Friday, July 30, 2010

When I started playing MMORPGs a decade ago, the monthly subscription did cost \$9.95. With the years the typical monthly subscription rate rose to \$15. So, adding a few years more of inflation, will we see the typical monthly subscription cost rise to \$20? Maybe, but it could also be that we'll see a very different, and less obvious price increase.

How do game companies set the price for a MMORPG? If you think the monthly subscription rate has anything to do with what it cost to make and run the game, you are wrong. The price point is set to maximize revenue, using what an economist calls a demand curve. That curve shows for every possible price how many people would buy the product. For example, imagine there is one guy willing to pay \$100 for a new game, plus 10 people willing to pay \$10, and an additional 50 people willing to play only if it just costs \$1. So how do we set the price? If we set the price to \$1, all these 61 people will play, but we only get \$61. If we set the price to \$100, we only get 1 customer, but the revenue rises to \$100. The optimum for a single price in this example is \$10, because then we get 11 customers, for a total revenue of \$110.

But is that the maximum we can get for our new game? No, the maximum would be if we could get everybody to play, each paying the maximum of what he is willing to pay. If we could get the 50 people paying \$1 each, plus the 10 people paying \$10 each, plus the 1 guy paying \$100, we would make \$250 instead of just \$110. And this is where the Free2Play business model of MMORPGs comes in: If set up perfectly, everybody with any interest in the game will play it, paying as much money in the item shop as is his personal maximum expenditure for the game.

That isn't just economic theory. Turbine was quite open in reporting the results of switching Dungeons & Dragons Online from monthly subscription to Free2Play, stating they increased their revenue by 500%. So now they are trying the same trick with Lord of the Rings Online, and other companies are jumping on the bandwagon. And that is with games that had initially be designed for a monthly subscription business model; we could expect games designed from the bottom up directly for a Free2Play business model to capture the money customers are willing to spend even better.

Now of course the devil is in the detail of how to design the item shop of a Free2Play game, and there are certainly good and bad designs. But economic theory tells us that in spite of all the suspicion some people have against the Free2Play model, a perfectly designed Free2Play game not only makes more money than a perfectly designed monthly subscription game, it is also better for the players: Lots of players who wouldn't be able to afford the monthly subscription game at all could play the Free2Play game. Some people claim that Free2Play games would automatically designed to be more grindy and less fun, to get players to spend more, but it is obvious that if the game isn't inherently fun, players would just leave and play something else. It isn't as if we were forced to play a specific game, developers must always design a game for maximum fun regardless of business model, or lose customers.

So whether we will see the \$20 monthly subscription MMORPG in the future isn't certain. The monthly subscription business model might be a dying breed, and in a decade there will be only Free2Play games left. Albeit unlikely, the Free2Play model also could disappear again for some reason, for example due to the tricky legal problem of virtual property. Or we could some sort of balance to establish themselves, with some games having a monthly subscription (going up with time), and others being Free2Play. There are even other pricing models possible. With the MMORPG overall market still growing, there is room not only for different games, but also for different business models.
Why are f2p games so bad then?

And most of all, why they can't they provide a good service as far as CS and content updates go?

It's hard to really discuss the sub model without wondering how many people would actually pay less in F2P than they do now.

People will only pay as much as they possibly can if they feel it's worth the cost. They'll actually try to pay as little, and it's then down to the game designers to figure out a way to get the extra money out of them.

Most game designers won't bother, figuring that it's actually easier to get the people who didn't want to pay a sub (the majority, on a F2P game) to buy a few trinkets here and there. I'm not convinced that F2P games will give good value to the hardcore player, even if money is no object.

eg. lets say that you have to pay \$3 a month for each active alt. how many players would decide that actually they could just play less than they do now and save some money?

We know F2P games can potentially make more money, IF they get people who didn't want to pay a sub to pay something else instead -- -getting people who currently pay a sub to pay more is a bonus and may require a lot of work.

It's what's being done with regular games too.

You offer one \$100 special deluxe version with tons of useless extras and one \$60 regular edition. Most people will buy the regular edition but for those who can or want to pay more can buy the expensive edition.

Then the only thing resting is picking up those who pay less. One steam sale at \$30 four months after release, one steam sale at \$15 eight months later and one at \$7.5 a year later will catch those.

@Pacifista: "Why are f2p games so bad then?".

That's a purely subjective view. I've read good reviews about quite a few free mmorpgs. Lords of the Rings, Dungeons online, EQ 2, Runes of Magic,...

I could ask the same question: why do most subscription based mmorpgs suck?

@carra

I agree the genre sucking is a global issue, but barring few exceptions f2p can not hold the candle to p2p games. They are all crappy graphic WoW clones without constant version updates and crappy customer service. They all feel like MMO-lite low budget thrown together at the last minute-excuse of an MMO.

Aside from few exceptions like LOTRO DDO and EQ2(?) which started with the p2p model. Going f2p did not really make these games any better than when they were p2p.

I'm sure a "perfectly designed" game would make bucketloads of money regardless of its revenue model ;)

Seriously, though: I'm not sure your model is complete. It may have worked to increase Turbine's income, but there may be other factors involved there too. Depending on the type of game, I suspect that a subscription model may be much more profitable than the pay-as-you-go model.

