An Algorithm for Discovering "Hidden Gems"

So you've probably seen that Ars Technica article that has magically reverse-engineered every steam game's  gross (sales+free-key-redemption) numbers.

Everyone's talking about this graph:

The obvious first statement is "WOWS! Video games are a hit-driven business!!!" For what it's worth, our game Defender's Quest is probably located somewhere between 800-1200 on that graph, and we're doing just fine.

But what about the game at 2600? And what's going to happen when Steam totally opens the floodgates?

Every developer I know has a list of obscure indie games they know are great, but just can't get the exposure they deserve. Jay Barson talks about this phenomenon in his recent article The Best-Kept Secrets. (Incidentally, if you like CRPG's and haven't bought Frayed Knights yet, do yourself a favor and grab it)

Here's Jay (emphases mine):

A friend told me about an experiment in inequality and the “cultural” marketplace. Test audiences were exposed to new music, and invited to download and keep some songs. The songs had indicators of how much they’d already been downloaded. Some of the songs had an artificially inflated number. What they discovered is that the artificially inflated number helped the popularity of some songs within the controlled audience, but could not others.

In other words – some songs had hit potential and others did not. If a song had both hit potential and an apparent wave of popularity behind it, it could take off. A song that sucked rarely did well. Hit potential could not guarantee success, but it’s lack could guarantee the lack of success – or at least a large success. In other words, the distorted perception of popularity had some effect, but was not the sole contributor to the success or failure of the song.

Right now stores like Steam and the App store are dominated by "top selling/grossing/downloaded" charts, which all suffer from the same problem -- the charts are self-reinforcing and prone to freezing, thus encouraging shady behavior. You can mitigate this effect in various ways (such as sampling over a shorter time, as Steam seems to do), but the problem remains -- the games on top stay on top.

My twitter friends are constantly trying to personally give visibility for such "hidden gems" and I think that's admirable, and we should keep doing stuff like that. At the same time, I think we can supplement those efforts with some mathematical tools.

Here's the idea -- if the above experiment's results are applicable to video games, there might just be a way to build a "hidden gem" detector, given access to the right data. What we're looking for is some quantifiable way to find a game that people really seem to like, but that hasn't yet had a chance to be popular. The kind of game my twitter friends are talking about when they say, "RT! Man, <game X> is wonderful, such a shame no-one has heard of it."

Building a "Hidden Gem" detector

What we're looking for is games with high engagement stats but low overall popularity. The data Ars Technica has been working with is truly awesome, but for these purposes it's a bit thin -- all we've got is gross units owned by players (lumping together actual sales with steam key redemptions), and some play time stats which have some known reliability issues.

But Steam has access to better data than that. Steam knows exactly how many copies of each game have been sold as well as the number of concurrent players, all down to the hour, region, and platform. It also has overall playtime stats per player, though that might be less reliable. There's also conversion rates for games that have demos, achievement data, and more. And of course, there's also the recently-added user reviews.

In short, Steam itself has plenty of data, both private and public, to make a pretty good guess at overall player engagement for a particular title. For "traditional" games, a higher-than-average playtime is a good heuristic for engagement, and for short-form games like Dear Esther, some metric for "completed the experience," such as a specially marked achievement, could work. Or we could just follow Kongregate's example and simply go by user rating, as I suggested in a previous article. (I personally prefer something closer to the Tomatometer over anything like MetaCritic scores).

The key is you have to be careful not only with what you measure, but how you measure it. Give these two articles a quick read before proceeding. It'll just take a minute:

How not to sort by average rating
reddit's new comment sorting system 

Back already? Great.

As those articles detailed, the ranking system should measure something other than raw popularity. Otherwise, the first item to get close to the top gets seen more, and thus collects more (sales/upvotes/downloads) and the cycle continues. The ranking system should also automatically take into account uncertainty based on sample size.

If you're ranking based on an engagement stat like play-time, or by user rating, then getting to the top does not guarantee that a game will stay there. In fact, the influx of new eyeballs will more than likely kick the game down a few notches as it gets exposed to a wider audience. This way, only games with high engagement --regardless of popularity-- will be able to stay at the top of the charts for a long time, which is how it should be. The chart is self-correcting rather than self-reinforcing.


Quick example: imagine a single-player RPG with median playtime of 5-10 hours -- well above the average for Steam games, but with less than 2,000 sales. This should be easy to detect. Or one of those crazy avant-garde "experience" games, the kind you only play once but it's amazing. Say that game has 2 hours median playtime, but 90% of it's 3,000 or so players have gone all the way through. This should stand out, too.

We don't have to get super-detail-oriented with this. In a world where 37% of player's Steam games haven't even been loaded a single time, it should be easy to make some simple broad-strokes guesses and pick out games that make you say: "wowzers! A small niche of folks really love this thing."

Let's make a "hidden gems" list for those.


Limitations

The "hidden gem" detector isn't a silver bullet. It doesn't make the game of platform power go away, nor does it solve the structural, sociocultural and/or economic issues that favor the big boys. It also does nothing for games that aren't already on Steam (though Valve has given every indication they're going to let just about everybody in eventually). Here's a few other issues.

Beloved by Niche, Hated by Mainstream
If the "Hidden Gems" list is featured right on the steam front-page, then a lot of cool, weird stuff that's beloved by small fanbases will shoot to the top of the list. Immediately afterwards, there's a fair chance the mass market will cast its withering gaze upon it like the Eye of Sauron and mercilessly smack it down faster than you can say "Walking Simulator." So, perhaps hidden gem lists should be segregated into their natural niches, using steam tags, or an amazon/netflix-style recommendation engine?

On the other hand, you never know what seemingly crazy game idea will actually catch on if it's just given a chance with the mass market. This is exactly the kind of tool that could bring us the next Goat Simulator.

Different Strokes for Different Folks
As I mentioned above, you can't use a one-size-fits-all engagement heuristic to catch all the gems. "Did you finish it?" is much more relevant to judging overall engagement for Dear Esther or The Stanley Parable than it is for World of Warcraft or Dwarf Fortress. Since the whole point of this is to identify interesting things that would normally be passed over, special care will have to be taken with the various heuristics used. And what about things that are harder to measure like Proteus? I'm confident there are ways to detect people's interest in these things, but we'll have to be smart about it.

We Won't Find Everything
This method can't possibly find all the gems, nor should we expect it to. It's just another tool, and that's important to remember. It won't fix everything, but it could help make things a lot "less worse."


Gaming the Charts
Anytime you have a system where charts drive sales, it encourages people to game the charts. If it measures downloads, you drop your price to zero, cross-promote, and use your own money to inflate your stats. So I could easily imagine similar scams if we're measuring user playtime -- with proverbial goldfarmers idling steam games to inflate their client's chart positions. Safeguards could be put in for this -- it should be pretty easy to look at other metrics to detect if someone is "idlefarming" for chart position. Of course, cheating of any form is always an arms race, with the only final solution being to make it not worth the cheater's time and money to cheat in the first place. Which brings me to my next point.

