Kliuless? Gaming Industry ICYMI #13
Hi, my name is Kenny Liu, and I work in Revenue Strategy at Riot Games. Each week I compile a gaming industry insights newsletter that I share with other Rioters, including Riot’s senior leadership. This edition is the public version that I publish broadly every week as well. Opinions are mine.
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Artifact: Pay-to-Win or Pay-to-Lose?
- Artifact community slams 'pay for everything' model
- Related: Artifact review: Valve’s card game is deep, but burdened by its marketplace
- In most digital CCGs like Hearthstone, players have the freedom to choose to invest their money and/or time to unlock cards, but these cards have no extrinsic value outside of their respective games
- Artifact's business model, however, is more reminiscent to that of physical CCGs, in which players have no other option but to invest money to unlock cards, but these cards can be sold on a secondary market (Steam Marketplace) for credit that can be broadly applied to purchase anything (on Steam)
- Why does Artifact's business model feel so bad for players?
- Valve is swimming against the current of player expectations for the digital CCG market. Even Magic: The Gathering, which had for a long time held back from going true free-to-play for its digital products, finally adopted a Hearthstone-like model with its newest entrant Arena. Thanks to market-set player expectations, boxed product games have not been able to break the $60 price ceiling for years, and a similar logic applies here as well for free-to-play games and their associated genres
- Valve takes a 15% cut of all Artifact transactions on the Steam Marketplace. To add insult to injury, taking 100% of primary market revenues is not enough, so Valve also levies an additional 15% tax on all secondary market sales. (While Valve also does this for its other games, Artifact is unique in that it contains no free in-game drops)
- Even if we suppose the average player spend between Hearthstone and Artifact (net of secondary market sales) is comparable, psychologically the holistic monetization experience in the latter would likely feel much worse. Taking a page out of Kahneman's Thinking Fast and Slow to help explain, humans have two modes of thought: "System 1" is fast, instinctive and emotional; "System 2" is slower, more deliberative, and more logical. With entertainment products like games and in-game content, the purchase "impulse" (as opposed to "decision") is usually activated by our System 1 part of the brain. In fact, by asking players to instead turn on their System 2 brain each time they make a transaction, this alone may kill their original hype that would have otherwise been enough to drive them towards discretionary spend. Players no longer just think, "Oh wow, I really want that legendary card," and instead question themselves, "What's the expected value of this pack? Is this legendary card really worth its current market price? Do I buy packs or do I buy individual cards? Do I buy/sell these cards now or wait until later?"
- Not to mention in behavioral economics there is also a phenomenon called the endowment effect, in which people ascribe more value to things merely because they own them, even when there is no cause for attachment or if the item was only obtained minutes ago. So players are caught in the middle of a lose-lose catch-22. If they do not sell on the secondary marketplace, they have to bear the full brunt of Artifact's heavy financial cost; but if they do sell their inventory, they will suffer from greater negative emotional overhangs. From a gameplay perspective Artifact may be pay-to-win, but economically for players Artifact feels pay-to-lose
Business & Revenue Strategy
- HBR: How Much Does It Cost to Adapt to Industry Disruption?
- "Companies in Quadrant 2 tend to bear relatively high indirect costs, because of the greater threat of cannibalization and the greater conflict for resources in a highly competitive environment. Traditional game developers facing the emergence of mobile gaming fall into this quadrant—Electronic Arts and Nintendo, for example. Their stock of assets—intellectual property, game-development capabilities—is compatible with mobile gaming, but they operate in a highly competitive market where product life is short and consumer preferences change quickly"
- HBR: To Get More Done, Focus on Environment, Expectations, and Examples
- Pokémon's strategy is cross-generational
- U.S. Federal Trade Commission will investigate video game loot boxes
- "Previously muted" free-to-play console revenues triple YoY to $64mm during Black Friday weekend
- Microsoft’s New Studio Acquisitions Show How Much Xbox Has Changed
- Nintendo currently testing game-streaming in Japan due to more robust internet infrastructure than U.S.
- The Past, Present, And Future Of Diablo [and Blizzard]
- Former Activision Blizzard devs launch Mythical Games, securing $16M in funding towards blockchain platform for 'player-owned economies'
- Ericsson: Global traffic grew 79% YoY, and 140% in China, with average smartphone there doing 7.3 GB/month. 95% of the world's population is now under 3G coverage and 60% under LTE
- Salesforce: 68% of Black Friday ecommerce traffic and 51% of orders were on mobile
- Blog: Is it healthy for start-ups to spend so much money on user acquisition?
- "Startups spend almost 40 cents of every VC dollar on Google, Facebook, and Amazon…Advertising spend in tech has become an arms race: fresh tactics go stale in months, and customer acquisition costs keep rising"
- China blacklists millions of people from booking flights as 'social credit' system introduced
- "Other infractions reportedly include smoking in non-smoking zones, buying too many video games and posting fake news online"
- Related: Steam gamers fear Valve’s PC gaming platform will be heavily restricted in China
- Quantic Foundry: Chinese Gamers are More Competitive and Completionist, More Homogeneous in Gaming Motivations Than U.S. Gamers
- Garena seals a 5-year deal to publish Tencent games in Southeast Asia
- NYTimes: How Cheap Labor Drives China’s A.I. Ambitions
- Interesting profile of Bytedance, the $75bn company that most people outside China have never heard of
- Related: Bytedance claims 800mm users on their new developer site, cloning WeChat's mini programs framework
- a16z's Benedict Evans on the state of tech: "the end of the beginning"
- a16z's Andrew Chen on the future of marketplace startups
- Stratechery: Antitrust, the App Store, and Apple
- Slow Software: What it means for software to be fast, and why most software is not.
- Facebook confirms it’s building augmented reality glasses
- Time: The 10 Best Video Games of 2018
- Mark Brown: Building Better Skill Trees
- Fortnite’s NFL Skins and the Challenge of In-Game Activations
- From Pac-Mania to Fortnite fever: are video games becoming more addictive?
- Washington Post: Video games are now so beautiful players are spending hours framing stunning works of Internet art
- How Aardman made a WWI game look like an oil painting
- NYTimes: "Red Dead Redemption 2 Is True Art"
- "After its October release, Red Dead Redemption 2 earned $725 million in just three days, giving it the highest-grossing opening weekend of any entertainment product — ever. If you’re wondering why you haven’t seen this at this box office, it’s because it’s not a movie. It’s a video game"
- Stalemate To Checkmate: After 12 Draws, World Chess Championship Will Speed Up
- Related: The American Grandmaster Who Could Become World Champion
- HBR: What Stan Lee Knew About Managing Creative People
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