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Opinion: The Mac App Store And The PC Gamepocalypse
Opinion: The Mac App Store And The PC Gamepocalypse
January 10, 2011 | By Tadhg Kelly

January 10, 2011 | By Tadhg Kelly
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    65 comments
More: Console/PC



[In this Gamasutra opinion piece, London-based lead designer and producer Tadhg Kelly looks at Apple's Mac App Store, discussing why the 'fertile ground' it creates is tremendously exciting - yet also a little scary - for game developers.]

The newly launched Mac App Store will change everything. It won't happen overnight, but it will happen, and the results will be very far reaching. App stores change how users think of software, how they pay for it and also how they maintain it.

They're as radical a shift as that which changed mobile gaming from a Java platform to a real gaming system, and with the sort of financial repercussions of the Facebook ecosystem. It's that significant, and yet almost nobody in games even realizes that it's happening.

The reasons why are these assumptions:

- Digital distribution of games has already been solved by Steam
- The Mac is not a viable game platform
- The PC is not the mobile market
- Content is valuable

All of which are shaky. Let's start with the first.

App Stores Are Not Steam

Steam may appear to be much the same thing as an app store, but there are three core differences between the two:

Closed vs. Curated: The basic philosophy behind Steam is that of the managed shop. To get your game onto a service like Steam, it is not simply a matter of rocking up with your code and shipping it. You have to send your game to the service and have it approved on the basis of whether it's a good fit for the store. Steam is not interested in having every game that it can possibly handle. Instead, it is interested in managed relationships and individuated products.

The reason for preferred differentiation is that it means the selection on display hits every major category of game with a choice of quality. The belief at the heart of the service is that every good game should have its day in the sun, and Steam actively works to keep its content varied. This makes Steam the equivalent of a select bookstore trying to maintain an appropriate range.

App stores, on the other hand, are like Amazon: They stock everything. The Apple iPhone Store has well over a quarter of a million apps available, and rather than act like a content monitor managing a range, Apple exercises approval rights on a set of ground rules to do with platform integrity. 95% of submitted apps are approved within days, and Apple's only editorial input is the front page service on iTunes for the apps that it thinks are interesting.

The difference between the two approaches is that the Apple model makes a bet on the Long Tail, but the Steam approach makes a bet on the Short Head. The Apple model is much more manpower-intensive (approving that many apps a day takes staff) but also generates much more revenue over the long term. It is also more of an incentive for developers to publish there because the barrier to entry is a lot simpler to understand.

Optional vs Integrated: The next thing is that app stores are integrated into platforms, but Steam is not. Starting today, Macs all around the world are going to receive software updates that install the Apple store into OSX, and the updated version of OSX also contains it as a mandatory element. This means that it is going to be a feature of all new Macs as well. That's very powerful.

All software environments have an issue when it comes to visibility for non-default software because many users are simply not motivated enough to go searching for software that's not in front of their faces. The ability of a platform to bind users into its software is why Microsoft ended up in court over Internet Explorer, but also why Internet Explorer is still the dominant browser worldwide. Default behaviour is also why users often use Google as a navigation tool to find Facebook or Twitter instead of using URLs because it's just much simpler.

Steam is not integrated. Users have to choose to install it, which means that they have to know it exists and have a reason to care about it. Many don't, and have never heard of Steam. This means that Steam is more like the arthouse cinema that dedicated viewers go out of their way to find rather than a catch-all solution, and now that the app store is here, it means that Steam will increasingly be relegated.

Price Control: Lastly, Steam is very involved in the pricing of games. They create Steam Sales all the time in order to pull customers back into the service, with massive discounts like 75% off Indie Packs. These sales lead the way for customers to buy full price software, and it's full price software that publishers like because it retains the perception of value in their content.

In app stores, developers pretty much control their own pricing and business models with very little supervision. On the iPhone this led to a race to the bottom very quickly, with most apps costing $0.99 or $1.99, and even several of the big-name games only managing to charge maybe $5.99 at best. Indeed, Neil Young of Ngmoco maintains that anyone even thinking of charging a cent up front in the iPhone App Store is wasting their time, and needs to be thinking about charging on the back end instead (virtual goods etc).

Price control for developers inevitably reduces the price of software down to near zero, and makes the market all about achieving volume rather than high revenue per customer (ARPU). The high ARPU model is the one by which most modern publishing operates because it allows for significant profit margins, whereas the app store model relies on making cents on the million downloads, or revenue from 2% of customers.

That is what the app store is going to bring to desktop software. It's absolutely fantastic for users because it means that they are going to get their hands on way more cool software than they ever could before in a clean, safe and cheap environment. It is, however, apocalyptic for any game developer whose model has relied on low unit sales with high ARPU.

The Mac as Viable Platform

Macs have never been regarded as much of a platform by the games industry. PC game developers traditionally like to push the boat out in terms of graphics especially, and the Mac has always felt about two steps behind the PC in terms of sheer horsepower. Gamers who wanted desktop gaming always bought ninja PCs as a result, so the Mac remained the tool of graphic designers and the like.

At least, that's how it used to be. In reality, PC graphics plateaued out a couple of years ago. It's been a long time since anyone could actually notice the difference between one bleeding edge graphics card or another. Secondly, the PC as a platform has been concentrating more on the lower end, like netbooks, or games based in Flash, and there is much less of a demand for super-powered PCs than there used to be.