Moving beyond Charts

By itself, I don't think another chart on the steam front page is going to make a huge difference -- being hand-picked for a feature still makes a world of difference and most Steam developers put their marketing efforts into securing that rather than trying to micro-manage the charts.

Valve has said their vision for Steam's future is that anyone can make a steam front page and curate it themselves. The algorithm I've described above could be used not just by automated charts, but by actual human curators. You wouldn't have to expose any sensitive data (like sales or playtime), just give curators the ability to look for these kinds of patterns with advanced search tools.

Right now, if I want to promote an obscure indie game, it has to already be on my radar. How cool would it be if I could just whip out my Hidden Gem Detector and go treasure hunting instead?

The Stegosaurus Tail: when "The Long Tail" grows spikes.

You may have heard of "The Long Tail." For games, it means your sales start off strong and quickly taper off.  This force drives the retail marketing cycle -- launch a game to extreme hype, sell it like crazy, then immediately abandon it and move on to the next thing.

The Long Tail

Chris Anderson's book, The Long Tail: Why the Future of Business is Selling Less of More notes that given enough time, the "long tail" (the yellow part of the graph) can reach or exceed the size of the initial spike (the green part).

Basically, if you reduce the cost of inventory and distribution, there's as much money to be made from selling an ocean of niche products by the drop as there is in selling big hits by the boatload. This strategy is at the heart of industry titans like Amazon, Netflix, and Steam.
Of course, that strategy is reserved for big content aggregators who make their money regardless of whether any specific product does well. But can individual developers take advantage of the long tail, too? Bennet Foddy thinks so: in his GDC Talk, Learning to QWOPerate, he talks about how he self-published many small games on his site and used them to cross-promote one another. Eventually he stacked up all the long tails and made sustainable advertising revenue.

The Stegosaurus Tail

 

It's hard for me to take advantage of Foddy's method because I don't make lots of small games one
after another -- it would take me years to build up a back catalog at the level of polish and scope I'm used to.  So for now all I've got is one commercial title - Defender's Quest. And if all Defender's Quest's got was a Long Tail, I'd be screwed. Instead, it grew spikes and became a Stegosaurus Tail.

That's a chart* of our lifetime daily sales revenue over nearly two years. The far left side of the curve resembles the "Long Tail" -- a large initial spike quickly tapering off. But even this spike is noisy - as noted in Defender's Quest: By the Numbers, part 1, sales initially spiked with press coverage, then again when our demo was featured on Kongregate and Newgrounds. We had a few more small spikes from our big, free, "Gold Edition" update, but nothing major until our launch on Steam and GOG -- which brings us to where where we were at in Defender's Quest: By the Numbers, part 2.

But after that, we had the Steam Linux Sale, various GOG promotions, and another huge surge when we launched our Steam Workshop support. Spike after spike, often several months apart.

*Parenthetical: why distort the stats?

In previous sales articles I gave detailed sales stats, including per-platform revenue breakdowns, but recent changes in the terms of service with some of our distribution partners forbid me from doing so again. The sales chart is thus intentionally fudged -- our real chart has the same overall shape but the exact daily sales are arbitrarily different.

The portal(s) said they changed the rules because they have to keep developers' sales data confidential. So, in theory we could publish detailed stats, but people on the internet are too good at math -- they can combine those stats with sales chart positions to estimate another developer's confidential figures, and portals are afraid to indirectly expose another developer's confidential sales stats. I *am* still allowed to publish total PC sales stats across all channels mixed together, but I'm choosing not to do so at this time.

Implications

I suspect most games on Steam and similar portals have stegosaurus-tail sales charts -- for instance, here's the sales chart for Garry's Mod:

But so what? How does this change the game?

Well, first of all...

Long-term support can actually pay off!

Under the Long Tail, the post-release sales strategy is to abandon your game. Give it just enough post-launch support while it's still selling strong, then move on to your next project.
We took a different approach. Instead of immediately moving on to Defender's Quest II we put a lot of time into bug-fixes, patches, and content updates. Our biggest patch, "Gold Edition," upgraded our art style added New Game+ mode, and lots more. This was a gamble, improving the game to catch Steam's attention, and fortunately, it paid off (this was before greenlight). From that point on we looked for every opportunity to turn a content update into an excuse for a partner to promote the game. Examples include the Steam Linux launch and our Steam Workshop sale - the latter being one of our largest spikes ever. We've also had a lot of success in getting promotions from GOG.com.
But before you go off and spend a lot of time and money on a content update, it's best to get your distribution partner to agree to a promotion ahead of time, in writing.
The next implication is...

Don't compete on price!

When Defender's Quest first launched, the full price was $7. When we launched the Gold Edition upgrade, we raised the price to $10, and finally settled at $15 after launching on Steam. However, the game's full price is essentially a fiction -- you can see from the chart (and our previous articles) that pretty much all the revenue comes during promotional periods when the game is on sale. The full price is therefore just how much room you're giving yourself to go down during promotions.
Accordingly, here's an interesting stat - while the full price has increased over time, the average price per purchase has remained about the same. All that's really changed is how deep we can make our discounts. In a perfect world I'd just keep the same medium price all the time, but that's just not how human psychology works.
Developers often worry that players will complain about a higher price, but it's important to remember those players can always trade money-dollars for time-dollars by waiting for a sale. (You can see this process play out in this thread on our steam forum).

But temporary discounts won't do much by themselves - you also need...

Promotion!

"Sell your game for less and make up for it in volume" says conventional wisdom, but this only works if you can actually count on that volume to actually show up and notice that your game's on sale. The persuasive power of the promotion drives the sale, not the mere fact that it's discounted. For instance, Democracy 3 was Positech's fastest-selling game ever, even though it released at full price without the customary launch discount. Promotion drove those sales, not pricing.

Ever heard of Monroe's Motivated Sequence? It's a rhetorical structure from Communication theory, and if you've ever watched an infomercial you'll recognize it: attention --> need --> satisfaction --> visualization --> call-to-action. In other words, basic salesmanship. Take it away, Rhett & Link:

Video game sales promotions, be they Steam Sales, GOG Sales, Humble Bundles, etc, loosely follow this structure. They get your attention, show off cool games you've been waiting to play, give you lots of visuals, info, demos, and a ticking clock that presses you to act now!

This is nothing new - department and grocery stores have been doing this since the late Cretaceous, and I'm surprised it's taken the games industry this long to evolve beyond the "launch at Full Price, then chuck it in the Bargain Bin" cycle I grew up with. Promotions give games a second wind.

