Free Business Models in the Games Industry

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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 Corporation

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Free Business Models in the Games Industry

  1. 1. (Stanford BUS-21) Martin Westhead Mastering Marketing Free Business models in Games How to make money by giving things away
  2. 2. 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
  3. 3. GAME MONETIZATION MODELS
  4. 4. Virtual Goods
  5. 5. Virtual Gold
  6. 6. Subscriptions
  7. 7. Advertising
  8. 8. Virtual Real Estate
  9. 9. Merchandise
  10. 10. Pay-to-Win
  11. 11. Pay-to-Win
  12. 12. WHAT VALVE IS DOING
  13. 13. Gabe Newell  Cofounder of Valve Corporation https://www.youtube.com/watch?v=t8QEOBgLBQU
  14. 14. 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
  15. 15. Games  Innovative Games - Half-life - Team fortress
  16. 16. Platform for - Digital distribution - Digital rights management - Multiplayer - Communications Steam
  17. 17. Steam machines - Steam OS - Console boxes - Controllers Consoles
  18. 18.  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
  19. 19.  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
  20. 20.  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)
  21. 21. UGC store
  22. 22. 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
  23. 23. 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!
  24. 24. 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
  25. 25. 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
  26. 26. 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?
  27. 27. Video game parents
  28. 28. 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
  29. 29. 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
  30. 30. 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
  31. 31. 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
  32. 32. 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
  33. 33. Steam becomes…  Generalized network service  People will add value  Audience will reward people for creating entertaining stores (market mechanism)  Steam becomes an agnostic platform
  34. 34. 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
  35. 35. 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

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