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Pay What You Want and the Four Currencies
by Lars Doucet on 03/22/12 03:37:00 pm   Expert Blogs   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

Cross-posted on my personal blog

Hello! I'm Lars Doucet, lead developer of Defender's Quest, with part 3 of my "Piracy and the four currencies" series!

Today I'd like to apply my "four currencies" model to the "pay what you want" phenomenon.  Like piracy, this is a case where the results we observe don't match what conventional wisdom says should happen, and I use my "four currencies" theory to explain the discrepancy. 

A quick summary for new readers:

In my first two articles, I explain that while piracy costs no "money-dollars" ($M), it still has "time-dollar" ($T) and "pain-in-the-butt-dollar" $P costs, ie, the time and hassle of tracking down a torrent, as well as the risk of malware, especially for non-techies.  There's also an "integrity-dollar" $I cost, ie, piracy makes some people feel guilty, and adds a small risk of legal trouble.  So, although piracy costs zero $M, it has non-zero $T, $P, and $I costs.


Raising large hurdles lowers sales

Image courtesy of haven't the slightest    


The legitimate product has no $I cost, and with a quick and friendly purchasing experience, it will also be "cheaper" than piracy in terms of $T and $P, making the customer more willing to spend $M. On the other hand, DRM and treating players like criminals raises both $T and $P, and makes players feel less guilty about piracy, lowering its $I cost.

This is a super quick and over-simplified summary. See the original articles for more details.
  

 

The Pay-What-You-Want Paradox 

Conventional wisdom suggests that customers who are free to pay what they want for something will pay as little as possible.  This was widely repeated before RadioHead released their In Rainbows album as PWYW, and again when the first Humble Indie Bundle was announced.  In both cases, the conventional wisdom was partly right - lots of people did pay only the minimum amount.  But many paid more, and by any measure both sales were big successes.

Before we get into that though, let's look at a model where the conventional nay-saying wisdom matches reality - voluntary donations for software downloads.

 

Donationware Doesn't Work

Image courtesy of MindfulOne

 

Donation-supported software rarely works.  There's a few outliers but for the most part it's a terrible way to fund a project - but why?  Let's apply the 4-currencies model.

When a developer offers a free download link on her website with an optional donation button, she is legitimately offering the game for two different minimum "prices":

The 4-currency "costs" are always relative to each individual. 
This is just a theoretical "average person" example.
 

 

The $M price of donation is as low as possible - any positive value will do, so why don't most people donate even 1 cent?  Because they can already download the product quickly ($T) and painlessly ($P) for free ($M).  Since the developer herself provides the free option, most people don't even feel guilty ($I) about it.

Pulling out a credit card, typing a number into a paypal window, etc, is too much bother ($P+$T),  especially when the developer provides a legitimate option to skip all that.

 

Raising NO hurdle lowers sales

Image courtesy jim.rocco

 

Now, what if there was a minimum price?  Let's go with 1 cent.  Let's temporarily ignore the fact that transaction fees for such small amounts would actually cost the developer money.  With a 1 cent minimum, the two "prices" now look like this:

 

By removing the "don't pay" option, all we have left is paying any amount, or piracy.  Piracy costs no money, but takes time, is a pain, and makes many people feel guilty. The only low $I cost option left is buying legitimately.  If the developer makes the experience quick and painless, she lowers the $P and $T costs sufficiently that many would-be pirates become customers instead*.

 

*Some will always pirate, because their personal valuations of the $P/$T/$I costs are different from those shown above.  These players will likely never be customers, so there's no point in worrying about them. 

 

Raising a TINY hurdle raises sales
 

Image courtesy of sombraala


Since there's no option to download both legitimately and for free, the small $P and $T cost of pay-what-you-want won't seem too bad for most people, especially if the payment page is slick, professional, and user-friendly.  Once these customers are over this initial barrier, purse strings will open, because the real obstacle was $P and $T, not $M*.