Lastly, many of the big PC developers moved over to console a while ago (citing imaginary concerns over piracy of all things). Long story short, PC gaming has been pretty much stuck for around three years, and has become the stronghold of indies and console developers who still publish a PC version of their latest game after the console version has released.

Mac games have always existed, but game stores rarely stocked them. So there has always been something of a weighting against the Mac as a game platform because of a lack of visibility. Of course, the app store solves that, and so Mac gaming will probably become a huge growth area this year. On the iPhone, the app store really turned on the appetite for mobile gaming in a way that no other platform had managed to do simply by making mobile games highly visible and available. The same will happen for the Mac.

But regardless of whether the Mac is or is not a viable game platform, the assumption that that makes the app store irrelevant to PC gaming misses the point. The point, rather, is that Microsoft will have to respond.

Even if Apple does not include the App Store as a part of PC iTunes (Im betting they won't), Microsoft will still have to roll their own. What will happen if they don't is that the Mac will become widely known as the better, simpler and cheaper software platform ('there's an app for that' etc), leading to more Mac sales and less Windows sales. If they don't do it then the Windows platform will take a serious, possibly even fatal, hit.

In a similar vein, Google also has to respond. Android is already ahead of the curve by allowing app stores to exist within its environment. Chrome is also now featuring an app store, which doesn't make a great deal of sense in the browser, but does in the Chrome OS context. Even Amazon is getting into the app store business, putting together an Android store. However they want to exercise control over pricing like they wanted to for Kindle books. That might not be too smart, but the principles aside from that are very sound.

The point? It's not about Apple. Apple's store is simply a beach-head. The point that the games industry needs to be taking notice of is that app stores are going to be everywhere.

The Desktop And The Mobile Market

Another assumption is that the desktop is somehow inherently different to the mobile market, and that this exceptionalism means that the pattern of what happened in mobile will not be repeated.

There are three essential differences between mobile and desktop, and they are screen size, interface restrictions and whether you sit down to use them, or use them on the go. Within those bounds, the use of software is much the same. You can use your mobile to play a game, write an email, compose a document or a blog post. You can use your PC to make phone calls, surf the web or scribble notes.

Barring heavy use cases (Photoshop for example) there isn't that much difference between the two styles of computing. Certainly for games the gulf is not so wide that consumers would behave in a fundamentally different way. Sitting down to a computer is simply a more concentrated use case, it is not a different use case.

I think that believing the desktop will behave inherently differently is a very dangerous assumption to make. While the desktop PC or Mac certainly have some institutionalized software that is very expensive, there is every indication to suggest that games in particular thrive when they are cheaper.

Gamepocalypse Soon

The big difference between soon and now, and the reason why app stores have the potential to be apocalyptic for the desktop, is that the current arrangement (through Steam, etc.) is vastly over-inflating the price of games. The game consumer wants to pay a lot less for their games because they do not find them as engaging as developers and publishers think they should, and app stores are going to reduce that price significantly.

Many indie games charge $25, and many retail games charge $40 or $50. But there is ample evidence to suggest that the natural price (the price that users want to pay) for games is actually $5. When 2D Boy did an experiment with flexible pricing with World of Goo a couple of years ago, they had players essentially choose what they wanted to pay from across a range. The best balance of revenue versus purchase numbers came in at $5.

When Steam does its 75% off sales on Indie Packs, they most commonly end up valuing the individual games at $5 or less. Whether small, large, indie, retail or back catalog games, $5 is the natural price. Steam sales sell way more copies of games in these sale packs than individual releases because the price point is right.

I think that what app stores are going to do to the desktop market is bring its pricing into line with where it naturally wants to be. In the process this is going disempower many developers and publishers who believe their business model should be ARPU-based rather than volume-based. It will reduce the number of big-budget games to only a handful, perhaps making those games seem like the ultra-premium Gucci bag game, where most others are simply regular bags.

And yet it will also empower many newer developers.

The upside of the iPhone app store is that it has made many new household names, such as Angry Birds, and spawned a whole new economy. Apocalypses tend to do that because they create new fertile ground where before there was nothing but dense jungle. So the app store era for the desktop is one that should fill many of us with hope, as long as we don't cling too much to the past. Or our sense of how things should be rather than how they are.

There's still time to get ready for the changeover, but it won't hang around forever.

[An Irish lead designer and producer living in London, Tadhg Kelly is the author of a challenging book about, as he describes it, "Reclaiming games as an art, craft and industry on its own terms" title What Games Are. The blog for the book is whatgamesare.com. You can also follow his tweets on Twitter (@tiedtiger).]


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Comments


Phil Nolan
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I smell fanboy.

R G
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And here I thought I was the only one :)

Nicholas Lovell
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Really? That's a pretty shallow analysis. Tadhg isn't actually arguing that *Macs* are going to be the future; he's arguing that Appstores are. Not necessarily even an Apple App store, but App Stores generally.



I wonder if you even read the article, or just thought "Apple, meh".

R G
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Or maybe we read the article and aren't swayed by sensationalism and pc-is-doomed-talks?

Nicholas Lovell
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I don't agree that the message is that PC is doomed.

R G
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I would go and re-read it.

Jaroslaw Szpilewski
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Steam has lost. Good riddance.