I define a promotion as strong consumer attention combined with a strong call-to-action. It's not just any attention. For instance, new developers often think exposure from a great review will make them rich, but I can say from experience it won't. Some articles have given us modest sales spikes, sure, but just as often we've had glowing write-ups that didn't even move the needle.  And that's fine -- critical acclaim and financial success have never been joined at the hip, nor should they be. But if you're looking for raw sales, it's promotions you want. And the best promotions are front-page attention from a major distributor.

So, if you're looking to add spikes to your stegosaurus tail...

Get real friendly with your distributors!

Ideally, the relationship between developer and distributor is symbiotic -- the distributor gets a cut of your revenue, you get access to their audience, players get awesome games at great prices, and everybody wins -- ideally. This assumes that your distributor is benevolent, or as Daniel Cook would say, in the "Engage" phase of the Game of Platform Power (more on this later).

But even if your distributor is on the side of the angels, it's still easy to get lost in their roster of other developers. "The squeaky wheel get the grease," as the saying goes -- if you don't ask for a promotion, you won't get it, and the only one advocating for your game is you. We talk to our distributors every time we start working on a content update, and we check in weeks or months ahead of every seasonal sale to make sure they don't forget us. Also, we frequently volunteer whenever our distributors roll out a new feature or promotional campaign.
And as long as our interests align, I'm happy to do little favors here and there. For instance, I'm a big fan of GOG.com, so I've done several promos for them to help them reach out to other indie game developers. Another example is Kongregate, who promoted our game when we added an in-game incentive for anonymous users to sign up for Kongregate accounts. Now, I'm not advocating for being a corporate sell-out or an amoral shill ready to do every horrible thing in the book just to get revenues. I'm just saying that in ideal circumstances, your distributor relationship is a true partnership -- you help them, they help you, and everybody wins.

All that said, it's important to remain vigilant because even the nicest portal today could turn to the dark side tomorrow, or the "Extract Phase," as Dan C. would put it. It happened with Big Fish Games in the casual market when they slashed developer revenue share, it happened with Apple and Facebook, and it tends to happen with console generations once they start to mature. The thing to look out for is "Rent-Seeking Behavior." Now, as above-board and transparent as companies like Valve are, nobody knows the future. Gabe Newell could always get struck by lightning, and an evil hedge fund could seize control of Valve and clean house. Wills can be and often are flagrantly ignored if the estate is valuable enough. As Moxie Marlinspike would say, it's not about trust, it's about trust agility.
So those are a few ways the Stegosaurus Tail phenomenon changes the post-release game plan. But if you look closely at history, Steggy has been with us all along.

The Stegosaurus Tail's Legacy

Some game companies have already been "riding the dinosaur" for decades, most notably Nintendo. Back in the 90's when other publishers would routinely consign their back-catalogs to obscurity as soon as their games were off store shelves, Nintendo never stopped coming up with new ways to re-sell us classics like Mario, Zelda, and Metroid.
GOG.com has been doing the same thing with classic PC games for years -- taking old abandonware gems, polishing them up, and giving them a new lease on life. Major publishers have since joined in and even Steam has joined the party, most notably with System Shock 2.
What's really cool, though, is Steggy's power to re-write history. Double Fine's Psychonauts was a critical classic but a financial flop, until it was re-released on PC many years later and finally got its chance to shine in the light of Steam Sales and Humble Bundles.
What works for the big boys can also work for us small developers -- if you're able to release multiple games, you can use them to drive interest in one another, giving your back catalog a kick every time you come out with something new. For instance, Zeboyd games sells Breath of Death VII and Cthulhu Saves the World as a double-pack, and included these and other games of theirs as backer rewards for Cosmic Star Heroine's Kickstarter campaign.

We've been doing the same thing -- Defender's Quest 1 now comes free with every pre-order of Defender's Quest 2, and we've updated the original game with a free in-game item for those who visit the Defender's Quest 2 page. Since we added that feature, not only do DefQ2 preorders closely track DefQ1 sales, daily DefQ2 preorder revenue exceeds daily DefQ1 sales revenue.

We still have a few tricks up our sleeve to add a few final spikes to our tail. When we first launched, nearly all of our direct revenue was driven by referral traffic from our web demo hosted on Kongregate and Newgrounds, so we're in touch with both of those sites about future promotions. Also, we'll soon be launching a Japanese translation as part of our new partnership with Playism, distributors of awesome Japanese indie games like La-Mulana and One-Way Heroics, and a German translation should go out any day now.

The Uncertain Future

There's some downside to maintaining a Stegosaurus Tail -- it's hard, boring, work. What I love doing best is making games, and although every new spike I successfully chase down feeds my family and keeps my career afloat, it also distracts me from pouring my soul into my next project. After over a year of nurturing her, Steggy's starting to wear me out.

And before I close, I want to note that no single strategy works for everyone, nor does it work forever. Much has changed since Defender's Quest first launched -- back then, Steam was hard to get into, but easy to get noticed on. Today, with indie games literally being greenlit by the hundreds, it looks like the future will be the reverse. Maybe Steam will follow my predictions and solve discoverability in a way that's both sane and equitable, but that's far from certain. Furthermore, the long-term effects of Steam-style promotions is unknown. With players building up huge backlogs, will they keep buying new games like they used to?

With the ground shifting underneath us, and amidst all this talk of an "Indie Bubble," I think it's best to double down on the fundamentals -- sell direct, know your audience, make sure they know you, diversify your sales channels, and if you've got a back catalog, milk it for all it's worth.
The last lesson I've learned is this -- a great game is not disposable. Just like a little kid watching Star Wars for the first time, someone out there is waiting for your awesome game to captivate them, they just don't know it yet.

Defender's Quest II's "UnKickstarter" approach to crowdfunding

Kickstarter is the go-to solution for crowdfunding these days, but I'm a control freak so I designed a custom solution for our upcoming game, Defender's Quest II: Mists of Ruin.



No solution is one-size-fits all; we're in the unique situation of developing the sequel to a critically acclaimed title, namely Defender's Quest: Valley of the Forgotten.

The pre-order page for DEFQ2 looks like this:



This is heavily influenced by starbound's preorder page, and it solves several key problems I find with the way Kickstarter displays rewards.

Visual Clarity

First of all, what you see is what you get. All of the rewards are represented by visual icons, and cumulative rewards from previous tiers can be added. For example, our book tier includes a digital art/story book, as well as all previous rewards: the game's soundtrack (from the music tier), and games (from the game tier).



Just by looking at this tier, you know immediately what you're going to get -- everything in the box. And if you want detailed information, you can click on the "more details..." box which will expand and lay things out explicitly:



And just to be super-compulsively clear, when you click "buy now," it takes you to a new page with a Humble Store pre-order widget, puts all the details in a box below, and replaces the "all of the above" line with the actual descriptions from cumulative tiers.

Compare this to a typical kickstarter reward tier.

