Monday, December 7, 2009

Infinite competition theory

Imagine a world with an infinite number of MMORPGs (and ignore the tricky infinity math telling you that each of them would have zero players). For every possible preference of play style and feature list there would be lots of games to choose from (actually infinite games to choose from, but didn't I tell you to ignore the tricky math?). So as you could find very similar games with different business models, your best strategy in such a world would be to choose the game with the business model that works out cheapest for you. If you play a lot, a game with a monthly subscription business model would probably be best for you, as you have access to all content for one fixed price. If you play very little, you might be able to play much cheaper, or even free, if you play a Free2Play game with microtransactions. Monthly fee games aren't as good for people playing not very much, as you end up paying the same as the people playing a lot, but only use a small part of the content. Free2Play games aren't as good for people playing a lot, as they would want to have access to more content, and that usually is only possible by paying by microtransactions; if you play a lot, you pay more than a typical monthly fee of a subscription game.

Now we move back to the real world, and check in how far the same optimization strategy is still valid. Obviously a lot of players choose their game by its features, quality considerations, or simply by what their friends play. Optimizing cost plays not such a big role for many players. But then, times are hard, and some people *do* need to watch their gaming budget. And the number of MMORPGs, if you include all those various Free2Play games is getting constantly larger. There is more and more choice to be had. Especially if you like World of Warcraft, there are quite a number of clones around, both with monthly subscription and Free2Play business models. I still have played neither Runes of Magic nor Allods Online, but I hear a lot of good things about both of them.

So what if in the real world there are trends similar to what happened in our infinite competition hypothetical world? A number of players would choose whatever game is cheaper for his personal playstyle. Heavy users would preferably play monthly subscription games, where they end up being the heaviest drain on the resources of the game company, while not paying any more than a light user. Light users would move to Free2Play games, where they could play quite a lot of the game without ever paying anything. Both the monthly fee subscription game company and the Free2Play game company are worse off from that separation, which is a direct consequence of players having minimized their costs. The monthly subscription game actually needs the light users to cross-subsidize the heavy users. The Free2Play game needs the heavy users who are also the heavy spenders in the microtransaction shop.

The more games are released, the more likely any given player is to be able to find a game which suits him, and which ends up being cheaper for him than the game that he currently plays. Competition drives down company profits, not just overall profits from less players, but profit per player, because some players choose the cheaper available option for them. Now competition driving down profits is not something which would surprise an economist, but in a business where prices appear to be more or less fixed the notion isn't quite so obvious.

Now the monthly subscription games will survive this better, even if they end up with a higher percentage of heavy duty users. But for the Free2Play games such a trend would not be sustainable. If there are a lot of games, there is a good chance that a significant number of players will develop a nomad mentality, frequently changing games, and always just using the content that is available for free, without ever paying. As mentioned yesterday, both Battlefield Heroes and Free Realms obviously already had problems with too many free players, and not enough earnings per player. My "infinite competition theory" predicts that on current trends this will get more and more of a problem for Free2Play games. They will increasingly have to reduce the amount of free content on offer, but of course that decreases a significant part of their attraction. We aren't quite yet at the situation of an infinite number of games with zero players each, but I do have the impression that the number of games is growing faster than the number of players. Except for a few big games, which are so attractive as to overcome price considerations, we are heading for an increasingly fragmented market with decreasing profits.

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