View from the Road: No Such Thing as a Free Lunch

[VanBasten]

You're forgetting that half of the playerbase (the Asian half) only accounts for 5-10% of the REVENUE.

If that is the case and Blizz gets 5-10% of revenue on half the playerbase, and WoW is still profitable in Asia, can you imagine what the profit margin on the western part of the market would amount to?


I do agree that it is silly to think that a company would lower the price for something that obviously brings them a lot of money, however what I find even sillier is people defending those companies pricing policies as if they had stock options in them. Just as it's normal to want something to be more expensive if you're selling it, it's also normal to want something to be cheaper if you're the one buying it.

Arguing that development costs that much therefore the game should be priced this much and upkeep is this much so subscription should be that much and microtransactions should cover that much is pointless. There is no way any of us can determine the objective "worth" of a game, this is and always will be impossible in the world of software where large budgets are sunk into it without knowing the exact number of users that will buy it in the end. Some MMO's go epicly huge like WoW, some go epicly bust like Tabula Rasa.

Ultimately, as with everything, each person decides for themselves if something is worth the asking price, and whatever one decides nobody is wrong in their choice.

 

[John Funk]

You're forgetting that half of the playerbase (the Asian half) only accounts for 5-10% of the REVENUE.

If that is the case and Blizz gets 5-10% of revenue on half the playerbase, and WoW is still profitable in Asia, can you imagine what the profit margin on the western part of the market would amount to?


I do agree that it is silly to think that a company would lower the price for something that obviously brings them a lot of money, however what I find even sillier is people defending those companies pricing policies as if they had stock options in them. Just as it's normal to want something to be more expensive if you're selling it, it's also normal to want something to be cheaper if you're the one buying it.

Arguing that development costs that much therefore the game should be priced this much and upkeep is this much so subscription should be that much and microtransactions should cover that much is pointless. There is no way any of us can determine the objective "worth" of a game, this is and always will be impossible in the world of software where large budgets are sunk into it without knowing the exact number of users that will buy it in the end. Some MMO's go epicly huge like WoW, some go epicly bust like Tabula Rasa.

Ultimately, as with everything, each person decides for themselves if something is worth the asking price, and whatever one decides nobody is wrong in their choice.

Blizzard also doesn't have the upkeep costs in Asia - that's the responsibility of NetEase et al.

I'm not determining objective value. If you find the WoW subscription too high, that's your choice - in that, you're absolutely right. For me and for millions of others, we find it worth it. But the suggestion that Blizzard should lower its subscription because it's suddenly making too much money is absurd.

 

[VanBasten]

If you find the WoW subscription too high, that's your choice - in that, you're absolutely right. For me and for millions of others, we find it worth it.

I am in the millions of others, I do play WoW and I do think it's worth it.

However,

But the suggestion that Blizzard should lower its subscription because it's suddenly making too much money is absurd.

When you cite development costs and upkeep costs as the reason the game should cost that much, as you and many others did, it's not absurd that people notice that the profit margins are still very, very high and it's not absurd to conclude that it really could be cheaper and still make a lot of profit for Blizzard.

Think of it this way, if you knew that the production cost of an awesome car is 10,000$, but the company is selling it for 100,000$, it wouldn't be absurd to say it should be priced at 15,000$.

That sort of thinking is of course completely wrong when it comes to software, but that's what you get when you try to justify subscriptions by giving numbers for total costs, people notice the number after total revenue as well and start seeing it like a giant car. Which it isn't.

 

[John Funk]

If you find the WoW subscription too high, that's your choice - in that, you're absolutely right. For me and for millions of others, we find it worth it.

I am in the millions of others, I do play WoW and I do think it's worth it.

However,

But the suggestion that Blizzard should lower its subscription because it's suddenly making too much money is absurd.

When you cite development costs and upkeep costs as the reason the game should cost that much, as you and many others did, it's not absurd that people notice that the profit margins are still very, very high and it's not absurd to conclude that it really could be cheaper and still make a lot of profit for Blizzard.

Think of it this way, if you knew that the production cost of an awesome car is 10,000$, but the company is selling it for 100,000$, it wouldn't be absurd to say it should be priced at 15,000$.

That sort of thinking is of course completely wrong when it comes to software, but that's what you get when you try to justify subscriptions by giving numbers for total costs, people notice the number after total revenue as well and start seeing it like a giant car. Which it isn't.

If you're referring to my comment to him, I was just correcting his claim that it had 1.7bn USD in profit every year.

The fact is, we don't KNOW what the profit margin is. Blizzard could be making only a dollar's profit every month off of all the subscribers - unlikely, yes, but not impossible.

