2012-09-03

Video Game Business Models

I see an opportunity, particularly for indie game developers, in developing new business models for sellings games. There are currently three predominant business models in the gaming industry:

  1. The major retail model: release a game for $60 in major retail outlets, with a huge marketing push, looking for a big launch week payout. Steadily lower the retail price by $5 or $10 a couple of times a year as it ages, until it eventually ends up in the $10 bargain bin. In the meantime, release DLC or expansions to try to get more money out of existing players, and raise the total cost for those buying the game late for $20 at retail up to or above the original $60 price tag.
  2. The subscription model: the game itself is cheap or free, but players must pay a monthly fee (usually around $15) to play the game. This is most common in the MMO genre, but can be seen elsewhere as well.
  3. The "freemium" model: the game itself is free, but players pay for in-game items, bonuses, avatars, skins, or other unlockable content, on a per-item basis. This is most commonly done with a points system, where players buy points with cash, and then spend the points on in-game items. This is particularly popular with mobile games, but is fairly widespread in general.
All three have found great success with the big game publishing houses, and the last one has found a good deal of success for indie game developers. But that last option doesn't work with all game types, and has two possible outcomes: either all the purchasable content is purely aesthetic, and doesn't seem worth paying for, or it offers real in-game advantages, and gives players the option to "pay to win", leaving those who can't or don't pay feeling unfairly handicapped.

I think there's another option waiting in the wings, however; I call it the value model, for lack of a better term, and it works something like this: release a game at a very low price point, and do the exact opposite of the major retail model. Players can purchase the game at any time and gain access to all content, past, present, and future. As content is added through updates and expansions, the price goes up accordingly with value. This has several effects on the sales dynamic:
  • For indie developers, releasing at an initial low price point can help to boost sales when a large marketing budget is unavailable, and help to fund further development. It's also easier to sell a game at a lower price point before it gets popular, and easier to set a higher price point as popularity increases.
  • For players, it helps to avoid feeling like they're being swindled, or continuously squeezed for more money; they know up front what they're paying, they know what they're getting right away, and if it's worth it, then whatever content (which is free for them) is a welcome bonus.
  • From a marketing perspective, it gives the opportunity for a reverse discount: if you announce ahead of time that new content will be released (and therefor the price will be going up), it can push people to make the purchase (to lock in the lower price while guaranteeing the upcoming content) the same way a true discount would, without actually having to lower the price. The price is effectively reduced because prospective buyers are aware that the price is about to increase.
Does anyone know of any examples of such a model being used for games? I've seen it occasionally in game content (e.g. Unity assets and the like), but I don't think I've seen it for a public game release. I'd be happy to hear thoughts on the subject in the comments!
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