*For some people, such as those who don't have credit cards, or who live in countries not serviced by the payment processor, any amount of $M results in an insurmountable $P barrier, because there's no way for them to send the developer money.
 

There are some for whom money will still be an obstacle - this is the group that's paying only $0.01 or $1.  For those with a little more to spare, however, the results speak for themselves - people are more than willing to part with their $M, giving $5, $10, $100, or even $1000+.

 

Making it work for you

All this is simply to show how - and more importantly, why - the Pay What You Want model can work.  This doesn't mean it works in all cases.

The most successful variants of this strategy exhibit the following features:

  1. Limited time
  2. Product of significant value
  3. Generates goodwill

The limited time is important, because it serves as a call to action - get it now while the price is incredibly low.  

I have to admit that although I bought the first few Humble Bundles, I haven't bought some of the latest ones.  This is mostly because I simply don't have the time to play all those games, and I have pretty particular interests so what's on offer isn't always interesting to me. 

I did, however, pay $10 for both Proun and Sleep is Death as PWYW because they caught my interest and were well worth the amount I paid.

The last point is the one I want to explore a little before signing off.  I believe people are more likely to behave cynically - that is, to pay the minimum amount, the more impersonal and detached their relationship is with the creator.  The more they see the creator as a real person with real needs, and the more they develop a personal connection with your work, the more likely they are to reward you with more than the minimum amount. This is why building a community around your game is very important, and why it's also important not to be a huge jerk, because it makes it easier for people to justify pirating your games.

The Humble Indie Bundle generated goodwill through its charity drive, by offering cross-platform versions of the games on sale, and through the sheer novelty of the promotion (which by now has worn off).

Also, anyone who tried to donate less than $1 was greeted with this picture before their order was finalized:

 

 

This likely had the effect of raising the $I cost of any transaction less than $1.

So, those are my thoughts on PWYW and the four currencies.  I think the PWYW model is here to stay and can be successful in the future, but the novelty factor has now worn off.  That being said, PWYW seems like a much better option for generating revenue than an optional donation.


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Comments


E Zachary Knight
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Thanks for yet another thought provoking article. As I was reading this, I began to think about Kickstarter and how its crowdfunding model is very much like a PWYW model. There are some key differences which can be illustrated by comparing two music promotions:

Radiohead's In Rainbows was PWYW.

Trent Reznor's Ghosts was a tiered payment plan.

Kickstarter follows more closely Reznor's model as its rewards were based on the person's willingness to pay more. The lowest tiers were just the music while the higher tiers added more additional goods.

Both PWYW and tiered offerings achieve similar goals, but to me, I would say the tiered model provides more opportunity for fans to pay more money than just generosity.

With the Humble Bundle, they went with a somewhat hybrid of the two as the PWYW will get you a set number of games but a minimum payment will get you additional games. I think that little addition to the PWYW model is a large part of its success.

Lars Doucet
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Right, I totally forgot about the additional "bonus pack" incentives where you could unlock previous bundles!

Jonathan Jennings
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Very interesting article I purchased my first humble ubndle around christmas and even purchased a second copy for a friend as a present. I had about $15 left in my paypal account and was more than happy to spend the cash on the games I got ( and yet it moves was worth the price itself) . it really does provide an interesting thought I buy lots of used games i'll be honest and that's only because buying them new is just way too expensive and yet like you said conversely when i could have payed 5 cents for several game titles I didn't . It brings up an interesting question of where is the disconnect between publisher/developer pricing and the worth of games to the consumer ? of course Consumers don't have to worry about developement costs, keeping thel ights on , etc. but usually the humble bundle drives average between $3 and $5 for the average purchase price which shows many games don't mind paying something for a few quality titles.

Thinking on this it just makes me realize how really game cost is a casy by case basis particularly in my case. $60 for skyrim was not only acceptable realistically i may have even offered to have paid $80+ for the amount of content the game gave me. Yet I have paid full price for a few AAA titles that I felt on a quality / longevity stand point shouldn't have costm roe than $40 . The more discussions about price points are held the more difficult it is for me to understand standardized game pricing that deals primairly with the contents age because there is so much more to a game and so much more i can get out of a game that the underlying price can't address.