This example is from the awesome upcoming RPG Cosmic Star Heroine, and is a commentary on Kickstarter itself rather than their game or rewards.
The developer has to cram the reward text into a narrow box, and has no formatting options whatsoever. You can't separate important information in a smaller box under "more details," you can't put the "Note" in italics or a smaller font, and you can't even create a proper title for the tier and set it in bold. It all runs together.
Worst of all, relating how cumulative tiers work is confusing at best, which is why the "...and all of the above" convention has become so popular, and thus expected.
You can't always follow the "all of the above" model (especially for more expensive limited tiers), and developers who break with that format are then reduced to creating charts to explain exactly what each tier provides:



I'd like to reiterate that I'm not knocking Cosmic Star Heroine or Zeboyd Games for this. Not only am I a big fan (I totally baked CSH), but this is pretty much how you have to explain things if you use Kickstarter.
CSH clearly isn't hurting from using Kickstarter --  they made their goal and then some. I just think there are much simpler and clearer ways to present rewards, and Kickstarter's format kinda locks you in a box.

"Comparison is the thief of joy" -- Teddy Roosevelt

Kickstarter campaigns don't exist in a vaccuum, so backers tend to compare campaigns against one another. Given KS's standardized pitch format, this makes it very easy to line up A vs. B, and thus puts a lot of pressure on you to standardize your pitch accordingly, even if that pitch doesn't play to your strengths.

For instance, the "Talking Heads" video format, complete with professional lighting, editing, and sound, has become quite popular and even expected (even if some developers eschew it). If you're launching on Kickstarter, the video takes center stage.

But what if you don't want to make your pitch that way? Videos are important, but I'd rather let my actual pitch do the pitching, and make the video a simple, direct, summary, sans talking heads:

Of course, this option is only really available to us because we've already released a successful game. But given the fact that our second game's chief "social proof" is our track record from the first one, I won't spend time and money on a super-deluxe promotional video. Not only does designing our own site let us frame the expectations, it also serves as it's own social proof, since it proves we're at least competent enough to build and run our own pre-order site.

My wife is fond of pointing out "social inflation" -- for instance, weddings started as simple ceremonies but now have expensive dresses and rehearsal dinners, brunches, etc. Kickstarter started as a simple crowdfunding format, but then professional videos, complicated reward schemes, and stretch goal after stretch goal got added to the mix.

There's many sane video game Kickstarters, for sure -- I just want to avoid the inflationary pressure of that environment entirely.

We also aren't interested in doing any physical rewards, given the massive boondoggle that has been for other developers. The whole point of this is to make the game happen sooner, not later, and therefore all rewards are either directly related to game production (such as naming a monster in our special "ending credits" bonus battle after you), or at least by-products of it (such as the digital art&story book).

And don't even get me started on "stretch goals." Suffice it to say, we won't have any.

Fulfillment

Kickstarter can make fulfillment a bit of a chore, since it's not really a content delivery platform.

Humble Store definitely makes fulfillment easy, since they're all about delivering digital content. As soon as something's ready, we just upload the bits to their servers, and the backers get their stuff.

For instance, we give out free copies of Defender's Quest I with every pre-order, so the basic game tier represents a savings of about 57% off the two games bundled together at full price. With Humble store, people who preorder Defender's Quest II today will get their DEFQ1 keys immediately.

Final Thoughts

Aside from the above concerns, Kickstarter is really designed for a specific kind of campaign - one where you won't do the project if you don't get the money, and you are raising money for a limited amount of time.

Not only are we committed to Defender's Quest II's development regardless of how much we raise, we see no reason to limit pre-orders to 30 or 60 days. Furthermore, Kickstarter's payment options are limited because of their unique "all or nothing" system.

There are some cons with running our own site. You have the burden of making your own custom front-end, and Humble Store is not (yet) as feature-rich as Kickstarter (letting backers upgrade their tiers by tacking on X$ is technically possible, but not automated), and various other minor issues.

That said, I like having a closer relationship with our fans. No muss, no fuss, simple and direct -- Defender's Quest II is happening, and if you want to get a discount or some exclusive early backer rewards, you can pre-order it today.

Free 2 Play and the Four Currencies

One of my most popular articles was "Piracy and the Four Currencies", which explains the economics of piracy in terms of four "psychological currencies": money-dollars ($M), time-dollars ($T), pain-in-the-butt dollars ($P) and integrity-dollars ($I). Purchases don't just cost money; they also cost different amounts of time, pain-in-the butt, and (sometimes) moral integrity.

Quick Summary

In the article, I argue that piracy, though it costs 0 $M, has a non-zero $T, $P, and $I cost, because the pirate must know where to search, risk exposure to malware, and do something illegal (which has a variable $I cost depending on one's outlook). Developers can compete with piracy by removing invasive DRM and practicing good customer service, which lowers $T and $P costs.  How much weight an individual gives to each currency varies widely.  For example, a wealthy person may value convenience over money, a busy person may value time the most, and someone with strong convictions might refuse to compromise their beliefs ("spending" $I*) for money's sake alone.

*Exactly what $I represents varies with ideology.  For example, Richard Stallman would put a large $I cost on using proprietary software, whereas I do not, and strict vegetarians might assign an $I cost to fur coats.

Free 2 Play

Now, let's apply the  four currency model to Free 2 Play games.

F2P is clearly here to stay.  It's seen big success with Angry Birds, Team Fortress 2, and given a new lease on life to MMO's that aren't World of Warcraft.  However, we've also just witnessed the spectacular implosion of F2P standard-bearer Zynga, and seen article after article about popular, critically-acclaimed F2P games that garner little revenue.

The debate is heated, so let's step back, put down our pitchforks (on both sides), and see what's going on.

Analysis

First of all, F2P competes well with piracy, because the barrier to entry couldn't be any lower.  Downloading an F2P game costs no $M, little $T, no $P, and no $I (for those who feel guilty about piracy).

Though FTP has no $M cost, it inserts $T and $P costs throughout the game to encourage players to pay $M instead.  This is the opposite of a traditional game, where there is no extra $T, $P, or $M cost once you've bought the game (invasive DRM, DLC, and bad design notwithstanding).

According to some best practices of F2P design, developers should intentionally inject inconvenience into games, which players can remove in exchange for money.  This means barriers, time sinks, and "dual-currency" systems where players can pay real money for rewards, or grind for hours instead.

In this way, traditional games are like laser printers: expensive to buy, cheap and easy to operate.  F2P games are like ink jets: cheap to buy, but expensive and sometimes a pain to operate, especially if the company has questionable business tactics.

On the one hand, F2P gives players options. Lots of people have no money but plenty of time and/or plenty of pain-in-the-butt tolerance.  Furthermore, it enables players to purchase things "a-la-carte," in case there are only certain aspects of the game they really want.  These are good things.

On the other hand, F2P adds inconveniences and compromises the "magic circle" by constantly asking the player for money.  These practices are why some designers call F2P "evil," and not just because they're luddites* who are afraid of change, as some have implied.  If anything, F2P is a return to the past as much as it is a step towards the future.  We've been here before, and it's called The Arcade.