Aaron Truehitt
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You sound as if you have a little hatred for Steam.

Chris Melby
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What's your story? Has STEAM some how wronged you?

K Gadd
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The difference between Steam and the App Store is that you send your games to Steam and have them approved for sale, while you send them to Apple and have them approved for sale?



Claiming that Steam is like an 'arthouse cinema' just because it doesn't have OS integration is also laughable. Retail games sold in stores that use Steamworks are one example of ways that Steam can get onto a customer's machine without them ever having to go out and look for it. Given that Steam has over 1.6 million users online *right now*, they are hardly doing bad given a lack of OS integration, and their millions of customers aren't going to up and vanish simply because the Mac now has an App Store. You could attempt to support this argument with statistics or even predictions by market analysts, at least. Your definition of 'integrated' here is also rather confusing given that Steam is one of the most integrated products in the game industry: It's a single central application through which you can manage all your games, track your friends' games and achievements, join friends' games, and make new purchases. The Mac App Store doesn't even have achievements, microtransactions or leaderboards and you're saying it's *more* integrated than Steam?



Your assertion that developer price control naturally leads to cheaper games, and that cheaper games are better for consumers, isn't actually supported anywhere in the article. It seems kind of lazy to make such a strong claim and make no effort to back it up by even a single study or quote.

Jaroslaw Szpilewski
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Have you ever tried getting a game on Steam?

Matthew Mouras
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ah... yep... and it worked fine for me... quite a few times :)

Chris Melby
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I can't speak for Kevin, but I've bought about 30 games on STEAM. The service has been excellent since I started using it in 2007. I've read that early on they had some problems, but nothing I've ever experienced.



Anyways, the best thing to happen to PCs for gaming and now my Mac and it's helped me to trust other services like GOG.

K Gadd
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Re: Jaroslaw

Yes, I have. In fact, some of the titles I've worked on are available on Steam right now! Do you have a point?

Bjoern Graf
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To extend on Phil’s comment: this seems to ignore Steam on OSX, the Microsoft Games for Windows LIVE marketplace thing (which is, erm, a bit understocked to say the least and even more currated than Steam) and I have yet to see Indie games to average around $25. Instead the focus is on the developer sellout of AppStore like races to the bottom as something a consumer should look forward to, to expect high quality for a low price (quite the inverse of Apple hardware). The prospect of getting the game for nearly free but then having to shell out for virtual goods/downloadable content endlessly does not seem to be very user friendly as it hides the real cost of experiencing the whole game (altough I’d like to see a “Please insert coin for the boss fight”…). This business model might work for MMOs and otherwise popular and/or long entertaining games but the majority may not be able to become profitable at very low price points because there is only a certain number of gamers with a certain number of hours to spent on playing.



The OSX AppStore being preinstalled does not necessarily convert even a fraction of the users into (causual) gamers. The the iOS AppStore is different in that there is spare time on the run that can be filled with a quick game while on the desktop these times of non-focus are spent otherwise (family, friends, Facebook, TV, …).



In the end calling for a PC Gamepocalypse is a mere link bait rather than a prophecy…

Steven An
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Very interesting. I think the primary thing that Apple did was create and market the concept of the "app" as a $1-5 unit. They're doing to software what they did to music: they broke it up into little pieces and then gave consumers a nice place to shop for the pieces. Before, the channels of distribution were much clunkier and inert. This is very much a good thing for smaller devs. Apple has removed so much of the headache of marketing ("Just find it on the AppStore!"), setting up payment systems, installation, etc.



I think Steam has an interesting choice to make right now: Should it copy Apple's high-volume model? They clearly see the benefits with their holiday sales, but what they're lacking is mass-appeal (no Steam ads on TV). Maybe it would do Valve some good to expand its business to beyond games and ramp up their mass-marketing abilities? As far as I know, they are _the_ digital distribution platform on Windows right now, games and otherwise. They have the technology for sure.



And what about Xbox Live and PSN and WiiWare? They are still very much closed-off, walled gardens compared to the AppStore. Will they choose high volume? XBLA's Community games haven't really taken off for whatever reason - lack of marketing and bad developer incentives may be to blame there.

Steven An
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Now having said that, I do think you're overhyping the change here. I don't think it will reduce $60 games "to a handful." There will always be a decent market for those, and prices are not going to drop everywhere. Mass Effect 2 is not Angry Birds. The AppStore isn't going to destroy life as we know it in the games industry. It will simply diversify the industry and encourage more competition. It will also hugely expand the market. All of these are very positive things. Not exactly an "apocalypse".

Maurício Gomes
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OOOH MY GOD! PC WILL DIE! AGAIN! FOR THE 536102730192873 TIME!





Seriously?



PC is very resilent... and Mac is PC too.

R G
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Bingo.

Nicholas Lovell
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You are so missing the point. It's about App Stores, not Mac versus PC. It's about changing business models to low price point/high volume.



The PC will survive, even thrive. Anyone expecting that $20+ is the amount they can charge for their game won't, except for a limited number of triple-A blockbusters.

Steven An
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You're right, but I think people realized that a while ago.

Tore Slinning
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Ehm...How many times have companies and people spent huge efforts on replicating the "flashlight app" effect on appstore only to get burned.



Most of the success stories were often about luck in regards of word of mouth and having a very unique and addictive gameplay.



It was not the longtail alone that made games like angry birds or the "flashlights apps" a success.



