The MMO pricing methods are outdated and fundamentally flawed.
I say this as both a developer and a gamer. The model hasn’t really changed all that much in over 10 years, while the face of gaming (gamers themselves) and the products (the games) have changed drastically. And, the few changes that have come about – micro-transactions, for example – have, in my opinion, been implemented hastily and poorly without sound business sense in mind.
Don’t believe me? Ok, let’s see if I can convince you.
As a developer, I can assuredly tell you that MMOs make the vast majority of their revenue through monthly fees and micro-transactions. This is almost common knowledge amongst the gaming community. MMO companies make very little, by comparison, on box sales.
However, this is where the first flaw in the system lies.
As stated, the company makes substantially more money on monthly fees and micro-transactions – two revenue streams that are only available to customers who already own your game. The first barrier to your revenue stream is players owning your game. You are, as an MMO company, not making good money on box sales, you make your money on subscriptions (people owning and continuing to play the game).
So why are MMOs still launching at new game prices? A typical new game needs to launch at that $50-60 price point because their revenue stream is based almost entirely on box sales. MMOs are not. Moreover, MMOs only make money on the people who own the game. As a business, you’d want to lower that barrier to entry to encourage the largest possible customer base. And that barrier is price. Purchasing trends have shown dramatic increases in purchasing rates when prices are lowered. Steam has some strong evidence to support this, as games can increase in sales by over 300% simply by dropping in price from $40 to $20, even if the game is several months, even years old.
The $50 launch price for MMOs is archaic and outdated. A lowered initial price point, even to $30, would potentially help new, fledgling MMOs generate a larger starting player-base. For example, that several gamers I know are interesting in getting Star Trek Online but, based on the beta and beta reviews, are wary of dropping $50+ on the title, especially with that on top of $240 for the lifetime membership. I propositioned this price point to them and it was almost unanimous that all of them would purchase the game without hesitation if it were retailed at $20-$30 for the box copy.
And it is reasonably safe to assume that trend would permeate throughout the gaming community. Time and time again, economical sales trends have shown this to work. In some cases, the increased purchasing rate has been so drastic that it has actually increased total revenue, even with lower prices. Think of it like this; which makes more money? Sellling one game at $50, or five games at $20?
So, that’s why I believe that MMOs companies (and gamers themselves) would benefit from a lower initial price point for MMOs. The gamer gets a better price and the company receives more customers who will, potentially, generate more revenue.
Now for micro-transactions. I have no problem with the idea of micro-transactions. However, I do believe they are typically poorly implemented and poorly balanced.
Most micro-transaction systems charge too much for too little. Blizzard, for example, is charging $10 for non-combat pets. Which, if you say that sentence out loud to any non-World of Warcraft fanboy, sounds absolutely ridiculous. $10 for a single non-combat pet in a subscription based game? But, Blizzard will say I’m wrong. They will cite that they have sold hundreds of thousands of these pets. Ok, Blizzard, but your player base is several million players. What would have made more money? Selling 200,000 pets at $10 a pop, or selling 3 million pets at $1 a pop?
Granted, the increased purchasing rate would probably not be that high. But there’s an additional factor here that most companies seem to ignore. Players who purchase just one item through micro-transactions are more likely to purchase future micro-transaction items. It is almost like a gateway drug. One time and you are hooked. And when your first items are priced outside the comfort zone of most gamers (by the way, the comfort zone for single item micro-transactions is $0.99 to $5), you are actually discouraging your player base from buying into your micro-transaction system.
I can guarantee Blizzard will release more and more items onto the Blizzard store. It has been shown that once any MMO treads into the micro-transaction market, they quickly push more and more content into micro-transactions. Why? Because it makes hand-over-fist money. Micro-transaction content is typically small things that are either already in-game or would have been put in game for free. Selling it, at any price to any number of players, is almost 100% profit. However, they could potentially make more revenue by lowering the prices, encouraging more customers to participate in the micro-transaction system.
A player who spends $0 on micro-transactions does not generate any revenue. A player who spends even $1 does.
So, what am I saying here? I believe the business model should change. I would love to see an MMO company take this rambling and run with it. It would be an interesting experiment, to say the least, and potentially change the way MMOs do pricing. As it stands, the gamer is getting charged a lot more per purchase than they really need to be and MMO companies are potentially missing out on more revenue.
It is scary to think that World of Warcraft could potentially make more money by lowering their non-subscription prices (micro-transactions and box sales), but it may be true.
GameMonkey 
Excellet post!
I thinkthe only probalem you’d run into is from Marketing. While I would agree that lowered price would and does encourage box sales, that tactic is seen as a mid-life cycle pricing strategy. Further, a product releasing at $30 is often misperceived as a product of lower overall value. The standard is $50 for PC titles, so anything lower than that gives an impression to consumers that you believe your product is flawed. It would take a shift in the entire industry for consumers to really understand why you are using that pricing strategy or a heavier marketing budget which the company my not be able to afford with a lowered box cost.
Of course, the lifetime revenue would likely go up, but it would take a bit of research to convince most marketing teams of this. All you really need to do is look to a game like EVE, but most marketing teams would look at Blizzard and say that they are still charging $40 a box for a year old expansion and they are top of the market, so they must be doing something right.
Hm.