Despite my reservations and general grumpiness, I do think F2P can drive great things - you only have to look at Team Fortress 2, League of Legends, and Triple Town to see that.  But it still deserves a critical eye.

*As an aside, the historical Luddites have been grossly misrepresented by industrialist propaganda and (incorrect) associations with religious fundamentalism.  I highly recommend the book Rebels Against the Future by Kirkpatrick Sale for an alternative viewpoint.

When (and why) F2P Fails

Let's look at some F2P games that have failed and see if the four currencies can tell us why.

The developers of Punch Quest and MonkeyDrums have suggested that their games failed because they were too nice - i.e., they embraced F2P but still hung onto the idea that they could "delight" their customers into paying more for the experience.  I feel for these teams and applaud their willingness to be so open with such a painful experience, so let's see if we can learn from it.

As I mentioned in Pay What You Want and the Four Currencies, the simple act of making something free removes the $I cost of not paying.  This is why donationware doesn't work - nobody pays because you gave them permission not to.  By making too much content easily accessible or free, customers feel no obligation to pay.  If you ask for the sale, however, there's a good chance you'll get them to pay, especially if there's a free sample.

Traditional game design has trained us to maximize the value we are giving players for their money, charge them once for it, and call it a day.  F2P requires an entirely new perspective that doesn't focus on delivering all the goodies in one big package.  It seems these developers had a hard time choosing between F2P and traditional design.  So, let's take a quick look at tradition.

The Evolving "Traditional" Model

In the past, video games were sold in retail stores as packaged goods that you bought sight-unseen. Retail is certainly on the decline, but those who use this fact to decry up-front pricing* are attacking a straw man. "Progress" doesn't happen in only one direction, and the traditional model has been evolving right along with the others.

*In fairness to Dan, he's right that charging 99 cents for all of TripleTown would be insane, and I'm largely a fan of his approach to F2P design.  That said, I can think of more than just a few indie developers who use the up-front pricing model without relying on mega-hits to succeed.

Traditioooooon!

We'll use ourselves as an example of the "neo-traditional*" model. With Defender's Quest, we relied on a lengthy, compelling, browser-based demo to drive sales. This allowed us to make good revenue without the benefit of major portals like GOG and Steam, although we were eventually able to attract their attention. We  survived by selling directly from our own site and free Flash portals like Kongregate, where we leveraged their microtransaction engine to sell an online version of the game.

*We seriously need a better name than that.

Furthermore, although the price is up-front, it's by no means "fixed." We started at $6.99 when we launched in January but made so many coupons available that anyone paying attention could nab it for $4.99.  Meanwhile, we handed out free promotional codes left and right.

We eventually raised the price to $14.99 for the gold edition launch but started with a "launch sale" of $9.99 through the first week on Steam.  And as everybody knows, Steam and GOG are fond of periodic sales with deep discounts, and we will be participating in every event they invite us to. Furthermore, we have some crazy plans of our own, so stick around for our one-year anniversary next October 30th.  Because players know that games often go on sale, they can exchange $M for $T by waiting for a price drop.

The ability to sell a game year-round, at variable prices, while keeping the majority of the revenue is a far cry from the old days of having a one-month shelf-life in a retail store and collecting a few percentage points in royalties - if you were lucky. That's the old traditional model, and I'm happy it's dying.

However, the advantage of the new traditional model is that it gets the financial exchange out of the way up front, which lets developers focus solely on game play rather than a string of tiny sales pitches. Furthermore, it avoids fracturing the game's shared cultural experience into low and high-paying tiers.  I realize that the traditional model has the potential for a smaller player base and lost income from "true fans" and whales, but I have some ideas about that and, more importantly, have no doubt that the model will continue to evolve to meet these challenges.

Finally, and I think most importantly, the traditional model and F2P have much to learn from each other. They are points on a spectrum rather than fixed binary alternatives.  The "neo-traditional" model incorporates many aspects of both, but takes it in a different direction than a typical iPhone game or console title for sale at GameStop.

Summing up F2P

F2P brings with it new opportunities, audiences, and markets, but it's not magic. Simply put, instead of front-loading the $M cost, it sprinkles alternative $P and $T costs throughout the experience as inducements to make you pay $M.

F2P pros:

• Raises the ceiling on how much a single player can spend
• Lowers the barrier to entry almost entirely
• Opens up new genres and embraces new audiences

F2P cons:

• Not a good fit for many genres (especially those focused on narrative)
• Injects financial motivations directly into the game
• Annoys players
• Can corrupt the design (c.f. Zynga)
• 
  

Closing Thoughts

Furthermore, those obsessed with growth* as the sole metric of the industry's sector-by-sector health should be slapped with a large, wet trout.  Facebook, mobile, and other once-emerging trends are obviously here to stay, but reports about the traditional industry's decline have been greatly exaggerated, especially because NPD results are grossly misleading.  And contrary to popular wisdom, the explosive growth of mobile has not doomed Nintendo's handheld market, though I can't say the same for the PSVita.

Retail sales of console games do seem to be on the decline, but the slowdown in PC sales should not be taken as an indication that PC software developers are in trouble. For example, eventually you get to the point where everyone who wants a car has one, so although it's harder to sell new ones, more cars are being driven than ever before.  Similarly, sales of new PC's have peaked because they are powerful enough, and, with a little maintenance, a decent rig can last you the better part of a decade. This is bad news for people like Dell who need to push hardware, but for those of us who just make games that run on the dang things, times couldn't be better.

Mobile platforms will eventually reach their saturation point, too, and then the pundits will start shouting that mobile is dead, and eyePhones are the Next Big Thing.

So do yourself a favor; play a great Free2Play game or two. Then play some great traditional games by friendly indie developers. Then slap a pundit with a fish.

*Second side note: the single-minded focus on "growth" is a major fallacy of modern economic thought. See Tim Jackson's Prosperity Without Growth for an alternative viewpoint. 

Watch CNBC and take a shot every time a pundit says "growth."

Freeloadable content - an alternative to paid DLC

Cross-posted on gamasutra.com

A lot of developers/publishers sell expansion packs and other discrete add-ons to their games as "downloadable content," or "paid DLC."  This model has problems, for both players and developers.  The problems for players have been covered exhaustively, so let's leave that aside for the moment.

Here's my perspective as a developer.

Let's say that the upcoming version 1.0 launch of our game Defender's Quest goes well, and some time down the line we release an expansion pack.  Will it earn enough money to justify working on it?