I would like to see sober budgets were the games dont try to be Blockbusters by tossing in tons of expensive and cheesy narrative content and trying to make the game as accecible as possible(which hurt the challenge factor in many a games(which is the point of games))



And maybe online repositories like appstore can help in that regard, but games like angrybird will NOT takeover its an entirely different market.

R G
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This is some serious link bait... Everyone has cried for a PC apocalypse.



In the end, it's all about control. We as game developers (or at least indie ones at that) need to make a choice where we want our product to go. That's the way to send the message.

Nicholas Lovell
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Watch your competititors put out high quality, free-to-play games with In-App purchases on Appstores on the PC and the Mac. Then imagine that you have control.

R G
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I should clarify, it is publishers and other corporations besides devs that wish to control.



What you state however, isn't a problem if you're game is of superior quality.



Last time I checked, WoW is beating other MMOs

Megan Swaine
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I think Steam appeals more to dedicated gamers, and the app store, conversely, has a very broad audience. That doesn't demean the importance of Steam though- if it's survived this long, there must be a pretty viable user base.



The Apple app store will bring simple, cheap, easy-to-install games to everyone else that has wanted to play them, but doesn't own a smartphone or an ipod touch. It will give the Mac OS an added advantage, but I don't know if it will right away spell doom and gloom for the PC market.



And what about all of the flash games people have been playing? They can play those on any OS that runs Flash. And they're all pretty much free/ad-supported.

Anthony Clay
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On top of that, if Steam's user base ever starts to dwindle - Valve can bring it back *overnight* by simply finishing HL3/EP3 ^_^

Eben Sullivan
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Portal 2 is (supposedly) hitting this year, and I think that a few people may decide to purchase it.

Caleb Garner
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depends on how much they charge.. i'll buy it, but probably not till it's on sale like the first portal.. and exactly like the the article said for a price around $5 which is usually the price point i buy any game on steam.. maybe $10 for a AAA like portal 2.

Jacob Barlaam
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With almost all of the top PC games not being available for the Mac, I hardly see the PC market(windows) being doomed. Aside from Blizzard and Valve, there just aren't a lot of devs willing to make their games for both platforms. As long as this trend continues, Mac will never overtake PC (and the trend will continue, guaranteed).

E Zachary Knight
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Probably not very many AAA developers. But the indie scene is full of game released on both the PC and Mac. Indie developers understand the need to develop for Mac along side Windows. There is even a growing number of indie developers making the move to include Linux in their development plans.

Gavin Allen
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As someone pointed out before, it seems unlikely that the surge of "App" based gaming would completely eradicate the traditional models, and more likely that it will just diversify the market. Apps are clearly popular, but they currently provide a different experience than bigger-budget games at a higher price point; as a lifelong gamer, my favorite games, and the ones I spend money on, are bigger in scope and budget than any apps I've seen so far (i.e. more of an emphasis on story, more audio content/music); I'd like to think I'm not alone on that, and that, while the size of the market for "ARPU" games may fluctuate, it will always be present. But then again, maybe that's just my developer side hoping that in the future, I get to work on the type of games I've always loved. There's certainly still a lot to be seen in terms of how the industry develops.

Steven An
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Bingo.

Megan Fox
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Since everyone's already addressed your other points, let's target your anti-exceptionalist argument - that there is no evidence to suggest that a PC/Mac would result in different playstyles over handheld devices. That whatever sells on mobiles should sell on Mac/PC too, more or less, and thus Steam et al is doomed to the same fate.



This doesn't seem to be well-supported. If it were, then what Flash games offer - short, byte-sized experiences played for free - should have obliterated Steam, Direct2Drive, BeamDog, etc. Yet it didn't.



Seemingly, all this will do is provide a half tier just above Flash games, that hosts fairly similar games for a slight premium. Their primary competition would end up being Kongregate, Armor Games, etc. Steam, seemingly, is already targetting a different market. I find myself wondering which will win, but I'm not sure it'll have much more of an effect on Steam than F2P has already had.



... though that said, I do wonder what this will do to the FlashGameLicense et al ecosystem. Will offered prices go up because of competition for content? Or down, because of an increased influx of developers?





Oh, and that post you reference that, for instance, mentions that Mass Effect 2's developers are lying to themselves when they say that choice matters - not sure I agree at all. All the data suggests is that the average player goes with the defaults, which is... well, interesting, I guess, but hardly means the choice is irrelevant considering how many reviews from press and players alike lauded them for such. It raises questions, but often those questions are more "how could we design this choice so that players were making an informed decision instead of a blind decision" as mentioned in another blog on this very site.



The presence of choice has a psychological impact on players, *even if they choose not to excise that choice*. It is the entire basis of the RPG fanbase, which is quite large. One of the developers on the new Deus Ex game had a great writeup on this if you can find it, too. Overall, I'd recommend doing a bit of reading on the related psychology - there's a lot of research out there, and it's all quite fascinating. Reading your takes on it now and in the past, I get the sense that it just isn't in your sphere of interest, that maybe you're looking at it through the lens of your preferred style of game (which I take to be short-form)?