In the article, I wasn't trying to make a direct link between operating cost and revenue, merely "These things are dag expensive to run, yo."

 

[VanBasten]

In the article, I wasn't trying to make a direct link between operating cost and revenue, merely "These things are dag expensive to run, yo."

I joined in on the off the topic part of the thread where other people started pulling various numbers to justify differing opinions on how much WoW should cost, yours was the last post in the line so I appended to that, I wasn't replying to the article.

To sum up my point, even if someone has the correct numbers, which nobody does, using them as an argument is useless, if you have a successful, profitable game some people are going to say it's too expensive(interestingly, if a game fails financially nobody is going to say they should have charged more).

 

[Eyhren]

I'd say Valve go even further than that. It's not just TF2 that sucks people in, it's their entire company. They know that if they are outrageously nice guys that make extremely good games and support them through a fantastically well-integrated platform, they will win. And they have.

 

[samsonguy920]

This brings to mind Ubisoft's DRM servers it puts to use for current games, and isn't charging a cent to use. I often wonder where the revenue for that comes from, if it takes a cut out of sales or perhaps through ad revenue.
And whether it stays that way.

 

[Magnalian]

Writing this column made John Funk hungry.

How about I buy you lunch?

 

[RvLeshrac]

Very nice.

As I saw the number, I was suddenly curious whether just subscriptions maintained the $136,986 per day. After the number crunching... Blizzard gets $5,500,000 a day, so they have $5363131 per day. Of course, with 11 million players...

Sorry, but I doubt your numbers are accurate here. You need to keep in mind that out of the 11.5 million players, roughly 5 million come from Asia and they don't use a subscription model like elsewhere. Instead, they pay per hour of play, so Asian players are not a reliable source of income. Plus, as Funk mentioned in his article, the figure 136,986 is only for actualy keeping the servers running. There is a whole slew of other expenses that need to be considered.

I am not saying Blizzard isn't making a fair bit of money with WoW. But I think people tend to oversimplify and exaggerate how much money they make and also ignore how much it costs to maintain an MMO of such a magnitude as WoW.

I think I remember reading that even though it's a 50/50 West/Asia balance in the playerbase, Asia is only 5-10% of Blizzard's revenue when you factor in currency exchanges, the cut that the operators take, and different payment methods.

But don't quote me on that.

Even taking into account the *worst* estimates, Blizzard makes substantially more than $50mm/mo in fees. They also still make money from retail expansion sales.

As of 2008, Blizzard had only spent $200 million on game maintenance.

 

[John Funk]

Very nice.

As I saw the number, I was suddenly curious whether just subscriptions maintained the $136,986 per day. After the number crunching... Blizzard gets $5,500,000 a day, so they have $5363131 per day. Of course, with 11 million players...

Sorry, but I doubt your numbers are accurate here. You need to keep in mind that out of the 11.5 million players, roughly 5 million come from Asia and they don't use a subscription model like elsewhere. Instead, they pay per hour of play, so Asian players are not a reliable source of income. Plus, as Funk mentioned in his article, the figure 136,986 is only for actualy keeping the servers running. There is a whole slew of other expenses that need to be considered.

I am not saying Blizzard isn't making a fair bit of money with WoW. But I think people tend to oversimplify and exaggerate how much money they make and also ignore how much it costs to maintain an MMO of such a magnitude as WoW.

I think I remember reading that even though it's a 50/50 West/Asia balance in the playerbase, Asia is only 5-10% of Blizzard's revenue when you factor in currency exchanges, the cut that the operators take, and different payment methods.

But don't quote me on that.

Even taking into account the *worst* estimates, Blizzard makes substantially more than $50mm/mo in fees. They also still make money from retail expansion sales.

As of 2008, Blizzard had only spent $200 million on game maintenance.

I saw that $200m figure back in 2007 right before the launch of TBC, so...

Again, that is just tech stuff. Physically keeping the game running. The vast majority of the 3,000+ strong WoW team is customer support. That is a lot of paychecks to write out every two weeks.

 

[The Rogue Wolf]

When faced with this fact, one poster posited a real gem of "wisdom": The argument that "since it only costs $3 a month to rent a slot on a Counter-Strike server, then an MMO server should only cost $3 a month per person to run". This mental reprobate was thankfully torn down by everyone who had a clue

According to this article, WoW costs 0,37$ per person a month in server upkeep. So... what was your point?

My point wasn't the cost- it was that people viewed the running of a server for an FPS game, with a maximum of 64 players and a set of static one-off maps, as being exactly the same as running a server for an MMO with comparatively enormous worldspaces and hundreds to thousands of people on them at any one time.