There are a couple of facts that influence this decision:

1. It's impossible to sell more copies of DLC than of the original game
2. DLC's price must be substantially less than the original game's
3. Many people in your audience will never experience the DLC content*

*Only issues 1 and 2 are relevant from a financial perspective, but I'm a softie, so number 3 is important to me for other reasons.  One of the biggest reasons I make games is so that as many people can enjoy them as possible. As long as I make enough money to keep doing my job, I don't like restricting and fragmenting the experience, which is exactly what paid DLC does.  Free2Play is certainly an alternative, but I want to leave that for another article, this one is mostly about fixing DLC from within. 

So let's assume 25% of our audience buys our DLC (an optimistic estimate), and we sell it for 25% of the base game's price.  This gives us 6.25% of our original gross revenue.  Not bad - and if we spent less than 6.25% of the money, time, and effort it took to make the original game, we just got a raise! 


The problem is, it's all downhill from there.


First, it's a law of human nature that every purchasing decision has "friction," so fewer people will buy each subsequent DLC pack than the one before.  Second, it's a law of human business that day one is the most profitable day for DLC, which is why so many AAA games these days push day-one DLC.  The frightening corollary to this second law is that each day you wait after launch to release DLC means fewer sales.  Combine these pressures of time and friction, and you're looking at ever-dwindling revenue.  


What this means is that your first expansion pack will almost certainly be your best seller, and thus paid DLC can't sustain prolonged development.  Is there a way to fix this model without abandoning it for subscriptions or free-to-play? 


I think there is.

I call it "Freeloadable Content," or FreeLC.

How FreeLC Works

First, let's assume the DLC I want to create must make $5,000 to justify working on it.  So, with paid DLC, if the base game cost $7, we might sell the DLC for $2 and hope for at least 2,500 sales.  That's the traditional model.


Under the FreeLC model, we instead start a small Kickstarter project to raise the $5,000 we would normally expect to make through sales.  Now that we've covered this cost, we release the expansion as a free update to everyone who has already purchased the base game, even if they didn't contribute to the Kickstarter.  Hence, freeloadable content. 

Implications

Although the idea of FreeLC is quite simple, it has some interesting and somewhat counter-intuitive consequences. 

For one, FreeLC can be less adversarial than paid DLC.  Even if a player legitimately enjoys Mass Effect 3 and its $20 day-one expansion, it dampens her enjoyment when she has to wonder whether EA is just trying to find a sneaky way to raise the game's price to $80 (EA's Peter Moore has essentially admitted to this).

So that's one benefit.  But besides not having to nickel-and-dime, or more accurately, ten-and-twenty-dollar our players, we can let all of them have the extra content and still get paid to develop it.  We don't have to fragment the game's shared cultural experience into high- and low-paying tiers.


Furthermore, there's one final benefit that deserves special attention:

We just increased the value of the original game!

Under the paid DLC model, the base game stays the same, while any additional value the developer creates is locked up in discrete expansion packs, each of which has additional purchasing friction.  With FreeLC, each expansion makes the original game better, and since we've already made our "DLC money," we're free to sell the whole collection for the same original price.

I'll illustrate this effect with an example.

First, let's assume for the sake of argument that you can actually reduce the value of enjoying a game to some number.  So, say the base game is worth 10 units of fun, or "funits," (whatever those are).  Then, we make a small expansion, worth 2 funits.  Together, that's an experience worth 12 funits.  All together, we eventually release 1 complete game worth 10 funits and 5 DLC packs worth 2 funits each.

Then, we load all our merchandise into our digital wheelbarrow, and cart it off to the internet for sale.

Here's how it looks under paid DLC:

  Game: 10 funits,  $10
  DLC:  2 funits,  $2
  DLC:  2 funits,  $2
  DLC:  2 funits,  $2
  DLC:  2 funits,  $2
  DLC:  2 funits,  $2

And here's how it looks under FreeLC:

Game+DLC: 20 funits, $10

Which would you rather buy? 


The second option provides the exact same content for half the price.  We've already recouped the cost that we would normally have to make through DLC sales, so we don't have to charge the extra $10.  


Even better, there's one, simple low-friction purchasing decision - "Do you want to buy everything for one low price?"  Sounds like a good deal to me!  That's a much easier sell than, "Do you want to buy this? And how about a little more for this? And this? And this?"


Now, let's look at all the potential problems with the FreeLC model and see if we can address them.


1) Freeloaders

James actually has one of these

Since everyone who's already purchased the game gets the FreeLC, there's less incentive to support the Kickstarter drive, and just wait to get the content for free. This is the biggest risk I can think of (though we certainly have nothing to lose by just trying it and seeing what happens).  

First of all, you have to buy the original game to get the FreeLC, so it's not as big a concern as if it was just free for the general public.  That said, here's some possible solutions to the problem:

• Exclusive pledger rewards
  We create special stuff for high-dollar pledgers, such as exclusive bonuses and vanity items, putting their likeness into the game, etc. The only way you can get these things is by supporting the Kickstarter drive, so people still have an incentive to contribute besides just getting the FreeLC.
• Sell the basic game
  The lowest pledge level lets you buy the original game at a reduced price, so the Kickstarter drive doubles as a kind of sale.  If you already have the game, you can gift this copy to a friend.  If you don't have the game yet, now's your chance to buy in at a reduced price.  Not only do you get something right now, you've now bought into all current and future FreeLC.
• Count on goodwill?
  Perhaps this crazy idea will drive people to support it out of the sheer goodness of their hearts.  I wouldn't count on this alone, but it's a real thing that happens, and the amount of resentment players have for DLC suggests many would welcome an alternative that gives them more respect.

2) Lost "potential" sales

The next concern is that by giving away the updates for free, you're losing sales.  "Never leave money on the table," as the saying goes. 

First of all, if the Kickstarter drive succeeds, it doesn't really matter if you "lose" sales because the money you would have gotten through DLC sales is already in the bank.  Everything after that is just gravy. 

Second, and as I've said above, people now have more incentive to purchase the original game, which sells for a higher price than a DLC pack and can reach a larger potential audience since it has the lowest possible purchasing friction.

Third, although it's impossible to know the precise number of DLC sales you'd have made otherwise (and thus ask for too little in the Kickstarter), we have enough information to set a reasonably accurate upper bound.  DLC requires the original game to work, so you simply won't sell more copies than you did of the original game.  Furthermore, in the articles I linked above, we saw that AAA titles with huge marketing budgets like Mass Effect 3 had a 40% attach rate for day-one DLC (again, the best day for DLC sales), so it's safe to assume that we mere mortals would get substantially less than that.    

Finally, the FreeLC model opens up an additional revenue stream - dedicated players with deep pockets.  Free-To-Play developers call these "whales," but under the FreeLC model, I'd call them "patrons."  These players are the game's biggest supporters and are often looking for ways to spend more money.  Rather than just getting their money, this method includes them as pillars of the game's community.

3) <Insert complaint about Kickstarter>

The next issue is that of Kickstarter and crowdfunding itself.  

