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.
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.
This 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.
If 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.