an investment, which would mean a monetary return. Not the case at all with kickstarter.

You are outright buying something, not assigning venture capital. The difference is that kickstarter is a broker, plays middle man and gets a % cut.

Anymore complicated and international law gets involved.
I feel like people are paying $5,000 to support the experience the game will provide. Or the support the developer. Or something else along those lines.

I don't think any sane person is paying out the nose like that simply because they want to play the game that bad.
If you could put your name on a Orion-class system in Master of Orion 2 for 5000, would you do it?

I guess a few people will.

First, you forget that there's the 1% who have a lot of money, so they already have all the games on Steam that they want. They want something different.

Even people who work for a living might fancy an area named after them in an MMO. Personally, I'd like a PvP battleground named after me, it's the best value.

Tobold's Gulch instead of Warsong Gulch? Or even better - Tobold Crossing or Tobold's Last Stand.
I'll note that many MMORPG games have already paid 500+ USD on an MMO, such as anyone that's played WoW or Everquest for three years.

That's probably a big difference between "whales" from a Kickstarter viewpoint, and from the MMO and especially F2P MMO viewpoint. The former is defined by single large purchases, while the latter is defined by a number of very small purchases -- usually less than twenty USD, often less than five (although currency conversions may take larger chunks). Comparing the two directly is going to result in some confusing paradoxes.

I'll also note that Elite, at least for me, is showing up the prices in British Pounds, so the highest pack price would be 8000 USD even with unusually favorable exchange rates. Apologies for the nitpick.

It's only deductible if it's an investment, which would mean a monetary return.
I'm not a tax lawyer, and this is not tax advice, but from my understanding, the rules are even more restrictive than that, both in the United States and elsewhere. The sort of projects where these donations are tax-deductible tend to require specific paperwork, usually as charitable organizations (501(c)(3) organizations in the US). While certain types of investment income uses a different tax rate when it comes in, the initial investment out usually can't be used as a tax deduction unless it's for your own business or place of work.

((I don't envy projects running in the European Union; the regulatory codes are far more complicated than even that..))
Well i think the ultimate whale so far is the baseball guy ... he spent 50 million of his own money and close to a 100M of others' just to make a game only he would like :)
Only 2% of players of Zynga games pay any money. We have discussed before this is because of their pricing scheme. You get very, very little for a huge cost. There are no options for someone who would be willing to spend $5 a month, only options for someone who would spend hundreds. Their revenue directly reflects that.

By contrast, I seem to recall DDO claiming that a majority of their players payed at least something. Not surprising, given a very different pricing scheme that offered a lot for a reasonable price.

So please stop saying only 2% of Free2Play players pay anything. That is not inherent to all Free2Play pricing schemes. Each one is different.
Read the last link, the 2% number is from there. The numbers are from April this year, and the average "social game" in the USA had a 2.5% "conversion rate", up from 1.4% a year earlier. I'm not saying that it is the same for every game, but this isn't just Farmville, it is the whole of the US social games.
It's not an investment in any sense of the term, and I guarantee Kickstarter would go ballistic on anyone who tried to Kickstart an investment. If it is an investment, you'd have to get the Securities Exchange Commission involved. About 90% of the point of Kickstarter is that you can get capital without actually, you know, having to prove you aren't a scam.

I guess you could argue that it was a charitable donation (and I think some of the projects clearly qualify, though not for video games), but you might run into some trouble with the IRS if you tried that since a great deal of the donations are for an amount you might reasonably purchase the rewards for, so who knows. I guess the complete lack of legal recourse if you get screwed argues towards a charitable donation.

But it's certainly not an investment in either the get-more-money-than-I-put-in sense or the legal sense.
May I correct thee:

"Because only around 2% of players of a Free2Play game actually pay"

on FACEBOOK 1-3% pay
On other f2p its 5-15%.
On some rare occasions its even more.

Kickstarter is not an investment in any legal sense, for the reasons the unit identifying as 4c22cb52-3723-11e0-95c0-000bcdcb2996 said. Basically, the legal status of Kickstarter is that the payer has no rights except to get the stated rewards if and when they're done.

I don't think you can say it's not an investment in *any* sense of the term, though. The word 'investment' can be used in the sense of patronage which may lead to a desired result that will be of limited direct benefit to the patron.
Yep, the whales are indeed here and playing. The following story dwarfs even the $5k kickstarter story you mentioned:

Of course, this is assuming the above is real, which it might not be.
SolidState, whales dont spend 7500 on one item. They might, but what defines whales is their regular spending above average limits, so that they spend several thousand over their lifetime in the game.

In other words if you got players spending on average $50 (ARPPU) per month, then whales usually spend 10-20x that - per month, for months if not years.
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