Premium Market Position

While our MMO companies battle for the mainstream dollar, I can’t help but wonder if any are forward thinking to the premium dollar customers – or if that market even exists in the gaming world. In the simplest of comparisons think Price Chopper vs Whole Foods. The first provides basic food at cut rate prices. The second provides food that is better for you but costs a lot more. The first tends to be less clean, more crowded, and more basic. The second is a better overall shopping experience, if you are willing to pay for it. Even looking at their websites you get the impression of the difference in quality and the markets both are trying to capture.

I drive a Lexus. I don’t say that in any snooty way, or think that makes me special by any means. In fact, it barely cost more than the GM I drove before it. My experience with domestic car makers over the years has been a major let down on such a major purchase, and after getting a $1500 bill to repair my windshield wipers on my 2006 GM, I had had enough. While the entry price for the GM was more manageable (and I was supporting the local factory as well), every time I went into scheduled service after the warranty had run out it cost me an additional $500 to the aforementioned $1500. Beyond frustrated I did my research and bought the Lexus. I now have bumper to bumper warranty for 200,000 km, a safer, more comfortable drive, and something that will hold it’s value much better. Back to my GM for a second – it cost me $38,000 and was a 2006 model (with 128,000 km driven – yes, I drive a TON for work), and when I went to trade it in this year the black book value was $2500 – $5500. Compare that to my brother’s Toyota, that he has had for 9 years, has 300,000 km on it – still holding a black book value of $16,000.

Oooh, shiny!

Last car point before back to gaming – I drove over a nail on the highway two weeks ago, and was awful nervous what it was going to cost me to replace that tire (Pirelli). When I took it into Lexus for service they informed me my tires were covered for 36 months, and I got the tire replaced for free. I was very happy with this – afterall, the tire didnt fail from the manufacturer, neither they or myself could have controlled how that nail ended up on the highway at the point I was bombing down the highway. That surprised value has created a definite customer loyalty and satisfaction I haven’t had in my lifetime of owning domestic vehicles.

The point of talking about grocery stores and cars is to illustrate the point that as a consumer I will pay for value. My wife will argue that I am actually ‘cheap’, although I argue I just hate throwing money away. Investing in something that holds extra value isn’t cheap to me, its sensisble consumerism.

Most industries work this way. There is always a more expensive version of whatever you own, and savvy companies capitalize on this through branding and value and make their profits on margin vs units sold. In the gaming sphere, am I alone in saying that I would pay more for a better experience?

Easy gaming examples – I would pay more for WoW for an adult only server with extra features (with housing, for example). The server would most likely be less populated which would allow for housing in the first place. Other features that would be worth paying for for me including removing mechanics that artificially elongate content (dungeon lockouts, dailies, etc) and additional customization options. Blizzard has those items flagged as things that don’t add value to their current subscriber base, so they don’t allocate their scarce resources to build on them. They may be fluffy examples, but I would pay more for them. There are better ways to build the premium product, but those are just off the cuff.

In a gaming world where companies are going the other way – where they are easing entry barriers and going Wal-Mart in design instead of Boutique, surely a company out there can recognize that by making a better game they can position themselves not as ‘niche’, but ‘premium’. It makes the most sense for an existing company to build on their existing success to test this market. Back to cars, Toyota owns Lexus. They have thier base affordable car for the ‘masses’ but have that premium option. They sell far more cars branded Toyota than Lexus, but Lexus is very profitiable – because they build up from their base models and offer more. It takes far less effort to enhance the basic offering as the guts and basics are already there.

Instead of not paying $15 a month right now for a shallow and basic gaming experience, I’m willing to pay more to get something better. I would be surprised if there isn’t a growing consumer base willing to do so – when I started gaming the monthly sub was a lot to swallow, but as I matured and became more gainfully employed games didn’t grow in the same way. I bet that many people who grew up in the MMO marketplace are in the same position as I am – and are ready to invest in a premium MMO if so designed.

