free business models in the games industry
DESCRIPTION
This lecture looks at the use of innovative business models based around free services in the Games Industry. The material is drawn from Chris Anderson's book "Free" and a lecture given by Gabe Newell of Valve CorporationTRANSCRIPT
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(Stanford BUS-21)Martin Westhead
Mastering Marketing
Free Business models in Games
How to make money by giving things away
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Overview
Game Monetization Examples- Virtual Goods- Subscriptions- Advertising- Virtual Real-Estate- Pay-to-Win
What Valve is doing- User Generated Content- Relinquishing Control- Abundance thinking
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GAME MONETIZATION MODELS
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Virtual Goods
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Virtual Gold
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Subscriptions
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Advertising
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Virtual Real Estate
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Merchandise
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Pay-to-Win
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Pay-to-Win
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WHAT VALVE IS DOING
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Gabe Newell
Cofounder of Valve Corporation
https://www.youtube.com/watch?v=t8QEOBgLBQU
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Valve
Grow 50% per year for 18 years Higher profit per employee than Google,
Facebook, Amazon… 4th largest bandwidth consumer
- bigger than most countries Corporate culture
- Insanely (suicidally?) flat corporate structure- Laser focus on facilitating productivity
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Games
Innovative Games- Half-life- Team fortress
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Platform for- Digital distribution- Digital rights management - Multiplayer- Communications
Steam
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Steam machines- Steam OS- Console boxes- Controllers
Consoles
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Free to play games- Isn’t that a crazy idea? - How do you make money?
Goods that are created to satisfy - personal expression - Status- Affinity- Hierarchy
Game experience is free but if you want to be cool you’ll have to pay
Free to Play
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Incremental value of audience member is greater than incremental cost of adding them
Typically- Audience size goes up by 10x- Revenue goes up by 3x
But profitability goes up by a lot more than 3x
Network effects
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Trade in in-game goods between customers
Uptick in User Generated content (UGC)
10x more content comes from users in TF2 (Jan 2013) than from Valve
User Generated Content (UGC)
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UGC store
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UGC profits
Interfaces for users to sell content- Split proceeds
First 2 weeks they did this we broke PayPal Top user seller makes over $500K per year Some games professionals employed in other
companies make more selling hats on TF2 than at their day job- Succeeding in enabling their productivity
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Monetary problems
Inflation Deflation Users creating their own currencies Countries adding regulatory structures
- Korea there’s a W4 equivalent for players Liquidity problems
- mini-financial crises at certain times of day Worried about asset bubbles Probably should get an economist involved!
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Economist on Staff
Yanis Varoufakis 2012
- Valve hires economist Fascinated by
economies with all the data
http://www.develop-online.net/news/valve-hires-economist-yanis-varoufakis/0112279
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Creating markets
Maximize productivity… of users- how do you think about what is the value- UGC goods and services
Markets determine marginal value of activities Creativity and the frameworks for that will
vary Probably going to exist a central economy Games specific instances hanging off that
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Creating Value
Many ways that people are adding value- Arbitrage and trading opportunities
- designing, - Trading- Collecting
- Others create a whole game- Models- Artwork- Story
Plumb “ownership” and “authorship” though out the system What about playing?
- Good players bring spectator value- How to monetize?
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Video game parents
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But… Being a really good player is valuable Dota 2 – Dendi
- When Navi is playing you can purchase a banner
% of the banner goes to the team More direct way to engage with the
audience than ads on YouTube Quickly making $100K per year on
banner sales Dendi made over $200K in 2012 in
prize money alone
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Game value
Things that you do have value
Need to have persistence between games
- Preserve value as you move from one game to another
Need to be exchangeable and retain value
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Steam
Today Steam is a curated store - Accept 3rd party games but- becoming a bottleneck to content creators and
consumers Creates artificial scarcity
- Controlling the distribution model- artificial shelf space - but that's not what we are trying to do
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Relinquishing control for developers
Steam should really be a publishing model
Anyone should be able to publish anything through steam
Steam => network API
Enable productivity of developers
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Relinquishing control for players
TF2 anyone can make content- People make a shanka (Russian hat) for characters- No notion of privilege content- should be open
Anyone should be able to create a store Able to trade games
- people buy from my collection and I get a % Some will go to a lot of effort to create a store experience Rethinking two valuable assets:
- who should be on steam- how store should look be created
Rethink them both - let go of control - enable productivity of users
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Steam becomes…
Generalized network service
People will add value
Audience will reward people for creating entertaining stores (market mechanism)
Steam becomes an agnostic platform
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Productivity and Reward
Working through the notions of authorship and ownership
Texture -> Model ->Level -> Seller sells level to customer - tracking the rev share
Build frameworks to help people be productive and rewarded
Even with primitive versions we are helping some people be more productive than they are at their corporations
Constantly thinking about the most useful fundamental ways of enabling productivity
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Summary
Game Monetization Examples- Virtual Goods- Subscriptions- Advertising- Virtual Real-Estate- Pay-to-Win
What Valve is doing- User Generated Content- Relinquishing Control- Abundance thinking