Most of all, though, I'd worry about using metrics that way. Metrics-driven development is akin to focus group-driven development, and what has been found time and again is that it doesn't produce the results you'd think it would - what players want is often very different from what they say they want, and the impact of your design on a player is often quite a bit beyond what can be tracked by watching only, say, their inputs. The two suffer from the same problem, that you're only able to capture a fraction of the responses to your inputs. Purely metrics-driven only works particularly well when you drill your games down to tiny, shallow gardens akin to present social games - and even modern social games are slowly moving toward actual design over pure metrics, as the Skinner Box style of game ceases to bear fruit.

Nicholas Lovell
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I think you are missing out the huge tier of free-to-play games that are AAA-like but make their money from microtransactions. Games like Metin 2, Dungeons & Dragons Online, Lord of the Rings Online as downloads or browser-based titles like Seafight or Dark Orbit.



These games are freely distributed, and free to play. An App Store (whether on the PC or the Mac)) will make these easier to find and easier to play.



Steam can compete, but whenever free competes against paid, paid starts to lose. See http://www.gamesbrief.com/2011/01/what-price-an-iphone-app-19-les
s-than-last-year/ and http://www.gamesbrief.com/2010/11/freemium-games-are-34-of-the-to
p-100-grossing-iphone-apps-but-only-1-34-of-all-apps/

Tadhg Kelly
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I think you're misreading what I'm talking about.



What I'm getting at is that the assumption that because the desktop and mobile are different use cases, that means the fundamental economics of how software will sell in both do not relate to each other, is a mistake. It doesn't follow that the appetite for game types between the two would be identical (Although there is more cross-over than you're admitting, such as Plants vs Zombies) because players like simple games and they like deep games as well.



Oh, on the Mass Effect question, if we accept that game design is "a series of interesting choices" then the data shows that that choice isn't really that interesting. I'm not against the inclusion of non-majority features, but what I am talking about is the tendency of studios to include lots of them on the basis of faulty assumptions.



All that that post is saying is that it's good to sanity check your ideas against reality. To quote myself: "Games are objects of art but the maker needs to have his head in the clouds and his feet on the ground. Too much head-in-the-clouds and you end up making cruft. Too much feet-on-the-ground and you end up making clones."



Thanks for the comment.

R G
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@Megan Fox---Agree with this wholeheartedly.

Eben Sullivan
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While I agree that the new App Store will be a boon to Mac developers, I also believe that we Mac users will be inundated with a slew of terrible titles and a few gems, much like the iTunes app store. It's true that there are millions of games available via the mobile app store, but quantity does not equal quality. That being said, I am hopeful that this will give indie or small Mac game devs a solid platform from which to sell their creations.



I'm not sold on the App Store becoming the be all end all. Personally, I do not have a single source for buying games. I use Steam and I have used other online and retail sources as well, not to mention annual or seasonal deals such as the Humble Indie Bundle. I get my games where I can get the best deal and where I feel most comfortable spending my cash. I can't be the only one who uses this kind of method, either. This may be a bit brazen, but anyone who does think of the App Store as a "one stop shop" is probably just lazy or apathetic of how they spend their money.



There will be no PC Apocalypse. There's just one box store in the strip mall.

Kyle Gabler
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Hello, Kyle from 2D BOY here. This article is using our pay-what-you-want World of Goo sale results in a misleading way to argue that 5$ is a natural price point for indie games.



It is true that for that one particular sale we ran, the 5$ price point happened to be a good trade-off between price and the volume of people who chose that price. But if we ran a pay-what-you-want sale to buy sports cars, we'd probably also end up with the majority of cash coming in at a 5$. (Just a hunch. And also that an overwhelming majority of folks would pay 1 cent.) But that doesn't mean sports cars should cost 5$. These types of sales just happen to be optimized that way. The majority of our revenue in the wider marketplace has always been from our full priced 20$ (15$ on wii) price points.



Thanks in advance for correcting, or omitting our mention in this article.

Nicholas Lovell
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I'm confused as to why you think the data doesn't back up Tadhg's assertion. You charge $20, but when people are asked to choose how much they spend, they choose to spend $5.



It seems that this does support Tadhg's theory. More importantly, making another copy of a game costs the developer nothing at the margin (unlike a car which, being made of atoms, is expensive to duplicate). So the tradeoff of volume for price is easier for a bits-based product.



Or is that you would rather that $5 didn't become the standard price point. (For the record, I think it will be lower. Much lower).

James Rowen
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Well, going off the graph Tadhg posted, more people paid $0.01 than any other amount, so they must have chosen that price point, right? This doesn't support any theory beyond "given the chance, people will pay less for stuff." Shocking.



I think this article is mostly sensationalist speculation. The App store is cheap because the barrier to entry is so low and it's filled (for the most part) with cheap crap. You can charge a dollar for something a few hobbyists made in two weeks. If you invest the time and resources necessary for a AAA-quality game you can't sell it for $5, and I don't really see evidence of the market for high-quality "expensive" (aka standard price) games disappearing. The value of these is not over-inflated, there's just been a massive influx of new (cheap) games for a new breed of casual gamers, and some newly viable business models. I don't see how that spells doom for the traditional model.



edit: this was a reply to Nicholas.

Tadhg Kelly
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Thanks for the reply Kyle.