Your post is about increasing income, which is apparently what Turbine detailed too. Of course, to run a profit you also need to make sure that your costs are lower than your income. From that perspective, the best customer is one that pays for your service without actually using it. From what I can understand, that will never happen with a pay-as-you-go game. Conversely, it happens all the time with subscription-based games. Particularly if the monthly subscription is relatively low, say around \$10-\$15 per month. Many people can afford paying that for months on end without thinking twice about it. Those people represent almost pure income, which is clearly a good thing.

I think this also goes some way to answer Pacifista's question: providing quality support to the heaps of people only playing for free would ruin the model. And I don't think a support model where you had to pay for it would be very popular with either free-playing or paying users.

Note that I'm not saying that I believe you're wrong (noone dares do that on your blog anymore!), but simply that there may be more to the equation than simply gross income.

To end with a question: why wouldn't it be possible to use both models at the same time? This is how most of the printed press works, after all: you can subscribe or pay for loose issues. I suppose the closest parallel is game-time cards, but why not have a system where you can pay a monthly fee and get everything (or almost everything) in the game for "free", all that stuff that would otherwise cost you money? But maybe that's been tried to death already and I just missed it?

The sub model works if you can draw people in who really use the game enough to justify 15 a month; the prototypical casual gamer. So far the only game that can keep people subscribed long after it makes no economic sense in a \$/fun sense is WoW. That guy that pops one once a week to do a dungeon is paying close to a dollar an hour. The guy who plays 30 hours a week is paying .13 cents an hour.

F2P is a great model for games that lack the drawing power of WoW. I mean, who was even thinking about DDO before they went FTP. But I'm sure Blizz is quite happy with their own combo--- selling pets and such, and getting a sub.

I think the dislike of the FTP model is because for a hardcore player it's quite a bit more expensive than a sub model. I mean he goes from .13 cents an hour to a situation where his obsessive tendencies could easily cost him hundreds a month as he collects all the crap in the shop, pays for extra bag slots or character slots, or whatever. He's trading super cheap .13 an hour all access pass for a tourist trap that will nickel and dime him at every turn. So F2P isn't for everyone.

The sub model works if you can draw people in who really DONT use the game enough to justify 15 a month; the prototypical casual gamer.

If we could get the 50 people paying \$1 each, plus the 10 people paying \$10 each, plus the 1 guy paying \$100, we would make \$250 instead of just \$110.

Your economic theory is sound, but I would argue the problem is that you can't get everyone to play with that model. You might get the \$50 people paying \$1 and the 1 guy paying \$100, but how many of the 10 people paying \$10 will play?

How many of those 10 will quit simply because they know that the \$100 guy exists? Or perhaps they are like me and simply won't play because they believe the model is exploitive.

Sadly, in your example it doesn't matter if any of the 10 players continue to play. The [50 x \$1] and [1 x \$100] is worth \$150 or \$40 more than the \$10 subscription model. So at least with your numbers, F2P (or "No Cover Charge") would still seem to be the most profitable.

However, my contention that the 10 won't play means that money is still left on the table. From a practical business standpoint, that means the very best approach to try and get all dollars is to offer both models at the same time.

Sound familiar?

My only concern about item mall style free to play business models is that it really encourages the developers to offer items that strongly impact gameplay. Selling items that make you more competitive. This of course can have the effect of encouraging those who are fiscally undisciplined to spend to much giving MMO games and even worse reputation than they already have.

SOE swore up and down that they would never do this and slowly they have headed this direction now with exp potions, max size bags and mounts with stats. True they haven't gone as far as selling endgame gear and hopefully they never will but it will always be a temptation for them.

One very interesting F2P model that I have heard about though is the one used by Lineage 2 in Russia right now. Of course in asia they have a full up item mall but in Russia, you can play the game for free as long as you want or you can upgrade your account to monthly subscription based premium account which gives you double exp and double cash and common item drops. Given that the game is based on a longterm grind this kind of upgrade is a big incentive. Almost all accounts that continued to play past a few months have converted to premium. The genius in this system is that as a person gets further into the game and thus has more personal investment in their character, they become more and more likely to choose to stick with it long term and more willing to pay the monthly fee to advance faster though a leveling curve that can take literally years if you play legitimately. The other effect is that the free portion of the play acts as a natural and unlimited trial.

I would like to see this kind of a system. No or less emphasis on items and more about giving you the choice to pay which gives you a bonus but not one that directly impacts end game play. The unpaid account can get to max level it just takes more time. They can also make the same cash, it just takes twice the kills.

Of course this wouldn't work well in western games like wow and eq2 where you finish leveling in 2 or 3 months anyway and then only continue to progress in gear. If your endgame progression consists of gear (aka, items) then you are likely to see an item mall based f2p. L2 essentially places you in the end game at lvl 80 and then you continue to much more slowly level to 85 as your end game progression.

Turbine was quite open in reporting the results That would depend on your scale for "quite". They only gave a percentage increase and have not reported absolute numbers. So if they only had revenue of \$10,000 before even a 500% revenue increase is not all that much to run a major game. They also reported that revenue increase quite a while ago and have not been open about ongoing revenue. I know a number of people that bought some stuff from the store in the first month of going f2p and have not played again.

