Does Home Have A Middle Class?

by Terra_Cide, HSM Editor-in-Chief

I’ve grown exceedingly tired of the same gaggle of whiny brats on the forum who campaign against what they see as price gouging by Home developers. Most of the people there are fine, but a few of ‘em just ain’t. Please. Grow the hell up. If you’ve ever bought tickets and junk food for a movie, paid some ungodly price for Starbucks coffee, or worn anything other than the absolute cheapest clothing label or bought clothes exclusively from second-hand stores, then you have paid a premium for an experience. Virtual goods are no different: they are an experience — and emotional satisfaction — and nothing more.

Ah, but a tangible good can be resold, right? Whereas virtual goods have no resale value. Okay: go sell your movie ticket stubs. Go sell your empty frappuccino cup.

What is a “fair” price for a virtual good? The same as the price for a night in a hotel suite, a first-class air ticket or a meal at a fancy restaurant: whatever the market will bear. And this very basic fact has been overlooked time and again by the same people screaming for lower prices. I’m not going to repeat Norse’s economic treatises here — the roughly 115,000 people who read HSM already agree with it — but suffice it to say that social freemium games almost always have economies which are driven by very low conversion percentages, with the bulk of the revenue usually being driven by a tiny percentage of people.

Social game economies like Home follow power law distributions. Adjust your thinking.

Social game economies like Home follow power law distributions. Adjust your thinking.

In short — and this is going to piss some people off, but it’s true — in Home, the “One Percent” really do keep the lights turned on.

Let’s say Home has a million active users, worldwide. Now let’s say you’re releasing content in just SCEA and SCEE Homes, because as was written about here, Japan and Asia aren’t worth the effort. So that’s, what, maybe 750,000 active users left? If we assume three percent of them consistently monetize to some degree, that’s 22,500 people. And do you really think you’re going to get all of them to like your particular commodity enough to purchase it?

But let’s say you do. Let’s say 22,500 people all plunk down a dollar for your Shiny New Something. So now you’re at $22,500 in gross revenue, of which SCEA and SCEE will take a cut (we don’t have exact numbers, but we’ve heard it’s thirty percent). So now you’re left with $15,750.

Here’s the catch, though: how much did it cost, in terms of hours and personnel, to create the object, code it, test it and handle all the paperwork to get it published? If we assume it took three people — one artist, one engineer and one producer (who also did the internal QA) — just a single week to create and submit a virtual item, and we assume they all make equal pay at $25/hour (like we’ve written about here), that’s $3000 in cost. Right there. So now we’re down to $12,750 in revenue, some of which has to go to various overhead costs such as rent, utilities, and so forth.

And again, for those who glossed it over — we’re assuming over twenty-thousand copies were sold to begin with. Try cutting that number in half and see how the math parses. Particularly in an environment where there’s always a new content wave coming out the following week, Home’s internal menu maze is a nightmare for finding anything that isn’t new and recommended, and Sony evidently can’t be bothered to put money into actual consumer-facing community management after investing in Home in all the wrong ways for the last five years.

rage babyThis is why, when I see these idiots on the forum spouting nonsense about how developers would make more money if everything was under a dollar, it makes my eyeballs twitch. Because it’s ridiculous. If you can sell the same item at $1.99 that you would’ve otherwise sold at $.99, as long as you have more than half the number of purchases you’d have made at the lower price, you’ve ended up ahead. And with Home’s niche markets being what they are, developers have a very good idea of how many people are willing to buy what types of commodities after half a decade of studying the sales data. Which just leaves pricing.

Part of this, by the way, is our own fault. We, as a consumer base, kept asking for more bells and whistles. And we got them — along with the premium price tag they come with. Part of the fault, though, is Sony’s: since they created the bulk of the content in Home’s early days, and didn’t have to pay a thirty-percent cut to anyone, they effectively set the bar too low for Home’s economy. And everyone else has suffered as a result of that shortsightedness.

So here’s the question, though: if Home is like a typical freemium game, where the bulk of the user base spends nothing and there’s only a tiny fraction of people who spend a fortune, then is there a slim middle-class statistic between the two? And, if so, are they being priced out of the market?

There’s only one actual way to tell: sales events.

Veemee Billabong SaleIf the theory is true that high-priced virtual goods would sell better at lower prices — well enough to offset the loss of revenue from a higher price tag — then the only way to test this theory is to run massive sales events. This is already happening: nDreams, VEEMEE, LOOT and even SCEA itself have all run high-profile sales events. Granted, this is on content which has already been out for a while, so all the early adopters were already captured at full price, and the supplemental bump in visibility may help to drive additional sales.

Personally, though, I’m in favor of price escalation. Backwards though that may sound, consider: as prices go up, so too does the pressure on the developer to come up with something that justifies the price. There may indeed be limits on how far things can be pushed with Home’s architecture, but if a Home developer is out to make enough money in Home to keep creating content for the platform, and they’re willing to push the pricing envelope to gain that revenue, then I’m happy to spend it — as long as it’s “worth” it as an emotional experience.