I was referring to this graph here:

http://2dboy.com/blog/wp-content/uploads/2009/10/histogram.png



There's something really interesting about that graph for me: it doesn't all slope to zero in a long-tail fashion, but instead shows tranches. It maps out different segments of fandom for your game (which I love to bits by the way) rather than showing that everybody just wants cheap stuff. So you have your clear just-trying-it customers at the $0.01 to $2 group, then a gap, then $5, then $10, $15 and $20. And those few people who were super generous.



What it maps out is the difference between customers and passers-by. The further right along the graph scale you go, the more dedicated customers they become. But in order for a game to sell in the market and get noticed, it can't just sell 4 copies at $1000 each. There's a tug of war between how accessible you want it to be versus revenue per copy.



My argument is that in the past a lot of PC gamemakers, whether indie or mega-publisher, tended to stray on the side of high ARPU and trust in managed channels to basically force the price higher. But what App Stores do is remove the managed channels effect, and that means prices fall. It's inevitable because there is so much competition when there are no gatekeepers.



But not to zero. Some people like Neil Young believe it'll be a post-play model (virtual goods, follow-up sales, etc). Some people think it'll be a volume model (You used to sell 50,000 copies at $20, now you'll sell 1,000,000 copies at $5, which is better?). Others have ideas about subscriptions coming back.



I think your experiment showed the $5 future has a lot going for it because a great game is a great game and people want to play it, but also a great game at the right price is a great part of a marketing story, which seeds the next round of players for whatever you do next. I also think that your experiment was at a time when the right platform (I.e. an app store) wasn't yet there, so that would cap the resulting sales only to more committed customers that understand that Steam (and other managed, non-default stores) exists and don't mind buying software directly off of websites.



I therefore think if you made a Mac version of World of Goo and popped it into the App Store for $5 you'd make millions. But that's up to you.

R G
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This just made my day.

R G
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Said up at the top the same thing, but agreed.

Michael Eilers
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This is a weak argument for the reasons cited above; the weakest premise, by far, is the idea that any kind of behavior on the Mac side is going to "trickle up" to the PC development side. However, there are a few elements here that do merit some exploration and interest. Certainly, the point that the App pricing market has been a surprisingly swift race to the bottom is a valid one; the major publishers (EA, PopCap, Sega, Ubisoft, Epic, iD) were all caught by surprise on the iOS platform by the huge drop in prices; EA adjusted its price for Mirror's Edge six or seven times in the first year, and PopCap has been very slow to bring titles to the platform due to the fact that they can't charge their normal price points (as was revealed in an interview a while back). You can see some developers trying to cling to boxed-software prices, but when even Apple is charging $9.99 for their iWork apps, it is obvious the App market is always going to be about volume sales at low prices, even if you (as the developer or publisher) consider your product to be "premium." In some cases, the price delta between the boxed retail version of software and the iOS version is $60 or more! Apple has indeed changed the pricing ecosystem for several markets at once.



While I agree that the "fremium" or "free" software market hasn't made as big of an impact on the retail market as expected, this cuts both ways -- just try to charge money for a Flash game online. The reason the "free" software market hasn't wiped out the paid market is the expectations of the customers - you don't expect much for free, and you expect a lot for paying good money. What we see on the App store is not-free (for a lack of a better term) software carries the expectation that purchased software should be dramatically cheaper than a boxed, physical copy - a trend Steam has resisted, charging price parity with boxed software for new releases.



When the HD console market stabilized at $60.00 for a boxed new copy of a game, it did itself a tremendous disservice. Attach rates for the HD consoles are dramatically lower than the previous generations at $49 and $39 price points, if you leave out aberrations such as Black Ops or Reach. I do not think the App store puts Steam in danger, but what it does reveal is that the price/volume argument is a viable one, and you can indeed find more customers at more flexible price points.

Steven An
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Well put. Yeah, I really don't understand why the industry settled at $60 for console games. It seems extremely simple-minded and inefficient. I suspect it has something to do with the licensing agreements by the console makers. Although, we have seen games selling at $30, such as NFL 2K5. That one did well enough to really make Madden take some drastic measures.

Nicholas Lovell
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Tadhg,



Interesting as always. For more, the missing piece is whether, like with the AppStore, Apple are going to swallow the distribution/billing costs in return for 30% of the revenue. My guess is that they will (I ought to know, but don't). Similarly, if they plan to (or have already) launched In App Purchases.



If so, we will start to see a race to a zero price point for games, and the top grossing apps/programs being free. I think it will take a while for this to happen, as established software developers on the Mac, using traditional business models, have a near-term development advantage. But it will rapidly lead to an opening up of the Mac and, as people see how successful it is, the emergence of similar business models on the PC.





I even wrote a post on it before I read yours: http://www.gamesbrief.com/2011/01/has-apple-just-screwed-the-busi
ness-model-for-selling-software/



The headline is just a little bit link-baity (good for you!), but I agree with the premise. Let the great rush to zero commence.

Tadhg Kelly
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Thanks Nicholas,



I think the short answers to those questions are "yes" and "in a while" by the way. We'll see.

Anthony Clay
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Remember, Apple had (possibly still has) that pesky restriction that "free apps must remain free" when it comes to allowing in-app purchases in "free" apps: It wasn't allowed by the reviewer's guidelines. No releasing a single "demo/free to play" game with (in app) micro-transaction support. Not that these guidelines are published yet (I'm personally not willing to pay apple $99 to access the notes.)