9 comments / Add your comment below

  1. I would have to agree. I’ve seen people mention this on different forums from time to time, usually asking for an adult or 18+ server. Your article greatly expands on that though. I think the time is right for something like this to hit the market. As much of the “original” mmo audience is getting older(myself included) many of us have more disposable income than we used to. yet no one is offering a way to give that to them other than through cash shops and micro transactions, which many of us do not like. This is also a very nice way to market an mmo and avoiding the dreaded word “niche”.

    Nice car btw, just be wary of having paid services done at the dealer. I take estimates from repair shops all day long in my job and you will pay an ultra premium for very little in return there.

  2. Thanks MMO. I have a natural distrust of dealerships – because I’m not savvy when it comes to cars. I also like to take care of the things I own, so when a dealership service rep says “you should do this” I typically want to, but unsure if it is actually a good investment.

    Funny thing about my Lexus dealer, every Saturday they give free detailing to your car. Come in, have a coffee, and they clean your car. No strings attached. It’s an interesting marketing idea that again, builds loyalty. The only benefit I can see apart from that loyalty is that now there are a bunch of really shiny cars driving around town on a Saturday. Good marketing return there, I suppose.

    Other anecdote – I noticed my front tires were accumulating a lot of brake dust. When I brought it up tongue dealership they did a quick scan on their computer system and noticed it had been brought up on my model before. They replaced the pads – free of charge – with a newer model of brake pad that created less dust. I was again, pleasantly surprised.

    I half suspect Tesh will stop by here and remind me that gaming is still a young industry and that these type of advanced market ideas are typically reserved for mature industries. 🙂

  3. Hrm, time to rain on the parade. I’ve ranted about business problems before, but here’s an abbreviated version.

    The problem here is that gaming is seen as a consumable commodity. Yes, you’ll pay a bit extra for a good car, but would you pay more for a chocolate bar? If you saw 2 chocolate bars you’ve never tried before at the grocery store, one in a plain plastic wrapper for $1.50 and another in gold colored foil with the words “super premium” on it for $3, which would you buy? For most people, there’s not enough differentiation between these two products so they’ll likely buy the cheaper one barring a specific reason (like not liking that brand, etc.)

    This is the problem with MMO gameplay. There’s not enough to differentiate between different games until you actually get into the game and experience it. On the surface, the games generally look the same. Trying to set yourself apart from the rest (like being a white chocolate bar to extend my metaphor) has shown to be unsuccessful in a majority of situations. People like DIKU-based gameplay and that’s what they’ll pay for. Saying that you’ll offer super-premium services (the equivalent of detailing your car) doesn’t mean people will gladly pay extra for your service.

    As for individual companies offering additional services, that’s a simple business equation. Does the cost of building a feature (like housing) PLUS the cost of losing whatever those developers would have built (like new group content) equal less than the income gained by people interested in that new feature? The sad reality is that Blizzard sees housing as a very complicated thing, otherwise they would have done it already as much as they’ve talked about it and people have asked for it. But, the cost of doing so and the cost of losing some development people is likely greater than the money they’ll make from people who will play WoW when they normally wouldn’t specifically for that feature. Last I heard, Activision was still making money hand over fist on WoW, so a lack of housing isn’t hurting them.

    Finally, the MMO industry is in a messed up situation anymore. Consider that Final Fantasy XIV, the latest MMO, is considered a failure despite selling over 400k on just the PC in 2 months (if is accurate.) However, the negative reviews have been astounding here. I’ve not played FFXIV, but it sounds like they were at least trying to do something that wasn’t the typical DIKU-derivative crap. Not even the Square/Squeenix/Final Fantasy brands are strong enough to make people give it a chance to work out the kinks. I suspect that there was a one-two punch of out-of-control costs and overblown expectations, but that doesn’t ease the fact that a fairly well-selling game from a well-funded company is now fighting for its life.