Many people have raised concerns about pie-in-the-sky Kickstarter campaigns for games that promise the moon and ask for tens or hundreds of thousands of dollars in funding, which then take years to materialize, if ever.  Most of these concerns don't apply to FreeLC. 

First of all, if you're a developer kickstarting FreeLC, you've already made your base game and established your track record. 

Second, you already have a basic reward that you can deliver to pledgers right away - a discounted copy of the original game, which entitles them to all current and future FreeLC.  

Third, since it's just an expansion pack and not a full-fledged game, even a relatively large and expensive project can ask for a modest sum of money and still cover the cost of development.  

Fourth, developing an expansion pack is much less risky than creating a game from scratch, and it takes a lot less time to boot. 

This should result in an attractive Kickstarter campaign that's easy to fund without making outlandish promises.

Future Work

Let me emphasize that the entire FreeLC model I've just laid out is a hypothesis.  I'm not sure if anyone's actually tried this before, and I don't know whether it will actually work in practice any better than paid DLC.  These are the effects and implications I can foresee, but nothing beats actually trying the thing out. 

So...when are we coming out with FreeLC for Defender's Quest?

Right now, we're still working on our big free update to Defender's Quest, version 1.0, followed by a release on all the big digital download stores that will accept us.  This should happen in a month or so if everything goes according to plan.  If I had been smart, I would have thought of this FreeLC idea back in February and used it to fund this huge update, but our financials are in reasonable shape and we should still be able to squeak by, and hopefully new sales will give the game a future.

I'm not sure what the future holds for us, but I can say for a fact that if and when we release an expansion pack for a game, it will be FreeLC.

Further Reading
If you're interested in my other musings on games and economics, try my Piracy and the Four Currencies series.

Piracy and the four currencies, part 2

Cross-posted on gamasutra.


My previous article, piracy and the four currencies seems to have caused a bit of a stir, so I'm going to make this a series. Welcome to part two!


For those of you just joining the conversation, go read the original article. Don't worry, it's pretty short and we'll wait right here for you.


Back already? Great.  I'm going to expand upon my original theory, and then test it out on a few new case studies to see what kind of explanatory breadth it has. 

The "four currencies"

The Point

The basic point of my article was to look at the discussion in a new way*. The old model (which so many senators and CEO's buy into), naively equates "cost" with money-dollars.  This model does a poor job of explaining human behavior, however, because humans care about more things than money- namely, they care about time, pain-in-the-butt, integrity, and a million other things.  Furthermore, the value of each of these things is different for each person - including money!  A model that acknowledges that these other, non-monetary "costs" exist is better at accounting for how and why human beings make choices.  This is what the "four currency" theory is all about. 


I chose my specific "four currencies**," not because they form an exhaustive list, but because:

• They're the main ones I think of when buying stuff
• "Four currencies" is a catchy phrase
• It gets the idea across quickly

Gauging by the intense reaction the article received, I think this theory has legs.  Since I'm just a random game developer and blogger, I'll leave the hardcore analysis and scientific testing of this theory to any grad students out there who need a thesis topic.


*The idea is still "new," but I'm not the first to posit it. This 2010 article proposes almost exactly the same idea with slightly different wording.


**Money-dollars ($M), time-dollars ($T), pain-in-the-butt dollars ($P) and integrity-dollars ($I) for those of you who didn't read the original article :)

Things I didn't cover

CC image courtesy of wilhei55

There's a few things I left out in my original analysis, which I'll touch on real quickly here.

• VALUE of the product
  All of my side-by-side comparisons assume products of equal value. This isn't always the case - for instance, a pirated game might come with viruses, buying from Steam has added value from Steam integration features, etc.  Although low quality can be considered an additional $P cost, that muddies the water somewhat.
  
  
• WHOSE cost?
  When analysing DRM "costs", I didn't really explain WHO was paying the "pain-in-the-butt" and "time" costs.  For instance, there's a high $T and $P cost to the cracker who actually breaks the DRM.  Without this, DRM is insurmountable to non-techies, so the $P cost of piracy is initially high for them.  As soon as the cracked version hits pirate sites, the $P/$T cost for everyone goes down.   I could write another whole article on just this point, so for simplicity's sake most of my examples in this article will only consider the user's "costs."
  
  
• Values are DYNAMIC
  Many people said I was assuming costs were "static," ie, unchanging.  Though I consider this a mis-reading, I'll clarify things now - each and every "four currency" value is dynamic, varying over time, between individuals, and even within an individual.
  
  
• Values are RELATIVE
  The actual number for a cost is less important than the subjective value a person assigns it.  For instance, 60 money-dollars is valued differently by the rich and the poor.  At $5/hour, that's more than a day's wages, but at $240/hour, it's 15 minutes.  And converting money-dollars to time-dollars still leaves us with relative values, because everyone values time differently.  So even the most "objective" and "quantifiable" values like $M and $T are still in the end subjectively valued, and of course $P and $I are harder still to quantify.
  
  
• Your Mileage May Vary
  In the charts I show 4-currency costs as I value them, or else I'll describe the values of the person in the example.  More than likely the weights you give to those values will differ.

What I'm Not Saying

Let's clarify what I'm specifically not saying. 


I don't think we can (or should) use the $M+$T+$P+$I formula to quantify or "put a price on" things like our time, pain-in-the-butt, and integrity, or come up with "conversion rates" between, say, $M and $I.  Even if there is some not-terrible calculation, it's use is limited because the values keep changing, and it's hard to compare values between people.  And even if you account for that, we still wind up at the original problem - considering only those values which we can reduce to numbers, which leaves out all the squishy stuff that influences human behavior.

CC image courtesy of 401k

So, when I assign numeric values to the four currencies, they're not precise.  It's more about "what moves the scales" rather than how many "pain-in-the-butt dollars" equals one "integrity dollar." 

What I Am Saying

This comic strip (source: TheOatmeal.com) about a guy trying to watch the new HBO series A Game of Thrones is a good example of what I am talking about.  I'll annotate a few of the panels showing the relative 4-currency costs of pirating vs. buying legitimately, as the character perceives them.

You can see that $I cost of piracy starts off very high. Even though he could pirate and get the show for free, he's determined to "do the right thing."  Also, he knows piracy incurs a small amount of time and hassle, so he'd much rather just spend the money, which he hopes will earn him a quick and painless buying experience.  It's not clear exactly how much he's prepared to spend, but from the looks of it money-dollar cost is less of a concern than the satisfaction he'll get from buying legitimately.

His attempts at buying are frustrated.  Additional $T and $P costs are added to the legitimate side of the scale.  The perceived cost of piracy stays the same.  He tries iTunes, Amazon, and Hulu Plus before finally going directly to HBO:

Turns out, the only way to legitimately access "A Game of Thrones" is to sign up for cable service and subscribe to HBO. This is an enormous pain-in-the-butt, it's really expensive, and if he has to schedule a visit from the cable guy, that will eat up a lot of time. $P, $M, and $T skyrocket*.  The cost of buying legitimately just went way up.  

