Tobold's Blog
Tuesday, December 08, 2009
Infinite competition theory

Imagine a world with an infinite number of MMORPGs (and ignore the tricky infinity math telling you that each of them would have zero players). For every possible preference of play style and feature list there would be lots of games to choose from (actually infinite games to choose from, but didn't I tell you to ignore the tricky math?). So as you could find very similar games with different business models, your best strategy in such a world would be to choose the game with the business model that works out cheapest for you. If you play a lot, a game with a monthly subscription business model would probably be best for you, as you have access to all content for one fixed price. If you play very little, you might be able to play much cheaper, or even free, if you play a Free2Play game with microtransactions. Monthly fee games aren't as good for people playing not very much, as you end up paying the same as the people playing a lot, but only use a small part of the content. Free2Play games aren't as good for people playing a lot, as they would want to have access to more content, and that usually is only possible by paying by microtransactions; if you play a lot, you pay more than a typical monthly fee of a subscription game.

Now we move back to the real world, and check in how far the same optimization strategy is still valid. Obviously a lot of players choose their game by its features, quality considerations, or simply by what their friends play. Optimizing cost plays not such a big role for many players. But then, times are hard, and some people *do* need to watch their gaming budget. And the number of MMORPGs, if you include all those various Free2Play games is getting constantly larger. There is more and more choice to be had. Especially if you like World of Warcraft, there are quite a number of clones around, both with monthly subscription and Free2Play business models. I still have played neither Runes of Magic nor Allods Online, but I hear a lot of good things about both of them.

So what if in the real world there are trends similar to what happened in our infinite competition hypothetical world? A number of players would choose whatever game is cheaper for his personal playstyle. Heavy users would preferably play monthly subscription games, where they end up being the heaviest drain on the resources of the game company, while not paying any more than a light user. Light users would move to Free2Play games, where they could play quite a lot of the game without ever paying anything. Both the monthly fee subscription game company and the Free2Play game company are worse off from that separation, which is a direct consequence of players having minimized their costs. The monthly subscription game actually needs the light users to cross-subsidize the heavy users. The Free2Play game needs the heavy users who are also the heavy spenders in the microtransaction shop.

The more games are released, the more likely any given player is to be able to find a game which suits him, and which ends up being cheaper for him than the game that he currently plays. Competition drives down company profits, not just overall profits from less players, but profit per player, because some players choose the cheaper available option for them. Now competition driving down profits is not something which would surprise an economist, but in a business where prices appear to be more or less fixed the notion isn't quite so obvious.

Now the monthly subscription games will survive this better, even if they end up with a higher percentage of heavy duty users. But for the Free2Play games such a trend would not be sustainable. If there are a lot of games, there is a good chance that a significant number of players will develop a nomad mentality, frequently changing games, and always just using the content that is available for free, without ever paying. As mentioned yesterday, both Battlefield Heroes and Free Realms obviously already had problems with too many free players, and not enough earnings per player. My "infinite competition theory" predicts that on current trends this will get more and more of a problem for Free2Play games. They will increasingly have to reduce the amount of free content on offer, but of course that decreases a significant part of their attraction. We aren't quite yet at the situation of an infinite number of games with zero players each, but I do have the impression that the number of games is growing faster than the number of players. Except for a few big games, which are so attractive as to overcome price considerations, we are heading for an increasingly fragmented market with decreasing profits.
Interesting theory. The general idea could be predicted by competition lowering prices, but I like how you've applied specific mechanics for the two pay models.

Another way to look at it is from the player perspective. In a F2P model, the devs are beholden to the heavy players who pay their bills. In contrast a monthly model would cause devs to favor the light players who pay as much as heavy, but who use fewer server resources and consume content at a lower rate. So the players are naturally driven in the opposite direction of where the devs want them to go; which would then cause all manner of strategies to reverse the behavior of players.

In WoW we see loot offered with looser time requirements as a way to target light players (though inadvertently benefiting extremely heavy players as well). Is there a corresponding activity on the part of F2P games to draw in the heavy players that they need?
Good post, and very good point.

I think people will tend to go for best value rather than just cheapest, which is where models like Guild Wars score high. (It's not actually free, but everyone feels that they get good value.)

I also think the sub games come out ahead because the heavier users are more likely to form stronger social ties because of spending more time in the game. So it has more of a networking effect, in theory.
I'm just preparing for the inevitability that someday, all games will be pay-to-play, and it will become just a matter of finding your niche/playstyle.

My own likening is to the old days with cell phone ring tones and games. It used to be free for quite a few choices, downloads from the phone company's website, etc, and only the fancy real-music tones and sophisticated games cost (little) money.

But now, even the cheap polyphonic MIDIs and Snake cost quite a bit. It seems, to me, that the companies all jumped on this charge-for-everything (aka subscription) bandwagon together which made it the only real option for consumers.

So right now the Free2Play microtransaction model is popular, but I think it'll go the way of the free cell phone goodies because of more games being made without enough players, as you said. At that point, players will have no choice but to pay for what they want, and will choose a game based on what content is available.

And I think that will ultimately be better for the future of gaming? Still iffy on that.
But now, even the cheap polyphonic MIDIs and Snake cost quite a bit.

I never quite understood why people are paying so much for cheap polyphonic MIDI ringtones. As far as I know it is extremely simple to create those for yourself, using music you already have on your PC and a converter program.

