Next Generation Monetization: Supremacy Goods
September 6, 2012 Page 1 of 4
Is your microtransaction-based game set up for failure or success? Consultant and writer Ramin Shokrizade discusses a new class of goods that is likely to damage the health of your user base -- and in this article, posits rules for goods as well as taking a hard look at how some games function.
Modern microeconomic theory classifies various goods and services as "inferior," "normal," or "luxury," based on their behaviors in markets and how they are selected by consumers. Interesting discussions also arise regarding goods that defy the intuitive ways they are expected to behave in markets, like "Giffen goods" and "Veblen goods."
The purpose of this article is to introduce a new model for one of these (at least initially) unintuitive goods that are exceedingly rare in the "real" world, but that are the most common type of good used in the sale of online games: supremacy goods.
My study of microtransaction monetization models since 2001 was the inspiration for this new goods model. Microtransactions are currently the preferred method of charging for online games, and the sole method of direct content sale (not counting indirect revenue streams, such as advertising) for many large companies such as Zynga and Nexon.
Microtransactions involve the sale of specific virtual goods or services, as opposed to a flat one-time fee or subscription. Typically hundreds of microtransactions are available to gamers in each title, and in most cases they can be used to increase the success of players in reaching game objectives relative to those that do not make these microtransaction purchases.
This gives rise to the term "pay to win." For those that do not pay, these games are described as "free to play".
The "Golden Ticket" Scenario
Imagine that I have a ski resort that operates 18 ski lifts with associated runs, and that I charge $50 for a daily use general lift ticket that allows unlimited use of any run (with one catch). I sell 2000 of these tickets every day. My new marketing consultant comes up with a great idea to boost revenues: the "Golden Ticket." The Golden Ticket allows the holder to have exclusive use of any run they desire. Any general use ticket holders on the run will be escorted off and directed to another run. By selling these at $10,000 each, I am told that we can boost revenues from $100,000 per day to perhaps $180,000 or more per day.
On the first day, it works like a charm. We sell five Golden Tickets and our usual 2,000 general lift tickets and make $150,000, for a 50 percent increase in revenue! On the second day a strange thing happens: We only sell four Golden Tickets, and 1600 general tickets. We take in $120,000, which is not as good as the previous day, but still an improvement over the old monetization model.
By the end of the first week we are bottoming out at three Golden Ticket sales and only 200 general ticket sales -- we only made $40,000!? How did this happen? This seemed like a sure winner.
For the general ticket holders, being bumped was very inconvenient, and reduced the value of the lift ticket purchase in their eyes. What was even worse was the anxiety created over not knowing when they would get bumped.
For those purchasers that valued their time more highly, this inconvenience was enough such that they would not have come to our ski resort even if the general tickets were given away free of charge. For some of our wealthiest skiers, they could have paid the $10,000, but for them skiing with others and meeting new people was part of the fun so they had no desire to take advantage of our Golden Tickets.
For those that did buy the Golden Tickets, the novelty soon faded, such that repeat buyers were rare. Some of these big spenders actually enjoyed watching the looks on people's faces when they got ejected, and as the number and enthusiasm of remaining general ticket holders decreased, this thrill also waned. While this situation might offer them the chance to meet others just like themselves (fellow Golden Ticket holders), these people had a propensity to want to ski by themselves (that's what they paid for, after all), so their social interaction with their limited number of peers was close to nil.
The Golden Ticket is an example of a supremacy good. A supremacy good is a good or service that reduces the value of all other linked goods and services in its space, including itself. Supremacy goods can initially appear to monetize very high, but over time consumers become adept at identifying any monetization model that contains them. This causes the advantages of the introduction of supremacy goods to self-extinguish. There are two exceptions:
- An environment where every product contains supremacy goods,
- A product that consumers perceive as a mandatory purchase.
Good examples of the first case would be online games in China, or games on Facebook. In both cases, there are essentially no alternatives. The sale of SUVs (sport utility vehicles) in the United States is an example of the second condition. In this case, the purchaser is buying a perceived unfair (independent of skill) survivability advantage over those that do not have SUVs in the event of a crash.
While the proliferation of SUVs makes driving more dangerous for everyone, most consumers in the USA perceive automobile purchases as non-optional. Thus to compete (survive), there is strong pressure to also purchase an SUV. As SUVs fill the roads, the initial safety advantage that was purchased decreases in value, because two SUVs colliding are less safe than two small cars colliding. Thus SUVs are a rare example of a non-virtual supremacy good that does not auto-extinguish (at least not for safety-related reasons).
These products are almost always sold as online "free-to-play" games. In multiplayer games, where inter-player competition is strongly encouraged (to drive sales via the "SUV" exception) there is no charge whatsoever to log in and be defeated by a payer. This is an undesirable outcome for a number of reasons, so people not wishing to buy victory will tend to leave these products for alternative offerings. In China, or perhaps on Facebook (more on this later), this option may not immediately present itself.
Multiplayer games are generally played on servers, where each server is a distinct play environment that is separate from other servers. For payers on these servers, a game of "virtual chicken" arises where the committed spenders will attempt to outspend each other.
Once the "winner" has been determined by spending the most, monetization activity rapidly approaches zero and servers become similar to ghost towns. The typical Asian microtransaction model-based product adapts to this by starting new servers every few weeks to allow players on dead servers to start the process over again on a new server. Unless you plan to "spend the most" on this next server, at some point the whole process becomes apparently futile, and the consumer will adapt by realizing the only way to win is to not play.
Multiplayer games on Facebook currently exactly follow the trend described in the last paragraph. While no company was willing to give internal numbers, I was able to confirm informally that this scenario is occurring in both Asian and Western mid-core social network games by discussing the subject with developers at GDC 2012.
Single player games, like the now-famous FarmVille (a Zynga product based on a number of other products), are generally referred to as "social games" on Facebook because they are run on that social network. They have a number of anti-social elements, like spam, so I refer to these products as "social network games" to be clear.
Since inter-player interaction is limited in these games, purchases cannot be used to directly harm the play experience of others not spending as much, as in multiplayer microtransaction games. Nonetheless, social network games are designed to foster a certain amount of "hey, look what I did", to create peer competition. Thus the sale of game objectives will act as a more mild supremacy good unless peer pressure is intense inside a friend network, in which case you get the "SUV effect" boosting sales.
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