Original Post: November 6, 2012
Lately I’ve noticed a slew of products I can buy, which will subsequently force me to buy ‘refills’ of some description, in order to keep using them. On top of this, I have noticed an increase in the number of household products which determine how and when the consumable is used, to better schedule the re-purchases. Here are a couple examples:
Dettol hand wash – dumps a precise amount of soap into your hand through the magic of infra-red sensors. Of course you can’t fill it up with any old soap…
Auto-bug and freshener sprays – two different ways to fill your house with a fine mist of chemical sprays, set to a timer to empty the can right on schedule.
Lots of cleaning supplies and body cleansers have transformed from bottles into wipes, which you run out of at a pretty steady rate. You can’t really use just ‘a little bit’ of a wet, soapy wipe the way you can use just a little bit of soap. Those cages you hang in the toilet to freshen it up operate on a similarly automatic principle, as do air or water filters.
The ‘Gillette model’ is a method of selling consumer products where the initial buy-in is very low-cost, but relies on the purchase of a complementary product which is relatively more expensive, and certainly a higher profit for the manufacturer. The most famous example is the source of its name, Gillette razor blades: you can buy the handle for your razor (with one or two blades) very cheaply. But the new blades are extremely expensive by comparison. But you must buy them, or the handle is useless, right? This isn’t all smoke and mirrors—obviously many products like disposable razors, ink-jet printer cartridges, and air fresheners need to be replaced, they are consumable. It’s the pricing model that’s important to note.
What it achieves is a more predictable, steady flow of revenue for the particular manufacturer. Since you have to buy new razor blades occasionally, if you already own a Gillette razor handle, you’re more likely to buy Gillette refills. The schedule mentioned above simply regulates this a bit. Dettol want you to buy their soap regularly, so they make sure you use a certain amount of it every time you wash your hands. The automatic freshener sprays promise to fill the air with a pleasant scent to mask odours before you even notice they are there—also they use up a can of spray like clockwork.
What the hell does potpourri spray, soap and shaving have to do with videogames??
Videogame publishers, like Gillette and SC Johnson are businesses. They want money just like any other business. Further, they’d love to have a nice predictable stream of revenue they can use to make investments and placate shareholders. As the price of development in the AAA range continues to increase, the risk of failure increases also. Publishers are searching for ways to mitigate that risk, and new financial models are one way to do so.
If a game costs two hundred million dollars to develop, and is sold in a traditional, $60-100 one-shot transaction, the risk to the publisher is huge. What if the players simply don’t buy that particular box? Even if players do buy, once they take the game home, the publisher never hears from them again. Firstly, the publishers won’t know very much about the reasons the customers did and did not spend the money. Secondly, what if some population of players was willing to spend more than the sticker price? Thirdly, once the initial rush of ‘new game release!’ purchases are over, that publisher’s revenue stream plummets to a tiny trickle until the next big release. That could be as far as two or three years away—not a good interval between pay days, I think we’d all agree.
There are a few possible answers, experiments that developers and publishers have already been trying for a number of years. The first is pretty obviously DLC: you buy the game, and then a month later shell out another few dollars to inject some fresh cash into the developer/publisher. The second is the GOTY Edition, a phenomenon that has little (or nothing) to do with critical awards, but exists merely as an opportunity to package the DLC together with the original game to perform another exercise in marketing.
In the end, though, both of these are merely repetitions of the first practice, on a smaller scale: create a game/content, fire it off into retail stores and hope.
A more fundamental change has been creeping across the videogame industry. Speaking very broadly, the goal of publishers is to avoid these big, one-off purchases which exist as a point in time. Instead, they wish to set up a dialog between game and player, a kind of ongoing conversation which is spoken with money. So, the player is continually engaged in the process of buying something, and the publisher is constantly engaged in providing whatever it is that’s being purchased. There is obviously a point at which this begins, but no clear point at which it ends. Think, for example, of buying a new MMO, and setting up a subscription. Many videogames, like air fresheners and hand soap, are transforming from a product into a service.