Nicholas Lovell
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That's gone. Hence 34% of the top-grossing apps are free, with In-App purchases

Tadhg Kelly
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Thanks to everyone for taking the time to comment.

benn rice
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What if the Pay What You Want price system is what takes over and revolutionizes how games are sold?



So far, all of the products I've heard of that did that seemed to make out pretty well. Granted they all had some decent exposure, which is hard for someone like me to achieve so far, but then I don't think anyone is expecting that to ever change much. It will always be an ongoing task to create as much public knowledge of your products by whatever means necessary.



As a matter of fact, I am experimenting with my first game which is available under the Pay What You Want price model, so you can play the ENTIRE game for free if you choose. So far I have no sales. But I don't want to try to get gaming sites to post news blurbs about it yet until I finish an "Achievements" type feature. Those seem to compel people to commit to spending time doing things even if they aren't immediately fun, & I think my game MAY need (for some people) a good 10 minutes or so before people get a feel for it. After all, you ARE playing REAL music, which most people wouldn't expect to be drop dead simple to do (although I feel that it ALMOST hits that mark, because my non-gaming friends and family have no problems picking up the EASY songs quickly).



Please give it a try at

http://PlayRealNotes.com

Robert Green
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"What if the Pay What You Want price system is what takes over and revolutionizes how games are sold?"

That would potentially be terrible. One of the key points of previous experiments, like those of 2D BOY's mentioned above, is that they operate on something that previously had a price, a price everyone involved was probably familiar with. Psychologically, that means that everyone who pays less than this price feels like they're getting a bargain, just like when you see a 50% off sticker on something in a store. Something you might not have bought for $10, if that was the RRP, you might buy for $10 if that was 50% off a $20 RRP, and for a limited time only.

But this only works if there's an established price (usually referred to as an anchor) that people are familiar with. If the first way to get a game is via a Pay What You Want system, nobody has any expectation of value, and the best you can hope for is that you get a lot of positive feedback (see minecraft) and that in turn establishes the value of the game.

But this still relies on a perception in the customers mind that good games need to be paid for. If every game used this model, then the perception could easily become that games are a charity case, and hence something you don't need to pay for, which is not a great thought to put in your customers heads. Just look at how many people decided they didn't think music was worth paying for when napster was released, and then imagine how many more people would have used it if it was completely legal.

John Mawhorter
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Steam is a great service as evidenced by the number of users alone and is not going away anytime soon. I don't agree that it is curated either, since there are an awful lot of crap/no-name games on the service. The pricing may be Valve-controlled in a way that the App Store isn't, but other than that I think Steam has every advantage possible and an established market and fanbase.

John Mawhorter
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Steam is a great service as evidenced by the number of users alone and is not going away anytime soon. I don't agree that it is curated either, since there are an awful lot of crap/no-name games on the service. The pricing may be Valve-controlled in a way that the App Store isn't, but other than that I think Steam has every advantage possible and an established market and fanbase.

Steven An
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I think Steam has an interesting opportunity. It could become more like the AppStore...that would be quite interesting if you ask me.

Ian Uniacke
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Hi Tadgh. I have nothing of real interest to say that hasn't already been said but it was an interesting article.



I do have a question for you however, are you familiar with Disruption theory? In Disruption theory it states (if I understand correctly) that when prices are driven by competitive pricing driving price points to (almost) zero it indicates that in fact a market is ripe to be disrupted. Do you think that this applies here?

Steven An
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I think it will happen a little here, as smaller games become more prevalent. If a publisher like EA wants to stay alive, they will need to diversify. They can't just make Mass Effect 2's. They'll need to make some Angry Birds's as well. Which they are clearly doing.

Tadhg Kelly
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Hi Ian,



I do think that, yes. The price drop will happen first, but that in turn will disrupt what we think of as the power players in the industry and that disruption will go very far. It leaves console gaming as the last walled garden, and who knows how long that can hold out.

Sebastian Lindig
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With the transition from physical to digital delivery the traditional price structure of games is heavily under pressure. It becomes increasingly difficult for publisher to justify high prices, still they cling to the old values. And who could blame them. Nobody wants to give up good old business especially not if you don't get the new business right. Still, while Steam helps to artificially keep the prices high - digitally distributed versions cost the same as their physical counterparts - they undermine this strategy with constant deals and sales driving the average price way down. It's an old ancient sales tactics to run constant sales instead of general price drops to keep the perceived value high while still lowering the actual price.

So in short, I guess we will see a downward correction of the price structure in the next months while publishers, developers and retails come to turns with this disruption - one way or another.



The Mac App Store surely will help this transition by underlining how very different the new digital business works both for businesses and consumers. However, beeing a Mac - which sucks at games - the impact on PC and video consoles will be somewhat limited for a foreseeable time.



Also, I strongly believe that people are willing to pay a good price for a good game. So in the end everyone wins - except for the crappy overprices games.

Megan Fox
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This, I absolutely agree with. We're going to see massively increased pricing stratification, with only a select few charging upwards of $60 - namely, the giant big-name releases from Rockstar or what have you, the titles coming from the massive high-end AAA studios. Then there will be a re-emerged mid-tier in which companies like Runic and Spiderweb Software and Introversion and Tripwire and such play - that $15-$40 range for the "big" games, which occasionally dips into the $10-$15 with sales. Then you'll have the $5-$15 indies / more niche / smaller / focused games, with folks like Distractionware and Team Meat and such. Then finally, you'll have the sub $5, which is the market that's already exploded with F2P / Flash / Facebook / iOS that will now have an outlet on the PC.