It is somewhat ironic to think of the average teenager having a mobile phone with a few expensive ringphones, and an iPod with 10,000 songs he paid nothing for in the other hand.
I don't understand why all mmorpg players think mmorpgs cost so much to run. Certainly all told me so, then latter on someone came out with a link to blizzards costs and it was miniscule compared to profit (granted, it was alot per month, but a small fraction of the income - wish I'd kept a link to it).

Anyway, so really this all isn't a big deal unless every company decides to base it's operating costs on a large number of paying users. I mean, youtube must use up alot of bandwidth, but who pays $15 a month for that? And guildwars - one off payment, and they've optimised the data transfer.

The day of the mmorpg dinosaurs is fast coming to an end, as you predict. The mamals are coming, now...
That's a really interesting analysis. How about the idea of having multiple business models within one game? I think DDO, Wizard 101, and Puzzle Pirates all have the option of either a subscription or pay-per-content model. Obviously you'll still be making less than if everyone used a subscription model (because many casual players will play for free), but you're not giving up any of the market.

If there are a lot of games, there is a good chance that a significant number of players will develop a nomad mentality, frequently changing games, and always just using the content that is available for free, without ever paying.

I've noticed this too, much more in F2P games than in subscription games. If it's due to network effects, as Spinks suggests, then devs may need to pay extra attention to the social aspects of F2P games.
I think the MMORPG market will be in a healthier state when people start playing more than 1 game.

Just as FPS fans are unlikely to devote all of their time to CoD:MW2, the 'tourists' are looking for a wider variety of polished experiences. Instead they're finding second rate WoW clones.

We might have to wait for the new Blizzard MMORPG before the mass (WoW players) will branch out.
Little nitpicking:

"Heavy users would preferably play monthly subscription games, where they end up being the heaviest drain on the resources of the game company, while not playing any more than a light user."

Seems like you want to replace the "playing" with "paying" in this sentence?
@Lowtec: Fixed
I don't fully understand this part:

"The monthly subscription game actually needs the light users to cross-subsidize the heavy users."

Aside from bandwidth, which is dirt cheap, why would a game like DarkFall need players who play less to support those who play more? What exactly is AV gaining from having someone play 1 hour a week vs someone who plays 5 a day? I get that in WoW the hardcore always demand more content because they clear a new raid on the test server, but in a game like DF or EVE?

Obviously 40k subs is better than 20k subs, but if the target is to sustain 20k over X years, what does it matter how often that 20k is playing? Can't one easily argue that someone playing more often is more likely to get sucked in to the meta-game of a virtual world, and hence have a harder time moving on that someone popping in once or twice a week to just check in? If anything, don't CCP/AV want to target those who play more, because once they do, those are the people more likely to become long-term subscribers, rather than a population jumping from one new shiny to the next?
There's a name for this phenomenon : Cherry Picking.

It occurs in many other markets including insurance which is the business my employer is in.
Obviously 40k subs is better than 20k subs, but if the target is to sustain 20k over X years, what does it matter how often that 20k is playing?

Welcome to the present. Gone are the days of spending X amount of money developing a game in the hopes of selling enough units and getting/maintaining an "acceptable" number of subs.

The name of the game now is "maximizing profitability" through the use of "player driven" services that dont really do anything to change or improve the core gaming experience. Gamers are now getting exactly what they have supposedly asked for according to industry analysts.

In all of my years of being involved with the first person shooter community, I can count on one hand the number of successful FPS titles - those that are still played to this day. Every Tom, Dick and Harry game developer thought they could make a successful FPS title just a few short years ago, yet the cream of the crop always wound up floating to the top, as it should be. We're seeing the same thing in the MMO space right now, as multitudes of game developers jump on the MMO bandwagon in the hopes of making a quick buck with highly questionable revenue generation models.

Tobold's "Infinite Competition Theory" might be worth debating if every MMO that was ever made could manage to stick around long enough to provide data for such a metric, but in the end were left with debating the virtues of what makes the successful games, well, successful. It's a sad day when all we can do as gamers is debate the merits of one payment model over another, instead of whether the game was actually a good game or not.
I think you are misunderstanding, possibly wilfully, the psychologies involved. I'm sure you've read, as I have, the interviews with various people who run F2P/Microtransaction games and have been amazed by the disproportionate sums spent by a minority of players.

F2P games seem to approach profitability in the same way that junk mail companies do. It only takes a 2-3% response rate to bring in a significant profit. The idea is to cast your net wide enough to catch the irrational purchaser, not the logical one such as yourself.
Strong points, syncaine! After bandwidth, which is minimal as you say, there is no subsidising by people who play less. They just pay the same for less.
I take issue with the "infinite MMOs means no one plays MMOs" implication. The AVERAGE number of players will approach 0, but there will actually be players playing MMOs. Population is a discrete quantity. There would be 16 million (or insert other random stat here) people spread throughout the MMOverse. If people only chose the perfect game for them, there would be a number (greater than zero) of games with one person playing them... but because MMOs are games that require some degree of multiplayer, people would pool together and not be rational with regards to pricing.

And people aren't rational to begin with. They don't make rational purchasing decisions considering value per time played. They have strange habits like brand loyalty and playing with their friends. So your "infinite competition theory" isn't actually useful to anyone. Even an approximation of the condition you specify is impossible to achieve.

You also make a comment in your post regarding the number of MMOs growing faster than the number of players. That is definitely not the case. I bet there are fewer than 500 new MMOs hitting the market this year. There must be on the order of 100,000 new MMO players that just started this year. If anything, we're approaching infinite players and a finite number of games faster than we're approaching what you suggest. To suggest either state as a basis for useful theorizing, though, will lead to uselessness because the assumptions are completely off.
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