To everyone who spends their time whinging about what Home isn’t, what it should be, and why there’s so much unappealing cheap content being pumped into it: spend less time whinging about how unfair you think things are, and instead outline in clear terms what you might actually be willing to spend a premium on. Simply shouting that prices are too high is a one-way trip to NoOneCaresAboutYourOpinion-land. Putting the same energy into asking for what might bring out your credit card, on the other hand, is something that might actually get you somewhere. Because developers follow the money, and the consumer has it.

If Home is going to survive as an application, it needs to be fiscally justifiable to Sony. It may already be too late for Japan Home and Asia Home — we just can’t see how they’re profitable — but SCEA Home and SCEE Home are likely a different matter altogether. At least, for now. So this doesn’t mean you should blindly spend money on everything just to try to keep the lights on; rather, it means that you should make sure your voice is heard on what you will spend a premium on, because then you might end up with something fantastic and Home might keep going for a while longer.

Or, hey, keep whining about how prices should be lower. That approach sure seems effective, after all.

August 15th, 2013 by | 7 comments
Terra _Cide is the former Community Manager for Lockwood Publishing and Editor Emeritus for HomeStation Magazine.

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7 Responses to “Does Home Have A Middle Class?”

  1. KrazyFace says:

    As I’ve said before, I’m all for sales and reductions. The super-bargain is what I look for the most in all of my gaming purchases. I got The Saboteur for £6, Spec Ops: The Line for £5, Journey (Collector Ed -- disc) for £10 and of course all those lovely “free” goodies from Plus. It’s not about being mean, it’s just the “YES” moment you get when you find something for a song. Maybe I’m a tad OCD with it; I do the same thing with in-game money lol!

    But I’ve Bern spending a lot in Home lately across both regions; LOOT’S night time Hollywood was a massive steal, but I’ve always felt LOOT are clever with their pricing, even though sometimes, I wonder how they make any money at all, heh. But VEEMEE are snapping at the heels of all other devs in Home right now, and I’m sure I’ve already parted with around £30 and $40 on them ALONE in the last month or so.

    Saying that, I’ll impulse-buy too, not very often but I do. Just the other week I saw a girl with a cape and instantly ran off to drop nearly $5 on the thing. Yet I’ll ‘have to consider’ if a dev asks for a bit more than that for an entire space!

    Yeah, so I’m fickle and emotional with my spending and probably not a good example to put under the microscope but as much as I procrastinate over buying new property or whatever, I’m still likely to go throwing my money at stuff like an excited child should the right toy come along.

    We all know that Home wouldn’t survive without its spenders, but I’m never under the delusion that my sole spending habits are keeping THE WHOLE THING AFLOAT like some are. Microtransactions being as they are however, well, I’m quite sure each company knows how steady their financial keel is, and really; that’s for them to know and us to find out later!

  2. Jin Lovelace says:

    I won’t even expound on how much money I’ve spent on Home. It would be pointless. :/

    It’s simple: if it brings me good experience, I will buy it. If not, I won’t touch it. As a consumer, quality is key.

    Complainers will complain, period. It’s funny, however, the forums had this mindset for years and honestly thought their voices have been heard.

    Good article.

  3. Burbie52 says:

    It all really comes down to the old adage, “you get what you pay for”. If you want anything to be worthwhile in this virtual world we inhabit you will have to be willing to pay for the experience. Like the kids who roam around Home saying there is nothing to do because they aren’t willing to spend the time exploring a bit, people should take the time to look for bargains and also think about what went into creating the things they are saying cost so much.
    In the case of something like a personal space, it could have taken months to do this as well as a bit longer to pass the Q and A and get launched. The more complex the item the more time and therefore manpower it takes to make.
    Sorry people but even developers need to eat, have a roof over their head and raise their kids. So try to be a little more constructive and find a solution, because like the adage says, “if you aren’t a part of the solution, you are part of the problem.”

  4. SACRILEGE! Terra, my dear friend, how can you poke jabs at the nectar of the Gods (Starbucks)??? Lol! All kidding aside, I have often caught myself debating whether something is with buying on Playstation Home. I, being a strong supporter of Home, usually end up getting things that I immediately regret, I feel that I want to do everything possible for the various PS Home developers to make a living or of providing content for us. I felt dissapointed by the quality (or lack thereof) of The NEW Diamond Mansion pieces, yet I I did buy them. I feel it is important that these developers have the opportunity to make a profit from our community. Next round of Starbucks is on me! :-)

  5. Please excuse my phone’s autocorrect ‘mistakes’, it’s my phone’s fault!

  6. Dr_Do-Little says:

    I’m usually a strong advocate for more fair price for the 3rd party Dev.
    I remember paying $10 for my Fusion Mech and saying I got $8.50 worth of fun on the very first night. Like many others I spent quite a lot of money on Home. I regret very few purchases and I’m the only one to blame for most of it.
    But for the past six months or so I did not spent that much. Problably moving from whale to middle class, or lower.
    I don’t mind paying for quality. Over quantity, thats for sure.
    But, $10 for a poker table using 26(?) slots when I already have one that cost me something like $4? Add the fact my old one gives reward to guest when the new one does’nt!
    There is something wrong there.

  7. Gary160974 says:

    Complaining that’s home for you, the human mind likes a good negative and tends towards negatives rather than the positive. If it wasn’t prices it would be something else. If home is a con and over priced, its not compulsory you go there. But people do, usually because they can complain or step on others. There seems to be more users with issues on home than any other social MMO.

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