Good read and welcome to the blog-sphere. I happen to agree with the archaic pricing of MMO box sales. Personally I can’t even imagine how some of the blogger s out there drop 50 bones a game, just to ‘test’ it out. I’m relatively new to blogging and MMOs but srsly, when I bought FE and AoC, I’d have been one angry consumer if each had been full price because after the first go around AoC is just OKAY, while FE is good, some say great, but not my style and I won’t be playing after my 1 paid month.
Ps. THANK GOD FOR STEAM!! and holiday sales!
I agree. In my country where a new title costs 10% to 20% of the average monthly salary (not just games but music too) piracy rates are much higher than in the USA or England. People do like to own their games or their favourite band’s albums but can’t afford them. That’s why there are so many people playing WoW on home “servers”.
Who would risk a fifth of the money he makes in a month on a title not knowing that will he like it? That’s why I’ll pass on STO until someone decides people can try it for free for a small amount of time. My first MMO (I’ve joined the genre a bit late) was Eve Online and I’ve paid the one month price happily for the unknown, because that fee was/is low enough for that purpose.
I like the idea of lowering box retails. It is the only reason I bought EvE, and EQ2 off of steam at xmas for 5 bucks each.
Guess what? They are now getting my $15 bucks a month which would of never happened if it was still $30-$50 to buy the game.
I also agree that RMT should be cheaper. I think it is better to sell ten times as many for less than selling one at a higher price.
If it’s proven that once someone does a micro transaction they do it again wouldn’t you want to get everyone to try it?
I am still surprised that MMO’s haven’t made in game money RMT. I know there may be lots of haters, but gold selling, and powerleveling is a billion dollar a year business.
MMO’s have the power to just make it for free with 100% profit where farmers actually have to pay someone to farm it, and it takes time.
I am continually amazed that MMO companies seem to be immune from common-sense business principles. What would you rather have? A good initial spike in revenue, followed by box sales in a declining curve or a little less up front followed by an expanded player base giving you a larger recurring revenue stream.
Me, I like longer term larger income.
I think it signals a lack of confidence in the product and the market that so many try to get their money up front, short-changing their opportunity to make more in the long run.
A really great post, although I have some thoughts about the topic of the box price, especially at release. Bit too long-winded for a comment though, so I’ll put up a post of my own shortly with a link back here. Really looking forward to more of your stuff!
Heya GM, came here from SynCaines blog and I’d like to say great first post! I decided to make my own follow up post: http://melodiousgames.wordpress.com/2010/01/22/using-pricing-to-keep-out-mmo-tourists/
while the argument regarding box prices is more debatable (I bet for major studio releases there is enormous publisher pressure to make an initial revenue splash on the investment), but I wholeheartedly applaud your point about microtransactions. I’d sure as hell buy both pets if they cost $1, or even one at $5ish, but $10 seems ridiculous for vanity-ware.
The problem here is that you’re ignoring a lot of factors. As you state in the follow up post, a reduced price sends a different message to the consumer, that the product may be inferior in some way. One story I heard about Meridian 59 is that 3DO paid to have stores give away free CDs for the game at game stores, but the CDs wouldn’t get taken. When they changed it so that people had to pay (a small amount), customers showed more interest. Something that costs more (or anything at all) is perceived as having higher quality. Once a game is established and recognized, then giving away something free (a trial, etc.) is an acceptable option.
The other issue is that the retail store is going to treat a $50 box different than a $20 box; the store is probably going to make a lot more profit on the $50 box, so the game will get more attention in advertising circulars, better positioning on endcaps, etc. This will result in increased sales, and perhaps more sales than simply a cheaper price point will give due to increased visibility.
An old marketing warhorse has a question:
What exactly is the nature of the business relationship among developer/publisher/retailer for MMO’s?
Having a grasp on that relationship will tell much about how prices are established and maintained in this marketplace.
I can imagine several different models for creation, production, distribution and operation.
Thirty years of tournament experience in marketing and sales tells me that every deal will be different but all will follow the same general principles in a market as mature as this one, however.
It varies drastically from company to company, so much so that I would never be able to give even a generalized answer to the question.
That said, in most cases, developer has zero to no control over marketing, price point, pricing system, or even launch date. I would say, in general, Publishers control the vast majority of those decisions. Other than those two points, it varies.
Then again, the big name MMOs are run by Developer/Publisher combinations (Activison Blizzard, SOE, NCSoft, etc), which only really makes the relationship that much more complicated and the line between developer and publisher a tad fuzzy.
One of my gripes is with unclear or confusing pricing.
If you buy EQ2 you will be presented with numerous different deals and it’s pretty hard to figure out what’s best for you. It’s easy to pick a deal where you lose out on something, for instance you can’t get the Complete Collection and also be recruited by recruit a friend. Since the complete collection is a better deal for most people that means that people recruited by current players may not stick with the scheme that gives the veteran a free mount but may switch to a better deal that saves the newbie a few dollars. Hardly very good for friendships!
Eve Online is a lot slicker but still not perfect. I simply couldn’t find out whether using a plex on a buddy key would waive the game purchase key or not nor if the 21 days trial stacked with the 30 day plex (for 51 days total). By experimenting I found out it does and it does.
Go to pretty much any mmo newbie forum and at least half the questions will be on billing. I know of no other industry that tries so hard to confuse and frustrate people trying to spend money.
The barrier to entry for me has never been the box price. I don’t mind paying fair coin for a boxed game (though I’ll agree that many are priced too high). No, the barrier for me is the recurring cost. I will not keep paying to play a game I have purchased.
To each their own, but the box price alone isn’t the only hurdle in the MMO space.