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Supply and Demand on Xbox Live Indie Games

Xbox Live Indie Game developers frequently have to price their games at $1 just to get noticed. They see that as devaluing their hard work, naturally. But there's a much more grim reason for reducing prices on XBLIG... lower market demand.

One of the things I've made of point of doing the past two years has been analyzing and re-analyzing the Xbox Live Indie Games market. Early on, I concluded that XBLIG was a "tough" market that only a certain type of game could succeed on: small, funny, quirky games. It turns out that's wrong, for two reasons. One: big, unfunny games have succeeded on XBLIG. Two: and the "success" is often very, very relative.

My own Cute Things Dying Violently hit 18,000 copies sold today, which is amazing, but also the reason that "relative" success has those quotes around it. Even as one of the best-selling games on the XBLIG platform (it was #3 for two weeks, is now still in the Top 50), it won't make enough revenue in a year to pass as anything remotely resembling a salary, considering it took 14 months to develop. So success has a ceiling.

Or does it? The makers of FortressCraft, a MineCraft clone for XBLIG, made over $1 million USD from their big, "unfunny" XBLIG title. Their success doesn't have a ceiling.

These are just two examples of many that I've been considering for the past month or so. As more and more XBLIG developers are becoming bitter that their games barely sell at the $3 price point (as opposed to the $1 one that CTDV took advantage of), I think it's important to revisit microeconomics, specifically the tenets of Supply and Demand:

The blue line that slopes up is the Supply curve, and the red line that slopes down is the Demand curve. Sales are optimal where the two lines meet, indicating a preferential price (P) and quantity level (Q).

Econ 101, yawn. Moving on.

XBLIG developers love to talk about the Supply side. They're selling a product, and they know the amount of effort that went into it and how people should value it, and they want to set a price accordingly. They want to make that price $3 (maybe their game has a lot of content), and heck, they deserve the extra revenue. But they think long and hard about it and choose the $1 price point anyway, because they know it'll sell better. Or maybe they don't go with the $1 price point... maybe they go with a $3 game, and not only does it sell poorly, but perhaps the additional revenue doesn't exceed the revenue they would've made from the total sales they would've earned at the $1 price point. Why?

Because while they are factoring in the Supply side, they're ignoring the Demand side. And if there's one thing that should well and truly scare the crap out of developers who want to keep using Xbox Live Indie Games to market their titles, it's this: the market demand is low. Really low. And constantly falling.

Why is the demand so low? I can hazard a couple of guesses, including tons of shovelware, being hidden away on the Xbox Dashboard (it remains to be seen if the new Dashboard will improve matters), and oversaturation of certain genres, like avatar games. But it almost doesn't even matter what the reasons are, because at the end of the day, you still have to cope with the low demand. You might not know the acceleration due to gravity (it's 9.8m/s square), but you sure as hell know not to fall down a flight of stairs, right?

As highly as you value your game and the price you think it'll fetch, the demand for it - or almost any XBLIG title - isn't there. That D curve above? Imagine it moved over quite a bit to the left.

But why does FortressCraft sell so well? I think the important distinction is that XBLIG has low internal demand as a market, but that FortressCraft was able to transcend that by tapping into external demand. MineCraft took off like a rocket on the PC, making Markus Persson bucketloads of money. There's tons of demand for MineCraft, a demand so voracious that it has spilled over onto other platforms. Like the Xbox 360, for instance, where MineCraft isn't available yet. The guys behind FortressCraft tapped into that external demand, and made a ton of money.

Where does the XBLIG market's internal demand end and external demand begin? I'm not sure. For one thing, the interest in avatar games seems to be internal. Or maybe it's not... maybe it's a facet of external demand reflected in other avatar-ized consoles, like the Miis on the Nintendo Wii. I also think the popular XBLIG titles that feature zombies reflect external demand, as there's a demand for zombie entertainment in practically ever media market out there. And most organized religions.

Maybe CTDV even (relatively) succeeded due to external demand for games similar to Angry Birds, even though I wasn't setting out to copy that game. I dunno! It's a mystery.

But what isn't mysterious is that XBLIG is a tiny, tough market. Although it may reward games beyond the "small, funny, quirky" criteria that I outlined years ago, the question I'd put to any XBLIG developer is this: given the market as it is, and not as you wish it to be, what kind of demand do you think your game will command?

If you have to pause to answer that one, XBLIG might not be the market for you.

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