XBLA and PSN are already in the $5-$15 tier, but we're going to see them expand to include the $15-$40 tier as of next console generation most likely. I'd also lay odds that they expand into the sub $5 tier, with monetization hooks. But I would expect that they'll carefully market and segment each, giving each tier a reasonable amount of "shelf space" so as to not erode the existing market that they've captured, likely with similar maximum numbers of titles per year accepted, but now with those maximums being per tier rather than absolute. It also wouldn't surprise me if they tried dividing additionally by genre, but who knows on that.



This is also likely what will keep stores like Steam around. The simple fact that they provide semi-walled gardens allows them to elevate the decent titles to consumer eyes, without said consumers having to sift through hundreds of titles a day and hoping they catch what they're looking for. Or, it will at least encourage the introduction of walled garden tiers to the new stores.



This, I can agree with. I just disagree with the assertion that somehow the emergence of the sub $5 market will erode and destroy demand for the other tiers. There are only so many genres and game types that can be made for the sub $5, and there are only so many game types that make sense within the Fremium model. Demand for the rest won't simply vanish.

Ian Uniacke
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@megan: Sounds kind of like the board game market. You've got your walk around the board clones at about 5 dollars, your mass market popular games at about 40 to 50 and then your popular hardcore games (eg Settlers of Catan) at about 50 to 100 and then your super hardcore games at 100 to 200. I think this is where the industry is headed. There will still be games like GTA it's just they will be more of a niche hardcore product (comparatively).

Kassim Adewale
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Kelly’s article here has generated some issues dated back to the 80s. Favourism about platform did not start now.



I will have loved to see Kelly mentioned what the Indie or big studios can benefit in all the new unfolding gaming business, Mobile, Mac and PC. That was the more reason why Phil Nolan and Robert Gill though your article was bias. I always like balanced article.



“Macs have never been regarded as much of a platform by the games industry…”, if game is considered to be graphic, a fanboy from photoshop background will disagree with you. But game came from console and elementary game programing from the olden days Basic started from DOS, it attracted developers and players base (even Universities) and the momentum about PC as the game platform became evident when C programing debut, but Mac has graphics in those days with Assembler and Pascal programing but no C compilers and no game user base.



In the olden days, we used to read PC mags bragging about useless Intel CISC processors and that RISC processors for the Macs were better; they go extra miles technically in showing how. I wrote an article warning Apple not to hurt what (Intel) they can’t kill, because it will make that thing stronger. The question is simple, how come Apple now uses Intel chips?



It’s all about dynamic in business models if your company is failing, (forgetting all the noises in the past) and you want to respond. Fanboy or not, all the options Kelly mentioned about Microsoft, is already taken shape much more beyond with Intel gaming strategy targeting netbook, introducing Sandy Bridge processors which incorporates Intel HD Graphics capabilities directly onto the die, Microsoft working on a new tablet etc.



What trigger dynamics in business models for existing company can be three:

1. Your company get all the blame for creating bad product or a better product existed within your market and your company want to compete.

2. Your company was sleeping or focusing on another useless technology, and another company from the rear stole the market from your company with a huge gap, and your company want to compete.

3. SOP that incorporate dynamics business model into the core operations and your company is always observant.



What Apple did with App store have brought bread on the table of some Indie that otherwise will not have recognition today, and I am happy if such things continue, people get job when there is a viable market for their products, they also become more productive.



It’s not Apple alone that is strategizing about app store, Intel, Yahoo, Google, HP, Nokia, Samsung and Microsoft are involved also (don’t rule out AMD). With Steam, pricing problem, a deliberation about exploding into all areas so that they can be known is smaller than infrastructure to support such explosion. Does Steam ready to explode and reach wider audience?



Apple is not sleeping; new ideas about business model must come out. Keep your fingers cross, readers, others too were not sleeping.



Overall, in the entire gaming corporate struggle, I will be happy to see a crossroad that Indie developers can pass and thrive.

R G
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I enjoyed reading this. Well written.

Lucas Hardi
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I agree that the app store model is going to enjoy a healthy proliferation across platforms, but I would put it to you that Steam will be a leader in this space, not a victim.



The important part of an App Store is that it delivers and manages software purchases. User's don't necessarily care if the software is from a walled garden or not, they care that the service is reliable.



This is Steam's entire purpose. You might not be able to classify it as an app store because it currently has some more walled-garden policies (probably to keep the traditional pubs happy in the near term), but it could meet your classification with a relatively subtle shift (approvals and pricing).



Look at their recent experiments with Team Fortress 2 and item sales. That game is going to be free-to-play before you know it.



I can see the big pubs building their own service outside of Steam, leaving it free to embrace the app store model. Indies will love it as the free-to-play model suits purchasing habits for them better anyway. Valve already prefers the software-as-a-service over the single purchase model - look for Dota2 to follow suit - so this is an entirely plausible transition.



Steam has a massive amount of momentum around it services. Microsoft is going to be insanely reluctant about bringing an app store to the PC because it would signal the inevitability of what they will need to do with their next console. Nobody in the living room space wants to give up that cash cow managed market.



I think you are right about the direction things are going, but Steam is going to be a beneficiary of it, not a loser.


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