Eric McQuiggan
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Another value adjuster to the humble bundle, is if you try and bid too low, you get capacha'd which increases both pain in the butt, and time amounts, maybe enough to force your hand to donate more $M

John Evans
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It's an interesting article, pretty well thought out. You made everything quite straightforward, which is good. However, I think the "humble bundle" description is missing an aspect. Obviously there's an integrity cost to paying too little, but there's also one for paying too *much*. The humble bundle is famously an opportunity to get games cheaply, so paying too much makes you feel like you got scammed. If I paid too much, and other people found out about it, I'd have to deal with their derision.

The real problem is that I can't judge the prices accurately enough. What price is high enough but also low enough? Figuring that out is...well, it's a pain cost! It's the kind of social puzzle you don't expect when buying something. That's why I don't think I'll ever buy one of those bundles.

E Zachary Knight
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Why would you feel bad for paying too much? That doesn't really make sense to me. The only reason I could see for feeling bad is if all the games were crap.

Nathaniel Marlow
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Just pay a few cents above the 5 or 6 dollar average?

Kenneth Blaney
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I might also suggest that paying more $M for a PWYW game is a way of making up for a negative $I cost. That is, when someone buys something like Skyrim, they paid 0$I + 60$M (and negligible other stuff). However, buying something like Braid, VVVVVV or Dear Ester could have a price such as 10$M - 20$I. Thus, given the option, some people will pay more $M to offset their $I gain (or, put in a more tangible way, 10$M gets me the "Dear Ester/20$I" bundle package).

People like they idea that they are supporting the little guys struggling to make it over the big, bad, faceless mega corp. It is basically what kickstarter is founded upon.

Kenneth Blaney
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Also, I am starting to love this four currency deal as it gets more and more fleshed out in my mind. I was skeptical at first, thinking possibly $T and $P were actually the same... but you made a believer out of me.

Lars Doucet
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Definitely! In fact, for some people, I can see paying larger and larger amounts of money being ways to "buy" $I, so to speak.

Which is to say, for some, the more $M they pay, the lower the negative -$I value (ie, an $I credit).

Ryan Marshall
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I still think it's weird to say that these are exactly four distinct currencies, when $T seems like a clear sub-category of $P. You could just as well break $M down into $S (for software cost) and $H (for necessary hardware requirements), but by introducing extra categories it kind of devalues $I by comparison.

Titi Naburu
profile image
Time doesn't always mean pain. Waiting to download or install the product takes time but little pain. Pain means that you have to guess/investigate what to do, or to perform a complicated procedure.

Richard Reisman
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I suggest considering an enhanced form of PWYW that tracks pricing over an ongoing relationship and thus gives buyers and incentive to pay a fair price. This Fair Pay What You Want strategy works by taking a relationship view, instead of a single transaction view. This completely changes the game.

FairPay combines
-the user freedom of pay-what-you-want pricing, with
-feedback, accountability, and seller control of future offers
to make it fair to both buyers and sellers in a continuing relationship.

FairPay works through a very simple balancing dynamic:
1. Selectively offer to let the buyer set any price the buyer considers fair - after the sale (Fair Pay What You Want, post-sale).
2. Track that price and determine whether the seller agrees that is fair, and use that information to let the seller decide whether to make further offers of that kind to that buyer in the future.

This gives buyers a strong incentive to price fairly (based on known value) - and enables sellers to limit their future exposure to those who do not. (Setting PWYW prices after sale is an important improvement in itself, since it removes the need to discount for possible buyer remorse, and thus gets buyers to price with full knowledge of the value received.)

This is especially relevant to distributors who sell many products, and thus can build strong relationships.

Further explanation is at http://www.teleshuttle.com/FairPay.


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