Tobold's Blog
Wednesday, September 03, 2014
Marginal cost and the cost of jerks

Economics has a concept called marginal cost. That doesn't mean "insignificant cost", but instead is the cost of producing one more unit of anything. The cost of making something is the marginal cost plus the fixed cost (development, factory, etc.) divided by the number of items produced. So if the number of items produced is large, the overall cost trends towards the marginal cost. Sell enough of something, and you can sell it for little more than that marginal cost and still make a profit.

That is relevant in the context of game development because the marginal cost of games is very, very low. These days you don't even have the cost for the disc, box, and manual any more if you sell the game online. If you sell enough copies of a game, you can sell it very, very cheap and still not make a loss. Especially if the development was quick and not costly. There have been recent stories of successful mobile games spawning multiple clones within a day. If somebody can see a game, program a clone within a day and put it on the app store, he can make money if he sells that game for under $1.

Game developers tend to be creative types with no clue of economics (or project management, unfortunately). So developer Caspian "Cas" Prince from Puppy Games wrote a long rant on their site in which he complained how Steam and Humble Bundle ruined the prices of games, and that individual customers are now "worthless" to an indie game company. Which if he had studied a bit of economics wouldn't have come as a surprise to him. Development costs of an indie game aren't huge, so if we move indie games from being niche and selling a handful of copies to being nearly mass market and selling thousands of copies on Steam or per Humble Bundle, the drop in prices is inevitable. Sorry to burst anyone's bubble, but even indie games are often very derivative, so if you can make the hundredth 8-bit graphics rogue-like dungeon crawler, so can anybody else. You can't sell such a game for much money, because there isn't much of a barrier of entry to other people making a very similar game and selling it closer to the marginal cost.

So if Cas states that single customers are now "worthless" and flips a bird at anyone threatening to never buy a game from him again, he is right. It is the same concept that Damion Schubert explains in relation to the history of Ultima Online: "His [Gordon Walton] contribution was simple: he was able to convince every level of the organization that change was necessary – and possible. He did so with the single most succinct definition of a griefer I’ve ever heard: A griefer is someone who, through his social actions, costs you more money than he gives you. Well, when you say it like that, we all felt pretty stupid for letting these jackasses hang around for so long.".

Even in a MMORPG at $15 per month it is easy enough for a jackass to drive away more than $15 worth of customers per month. In a game like League of Legends, with an average revenue per user of just over $1, any single player is worth so little, that you can easily afford to ban as many as necessary to keep the game pleasant to everybody else. With many more players in the game the effect of a griefer can still be large, while the money he brings is insignificant. One of the consequences of that is that the worst people have congregated at certain independent forums and sites. Because game companies can't afford these people on the official forums any more and wielding a hefty ban-hammer.

In all the recent discussion about horrible video gamers, this is maybe the light at the end of the tunnel. More and more companies involved with games will realize the economic cost of jerks and step up. Not because it is the right thing to do, but because it is too expensive not to. In a world where there are many more gamers and prices trend towards the marginal cost of production, each individual player is practically worthless and can be banned or treated sternly enough to make him leave without that costing more than the damage he caused by being a jerk.

In a game like League of Legends, with an average revenue per user of just over $1, any single player is worth so little,

Except if the jerk in question is of the kind which plops money in the cash shop by the hundreds. Economics again: you don't ban your sources of income even if they fuck up the game for 100 non-paying players.
Well, this could be a business plan: squeeze money from griefers and use it to subsidize victims :)
Except if the jerk in question is of the kind which plops money in the cash shop by the hundreds.

I would consider that possibility as unlikely. Usually it is the people who got bored and lost interest who turn into griefers, not those who are still so enthusiastic about the game that they spend hundreds of dollars on it.
But until that realisation reaches someone that can actually cause a shift in customer relations a few decades will pass the land.
... at least in Wargaming-land.
Or you could let the thin-skinned one go. That saves you policing costs, and for all I know you would lose fewer customers anyway...
Or you could let the thin-skinned one go.

Not an option any more as soon as you leave the domain of niche games. The "thin-skinned" customer who objects to racism, sexism, and other forms of hate speech, as well as to non-verbal form of griefing is not "one" but 90%+ of your audience.
I certainly agree with the premise and the marginal cost, I am not sure they are that related. I.e., if the customers were paying $100/month, then a $100/month jerk driving away several $100/month non-sociopaths is not worth it.

My point, when people decry the negative political ads in the US, is that they will stop within milliseconds of the politicians thinking they are not working.

I read the article and he did seem business clueless. I would like to point out a significant point of the rant was about PC games. Developers for iPhones or consoles do not have the video driver support issues. BTW, I the statistic I read is that the average selling price for an Android game was seven cents ($0.07) due to ftp/ads. So it is not just Steam/HB that is driving prices.

As I software developer, I would ask why game developers think they should be special? I.e., if you want to write application software and are not a top-ten multinational organization, then it is a tough time. I suspect many indie developers of word-processing or photo software or w/e would tend to not be that sympathetic of the game developers' woes.

Although your size arguments do push for gaming companies to police better. I.e. if you have a game for couple of thousand people, it can be a very niche community. Once you are aiming for hundreds of thousands of people, then the mass market is less used to and less tolerant about toxic behaviour.

I think this gets back to a blog post of a few years ago: gaming would be better if the devs were not better gamers. You have all these "hard-core epeen" gamers becoming mainstream game developers. Not only do they not really understand what the mainstream market wants, they don't understand mainstream businesses or customers.

P.S., While "no clue of economics (or project management, unfortunately)" is demonstrably true, on a grumpy day I would say the "creative" is being a tad generous.
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