 

[Flying-Emu]

I'm all for the micro-transaction model in an MMO when it's the model replacing subscriptions, as it's a return to an era where if you wanted something, you paid for it, and then you were done because you had it now. Of course they're going to make all sorts of content that you can see but not actually use until you fork something over for it, and of course they're going to make sure it's sitting there all the time tempting the hell out of you, but it's a far cry better than paying a monthly fee irrespective of how often you intend to actually play the game.

On the other hand, I hope more MMOs don't start using this model as I value my free time and depending on the game that might very well spell the end of it, heh! I wouldn't be complaining if the Warhammer 40,000 MMO was micro-transaction supported though.

I do wonder how the profit turns out compared to the traditional subscription format. Because, last time I checked, both WoW and RuneScape are riding high the old-fashioned way. Albeit with nigh-and-day approaches to getting players interested enough to pay, but still both subscription based.

Turbine announced they saw a 500% increase in revenue when they switched D&D Online to this model.

Probably because DDO wasn't a very popular game, and the microtrans system works great for smaller games, because the devoted players will make up for the lower numbers.

 

[BlindMessiah94]

Great article JF, as usual.

I really never thought about MMOGS much as I don't play any, but everything you said makes obvious sense now. Of course it costs money to run those things. I won't complain about monthly fees for online games as much so long as they are providing new content.

Even if they do announce SC2 won't be F2P, I'll still pay. Heck, they've given me over a decade of play with SC1, I'm sure I can trust Blizzard to do the same with SC2.

 

[Calderon0311]

It's kinda funny, but the article is correct on it's points, even though calling out TF2 on it's version of "Micro-transaction" is a bit dishonest to the readers. It should be noted though that bringing up the words "Team Fortress 2" has brought more readers to this article with intrigue then had the small blurb on the main page been something more generic...

That alone does show that TF2 has built quite a bit in it's own value as not only a game, but also as an advertisement in itself.

To put things into perspective, based on the TF2 Blogs, there is a full time team in place that continually works on the game, updating and fixing any bugs, along with planning and play-testing game balances. The size of the team though isn't as large as it seems (As shown here, during the finalizing of Left4Dead, the TF2 Team was mostly whisked away to work on L4D's VS Mode) http://www.teamfortress.com/post.php?id=1823&p=6

This is kinda important though, as seen with previous updates to the game, there are artists and programmers at work, building the things that appear in game, but the fans of the game have made large contributions beyond what most games tend to see. Even before the "Contribute" site as went up, the consent involvement of the fans on the process of building the world of TF2 has lead to it's current value of not only a game, but also that of a badge of quality that can be used in many ways. (See Sam & Max Bonus equipment and L4D2 Hats)

So there's no "micro-transaction" in it's current form of definition (There's no ads per say, or objects to buy in game that are constantly available) but the game itself can be used to influence players to use Steam to pick up other games. (Though discounts, shared interests of friends, or even Tie-ins with TF2)

So yes, there's no free lunch, but that doesn't mean the bottom line is king either. People are more willing to give more, knowing that their free (or discounted) lunch was prepared by others that have a passion in the cooking. (and in this case, in our crazy little world that TF2 can exist in.) Now excuse me while I fight this lion off while getting a haircut... [http://www.teamfortress.com/images/posts/001/barbershop.jpg]

 

[Nohra]

Steam's adverts aren't really obtrusive, I actually like them. You generally only get the adverts once, unlike, say, pop ups every page when you're browsing, and they can give you a heads up on something you might not have been paying attention to, but been interested in.

 

[VanBasten]

My point wasn't the cost- it was that people viewed the running of a server for an FPS game, with a maximum of 64 players and a set of static one-off maps, as being exactly the same as running a server for an MMO with comparatively enormous worldspaces and hundreds to thousands of people on them at any one time.

Actually, they are not that dissimilar.
Most game hosting companies these days have huge data centers and cater to dozens of different shooters that all need to be patched to the latest versions, all that hardware needs to be maintained, and support needs to stand by in case of problems. The only difference is MM0's use a few larger cluster servers, and FPS's use a lot of smaller dedicated servers. Maintaining either has it's own unique advantages and drawbacks, but neither is much easier or cheaper to do.

 

[Daveman]

Isn't it funny how all these games are going away from subscriptions into advertising revenue... whereas the Escapist has made a move in the opposite direction.

 

[HK_01]

Don't get me wrong, but I think you missed the point. I'm not going to elaborate on this because I can't really put it in words, but I think most people will know what I mean.