*If he's opposed to cable on principle, the $I cost just rose, as well, which isn't reflected in the picture.

At this point, he's still averse to piracy, showing how highly he values the perceived $I cost of doing something "illegal" and "wrong."  He's still not sure what to do - but the scales are on the verge of tipping.

Hesitantly, he considers piracy, and is surprised by how quick and painless the procedure is.  $T and $P costs for piracy plummet, reflecting his new perception.  Furthermore, by this point he's been so frustrated by HBO's inferior service that the $I cost of piracy shrinks as well (he doesn't feel as bad about it). The scales tip, and his decision is clear.  Piracy it is. 

What's worth noting is that it wasn't until the very end of this process that the customer decided to pirate.  If HBO had made any effort whatsoever to making this content available in a customer-friendly way, they would have likely gotten a sale out of this person and others like him.  Instead, their inferior service drove him to piracy. 

I'm Not Justifying Piracy

At this point, I imagine DRM advocates will accuse me of trying to "justify" piracy.  I am doing nothing of the sort.  I make games for a living, and I happen to think piracy is just flat-out wrong, so the $I cost of doing so is near-infinite for me.

That doesn't mean, however, that I'm willing to fork out the money-, time- and pain-in-the-butt- dollars that movie and AAA game studios demand, though - given the choice to buy legitimately or pirate, I just refuse to do either. 


Most people aren't like me, though, and have a point where $P, $T, and $M will override $I and make them consider piracy.  The above example is one such case. 


Some of these people could be our customers.  Not all of them, sure - but some of them will most definitely buy our games if we make a service that "costs" less.  We can complain about pirates "stealing" our content and waste our efforts on burdensome hardware, software, and legal protections in a mostly futile attempt to stop them, or we can try to understand what drives their behavior and respond accordingly.


Piracy. Is. Not. Theft.


Also - Piracy is not "stealing," for the record.

Piracy is the unauthorized access and duplication of copyrighted material, such as a movie or video game.

Stealing is the unauthorized taking of some thing, such as money, horses, or sandwiches, which deprives the rightful owner of said stolen thing.

When you pirate Defender's Quest, you are violating my legal right to monopolize its distribution for a limited period* of time.  You are not, however, "stealing" it, because I still have my copies of it, and so do all the other customers who bought it. Piracy and stealing are two different things.

*Well, copyright used to be limited, at least.  It's basically forever, these days.

More Nuanced Examples


I used the 4-currency model to explain why DRM Is A Bad Thing, but some astute readers pointed out that in some cases, my model could actually justify DRM.  Let's take a look at a few of those cases.

Case #1: Steam

First, let's consider Steam.  Steam uses DRM, but instead of making people angry and driving them to pirate, it's captured an enormous and dedicated base of players.

 

The 4-currency model explains this pretty well - Steam costs only a small amount of $P and $T to set up the service - comparable to buying anything from some random website for the first time, after which every transaction has a lower $P and $T cost thereafter.  They already have your credit card info, so your wallet is already open, so to speak.  The only hurdle to overcome is the first purchase.

Steam is one of the very few cases in which the only "cost" being evaluated is $M for most players.  Steam is a service that competes magnificently well with free, as their recent success in Russia, previously written off as a haven for pirates, demonstrates.

The simple act of making someone open their wallet and pull out their credit card is a pretty big $P cost in and of itself, and Steam has removed even that from their buying process.  This is the "Steam Lock-in Effect" - once you're over the initial hump, it usually makes more sense to keep buying from Steam.

EA's competing service, Origin, whose DRM is much more onerous and restrictive, does not benefit from the "Steam Lock-in Effect."  They may already have your credit card info, but they do nothing to make the experience less painless, so the second purchase is just as much a hassle as the first.


Case #2: Consoles


The second case is that of dedicated gaming consoles. Let's roll back the clock to 2001 and the era of the PS2.  Steve is thinking of getting Final Fantasy X and has no qualms whatsoever about piracy. Let's say money's tight and he'd rather not pay $60, and that this alone is enough to drive him to piracy if all it took was downloading a torrent file. Were Final Fantasy X to be released on PC, he'd pirate it in a second (or several hours, at 2001 download speeds).

However, this isn't the case.  FFX is only on the PS2, and he'll have to do more than download it to get it running on his PS2.  He'll also need to burn a DVD from a downloaded ISO file, assuming he knows how.  Then, he'll need to hardware-mod his PS2 to run unsigned code.

This is pretty daunting for non-techie Steve, so he just shells out the 60 bucks and decides not to buy any other games that year.  Even though he doesn't feel guilty about piracy at all, just forking over the money is easier*.

*Of course, if there was a store that sold modded PS2's and pirated discs in his area, it'd be tough to get this guy to go legit.

This anti-piracy strategy is the one the RIAA, the MPAA, EA, Activision, and congress pursue - they assume none of us have scruples, and that if they make piracy hard enough they will force people to go legit.  In some cases, this model works.  It works for when customers:

• Put little value on $I
• Can't easily circumvent DRM
• Will not just quit playing games when treated poorly

First, it's ridiculous to think nobody cares about $I.  There's plenty of people who don't, but you will almost always lose them to piracy anyway, and there's no reason to drive all the honest people away, too.

Second, as time goes on technology improves, stuff downloads faster, and more $P and $T cost can be off-loaded to crackers who then make the product available for piracy.  The "good ole days" of hard-to-pirate console games are fading.

Third, as consoles move to digital distribution, the more their piracy problems start to resemble that of PC's, where piracy keeps getting easier.

Fourth, quality of service matters.  If I had the choice of selling our game on XBLA or Steam, I'd choose Steam in a heart-beat, on sales considerations alone.  And why is Steam selling so much when the PC market was supposed to be dead? Because their service is better, and customers love them for it.

Finally, even if DRM advocates win the day and invent something so strong that piracy somehow just isn't an option, the customer can always walk away. Who needs video games if they're such a pain-in-the-butt?

See You in Part 3!

That's all for today! In future articles, I'll cover some more case studies - namely MMO's, Free-to-play games, and our own title, the Indie tower-defense / RPG hybrid, Defender's Quest.

You can follow my blogging here at fortressofdoors.com, or at gamasutra. My twitter handle is @larsiusprime, and you can see how we applied this theory to how we market and sell our own game at www.defendersquest.com.

UPDATE: part 3 and part 4.

-Lars out

PS: Free Goodies

You've been a lovely audience, so here's some free goodies for y'all.

First, here's an animated gif of the comic and my analysis I put up there earlier.

Second, the "four currencies" images I've made are hereby released under a CC attribution license.

"The Four Currencies" images by Lars A. Doucet are licensed under a Creative Commons Attribution 3.0 Unported License.  Based on a work at www.fortressofdoors.com.