TANSTAAF2PL
Jonathan Blow (Braid) and Markus “Notch” Persson (Minecraft) conspired to bring some game freakonomics to Twitter.
Take two hypothetical games. They’re identical except for how they’re supported. Game A doesn’t cost any money to play, and there’s nothing to buy within it either, but it includes ads. Game B has no ads, but you have to buy it to play it. It costs $10 up front.
If you were to play only one of these games, which would result in you spending more money on average?
According to Blow and Persson, it’s Game A.
I know what you’re thinking. You’re thinking this is mathematically impossible. How can the average of a bunch of zeroes be greater than the average of a bunch of tens?
But re-read the question. I didn’t ask how much you’ll spend on the game. I asked how much you’ll spend. Period. On anything.
The only rational reason Game A’s creator would monetize it via ads is if some ad company offered a deal comparable to what Game B is expected to make. And the main reason when that happens is that said ad company thinks it’ll be able to sell that ad space for even more money to outside businesses. And the main reason for those businesses to be willing to pay that much is that they expect the ads in question to generate an even larger increase in revenue than what they cost.
Now, sure, not all marketing campaigns result in a company bringing in more than a dollar of additional revenue for every dollar it spent. Also, some expenses are like car insurance: people have them regardless, and an ad can only change how they spend their money, not whether they spend. But as a general trend, advertising works. We know this because companies use it, and have for centuries.
So the safe bet is that, for Game A, a mathematically significant number of players really, truly will be influenced by ads to buy things they wouldn’t have bought if they hadn’t played this totally free game - so much so that the average ad-inspired expenditure across all players will likely average out to more than $10 a head.
A couple days later, Blow went on to tweet: Sitting at a cafe overhearing a random person…try to explain tower defense games to his friend. It turns out the point was to explain how it seems lame to pay-to-win in an f2p game. I give this business model 1.5 more years. We need to make a "pay up front, no microtransactions, no ads" seal of quality that games can display or stick in their icons. (Also: this game will not ask you to rate it, or send push notifications of any kind, or refer you to other games).
He’s still pounding his “games should be honest about how much they’ll cost” drum, citing integrity and “non-lameness” as justification and alluding, once again, to the mathematical fact that any game that costs $X to acquire (for X ≥ 0) but also tries to get you to buy other things (whether it be by mentioning other games, popping up Coke ads, or offering more stuff for itself as In-App Purchases) will end up costing its players more than $X on average - and that makes the $X price tag a lie.
So could Mr. Blow’s pipe dream of unscrupulously ethical pricing pan out? Would his ambitions for non-deceptive up-front pricing in games survive contact with actual customers? Personally, I doubt it.
In February 2012, J.C. Penny shifted cold-turkey to a “Fair and Square” pricing strategy that got rid of all the seasonal sales, secretive discounts, web deals, preferred customer coupons, hidden surcharges, and so on - something that the CEO at the time called “fake pricing” due to how the price on the tag was almost never what the customer paid - and simply made prices much lower for everyone all the time. It failed so badly that the board of directors kicked that CEO out. The customers who used to seek out deals and only bought, say, a $20 shirt when it was on sale for $8 didn’t bother buying it now that it was always $9 because they didn’t feel like they were saving money anymore, and the impulse buyers who bought shirts regardless of price were now generating half as much revenue.
Distimo, an app metrics developer, stated that as of February, for every $1 spent to buy an app, $3 was spent to buy something from inside one. Giordano Contestabile, a business-type guy who’s worked for Popcap and ArenaNet, cited proprietary sources to update those figures to $1 and $19 as of August. In other words, these days only 5% of all revenue from apps is from people buying the app itself.
In light of all this, game developers are pretty much locked out of irreproachable levels of pricing integrity if they want to stay in business.
(to be continued)