It will also be interesting to see how this general shift toward F2P will play out with WoW and EQ2s model of selling a full priced expansion every year or two. Lots of games like L2 and EvE have regular expansions but they are not paid for, they are simply part of the subscription and that fact is part of their sales pitch.

It doesn't seem like F2P will mesh well with full priced expansions but then EQ2 will be trying to do it with their F2P server being one expansion back from the regular servers so we will see.

@Viking

"True they haven't gone as far as selling endgame gear and hopefully they never will but it will always be a temptation for them."

I'm sure they're saving that ploy for later.

Seems to me F2P games provide a purer economic feedback option for players.

In other words, the game gets shaped into exactly what the players want. If the players buy X, more things like X get made. If no one ever buys Y, then Y will go away.

Subscribing/unsubscribing is a weak message to send; there's just so many reasons you could do it for. Hence all those lengthy 'why did you quit' quizzes as the developers try to figure out how to improve their game.

Whether a game designed by mob rule will be fun in the end, I don't know. There's obviously some amount of 'yes you want this but if I just give you everything you'll get bored with it' that has to be dealt with. It'll be interesting to see in any case.

The problem for someone like me is that I generally don't like the idea of the cash shop hanging over my head all the time while I'm playing. When I can pay a monthly fee and just play as much as I want, when I want, and have no limits on me, playing is not stressful at all.

When I am constantly thinking about buying this or that item or service almost every session is going to have a possible purchase attached to it, and that is stressful to me, stressful enough that the business model may be enough to get me to not play a game I would otherwise pay money for.

I don't know how common a feel that is, but for me its THE major concern.

I tried a trial of LOTRO and it was terrible - compared to WoW. If I'd lacked a frame of reference I might have enjoyed it more but even knowing that it will go F2P this fall, I doubt I'll try playing LOTRO again.

If set up perfectly, everybody with any interest in the game will play it, paying as much money in the item shop as is his personal maximum expenditure for the game.

Aren't there really two different demand curves here? In the subscription model, you're looking at the demand for monthly access to the game, and in the F2P model you're looking at the demand for virtual goods or services (often aesthetic or status items) within the game. Those could be very different. Some people value gameplay more than virtual items, and other may value virtual items more than the game itself (as illustrated by prices for rare or powerful items on eBay).

To the extent the F2P model relies on virtual item sales, it's really going after a new demand (the demand for virtual items) rather than trying to capture more of the demand for games. The problem with that is that developers are slowly turning into virtual item purveyors as much as game or world designers. To someone who values immersion and good gameplay above all, that's disturbing.

"Free to play" as a term is almost meaningless now, there are many very different revenue models which could carry that tag. Lumping DDO with other games like FreeRealms and Farmville is pointless. DDO only worked because they took a game designed for the subscription model and changed it to F2P, rather than designing a F2P game.

Subscription games are simply designed better. Game design centers around only one thing: getting you to play as long as possible. It is clear now that players won't put up with things like grinding and repetitive play, so the only way to keep you playing is to keep offering real, quality content.

F2P games, on the other hand, tend to be more like Allods. Obvious deficiencies in the game can be compensated for by spending real money. The game company has no incentive to eliminate all deficiencies in the game because that's where their revenue comes from. This is how a F2P game is designed.

In both cases, the company would stab your grandmother in the face to get your money. The subscription model just happens to force their hand with quality content as how to get your cash. The F2P model does not.

I think f2p is great model but it needs really careful design . I am not a fan of asian f2p where you need spend thousands of \$\$\$ if you want to be top dog.

Allods seems to have bad rep too, so defintely it can be a downfall instead of a boon

Lotro being the best MMO out there imho will really come out tops with this biz model.

Lotro has a base following that no other mmo game has. With fans of the lore, films, world etc.

Two Hobbit films in pre-production will cement the interest in this game for a very long time I think.

WoW will go F2P within 18 months. Again, only imho, wow is dry, stale and now dumbed down so far it is plain silly.

Bare in mind Guild Wars used the F2P model once you purchased the game for a long time. I believe they were very succesful and a number of expansions, all of high quality go to show this is the case.

I am a little concerned for Lotro with the F2P model at the same token. I can see the more 'base' player that Blizzard tried to eradicate from their forums joining a wonderful Lotro community and in part ruining it.

If it means the long term survival of Lotro then it has to be done I guess.

I'd pay 5 or 10 more a month if I didn't to buy the box with each expansion. But thats the only way.

The trick, as the consumer, is to use f2p to actually pay LESS than they were already paying, and still be happy. It's an opportunity to keep a few extra dollars in your pocket and feel good about it because you outsmarted the system. Easier said than done, right? Because the company is going to make you want to spend more. Just like any store you go into is going to find ways to tempt you, to tap into your instinctive cravings, so will they. It's a good lesson for young people to be smart shoppers. Parents who pay for their kids' subscriptions should give them the difference in cash if they can discover a way to lower the bill each month buy outsmarting the ftp system.