This kind of steady stream of revenue is far more predictable and less volatile. After launch (still a risky proposition), a publisher can observe positive or negative sales trends over time. Assuming that the launch goes well enough, the developer can try things in real time to increase subscribers, rather than wait until their next game is ready to try anything new. MMOs are currently the only genre of game to require these kinds of straight-forward subscription fees, and players expect a certain amount of content to be added to the game over time without cost. To me, this is very similar to the Gillette model described above. Buy into the game, keep on paying to access the content you are increasingly invested in.
Blizzard (and many other MMO-makers) have somehow managed to combine the box-buy (purchasing the CDs) and the subscription fee. That the initial WoW buy-in, as well as expansion packs, costs about the same as any other AAA game without the on-going fee strikes me as fairly remarkable, distinct from the cheap Gillette handle with expensive blades model. An even more precise comparison is found in ‘free to play’ videogames.
The other name for the Gillette model is ‘freebie marketing.’ That is, you can practically (or literally) give away the first chunk of whatever your product is (the handle and first blade, the first ink cartridge, first tier of gear in your RPG), and rely entirely on the steady flow of revenue that this initial buy-in encourages. Quite a lot has been said about the merits and faults of this kind of financial arrangement, I won’t repeat here. Suffice it to say that free to play videogames work to gain buy-in from their players by generating an emotional investment in the game, before halting progress and asking for some cash. This can continue for as long as the player wishes to continue to progress.
Blizzard have created two much more subtle examples of videogames as services: Starcraft II and Diablo III. Strangely, perhaps, Blizzard/Activision have not monetised Starcraft II in the way I might have predicted. Other than releasing what is ostensibly one game in three distinct parts, there is no other way to keep paying Blizzard money. However, on a technical level, Starcraft II represents a clear example of this new videogame service: an always-online experience, constantly updated, connected to a news server and social network. This is not a game you buy, consume, and put away when done. One can easily imagine fees being leveraged for access to the highest (or otherwise ‘special’) league ladders, or personalised livery being implemented. All the infrastructure is already in place.
Blizzard’s cleverest new business model, however, is the new Diablo III auction house. This is literally providing videogame players a service: a virtual eBay for virtual items of which Blizzard can create an infinite supply.
Diablo III is (at one level) a complex gothic-fantasy slot machine. Each time a player kills a monster, the wheels spin ‘round and every so often, the game pays out. It isn’t quarters or even nickels that spew forth, though, it’s a virtual item with no exchange value outside of Blizzard’s system. By integrating the real-money auction house into that system, Blizzard have made it possible to cash out of the Diablo casino, effectively allowing players to convert their play time into cash. But it works for Blizzard too. Each time anyone does cash out, Blizzard takes it’s slice of the earnings.
So Blizzard/Activision have found a way to turn your play time into dollars. Realising this is incredibly important for the developers of certain kinds of games. Diablo is not the kind of hyper-consumable or disposable experience bought for 99 cents on the App Store. Diablo is the kind of game many, many people will sink many hundreds of hours into, as the norm. This vast amount of play time is, effectively, an untapped resource. It even makes sense for the consumer, in that a game you are willing to spend 300 hours in might be worth more money to you than the kind you will play through the campaign of 15 hours once and put away. If we don’t have to cough up the grand total all at once, all the better. I know I would never have bought World of Warcraft up front for the total price of all the subscription fees I ever paid.
Not everyone will participate, of course, not everyone will cash out either. But a large number will. Anyone who uses the auction house at all is participating in this economy, in the monetised dialog between Blizzard and their player base. Anyone who turns their play time into a commodity by placing it on the auction house is creating the opportunity for Blizzard to make a little more money. This, and similarly long-lived relationships between publisher and player are a very important aspect of the future of videogames. One need only look to the other experiment Activision are running in a very different game, with Call of Duty: Elite, to see how widespread this trend is. Not all games will go down this route—there will probably still be a many game experiences sold and consumed like candy on the App Store, or like films enjoyed intensely for a relatively long. but finite. time. But increasingly, publishers will be finding ways to maintain and then monetise long-term relationships between themselves and players.