    In summary: Yes, the market is fucked. Yes, we all know it’s fucked. No, it’s not getting better anytime soon. No, nobody is happy with it. No, nobody knows what to do. Welcome to the suck.

  4. Rough day Brian? 🙂 *hugs*

    On the suckage, fully agree my friend. That’s why I have been voting with my wallet as of late, which no doubt puts me firmly in the minority – I read a comment quote somewhere on our fine blognation that roughly read “we dint play the games we want, only the games that are given to us” (verbatim – I think it was actually more eloquent than that). Big invested public companies will chase the dollar – not mine, or others like me, but where the fat cash is. While I can wax poetic about all sorts of ideas to create a game I would enjoy I am rooted in the obvious here and now, and realize they aren’t coming anytime soon.

    ‘Luxury’ items are created based on needs and tastes, and as mentioned in my first paragraph it isn’t obvious that that market exists yet in this sphere – but it will be someday, when the market matures and figures it all out. I used WoW as an example of having the base done and ye mechanics in place to build upon it – but I’m not so naive to not recognize they are going the other way – working towards less challenge, less immersion, less consequence. That could capture today’s Gen Y crowd which isn’t what many of us are after. The stock ticker requires the lowest common denominator to get bigger.

    I know, I know. Try pitching a multimillion dollar project to investors where te goal is to capture an audience with acquired tastes – an audience who has more to spend sure sounds like a good demographic but read enough blogs/pundits and there isn’t enough concise data on even what that demographic wants. Think Timex vs Omega – some people just want the time, others want it at 1000 ft depth. Watches have been around long enough that researchers know how to capture their respective markets.

    The good about Final Fantasy? People who like that game actually LOVE it. (from what I have read) detractors aside, it has at least set the example that you don’t have to be like everyone else. Time will tell if there are enough people paying to give what any normal industry would consider a solid ROI – and then hopefully the industry sets that expectation for future titles and a solid 2 year return on their investment, with profits afterwards, becomes a new realistic expectation.

    Once investors and companies start believing – and proving – you don’t need millions a month to be ‘successful’ and that game development isn’t a lottery windfall, we’ll be ok and people will start experimenting with different models. A lot of testing is going on right now in the market, results will be interesting.

    A real estate developer friend of mine spends millions to make 6-8% ROI and that is considered normal and just fine. Why does the gaming industry insist on such ridiculous expectations?

  5. Rough day Brian?

    Not so much of a rough day, but I’m helping someone who is trying to raise money for a rather interesting twist on the traditional MMO. But, as soon as you mention “MMO” or “virtual world” the VCs tune you out these days. Instead of wanting the next WoW, now they want the next Farmville. This has put me in a bit of a mood about the business side of things.

    Why does the gaming industry insist on such ridiculous expectations?

    The problem is that games are a hit-driven business; this means that 1 hit game makes up for the shortfall from probably several other games. MMOs, however, are ungainly beasts so you can’t diversify in the traditional sense and build a lot of them. (Well, you could, but it’s hard enough to build one, so let’s not get into that option quite yet.) So, you have to put a lot of eggs into one basket and hope for a good return.

    But, perceptions are skewed. Again, a single-player game from a big publisher isn’t just making money for itself, it’s also making money to cover all the lame bets the publisher has made on other types of games. So, there’s an expectation that any game has to make a huge ROI to be successful. The second skewing factor is WoW, where an MMO has shown even greater than expected ROI to the point where the premier PC developer (Blizzard) pretty much forgot about single-player games for quite a few years.

    When you start talking about VC investment, we once again have the hit-driven business model where a lot of investments fail, but a few succeed on levels that make such risks appealing. Unfortunately, both VCs and publishers like to pretend that they can pick the hits and ignore the misses. So, VCs are generally skittish about investing in games since they can’t predict the successes quite as well as they might like and therefore don’t invest much into games. The perception is that MMOs will “fail” because none of them have lived up to unrealistic expectations set by WoW.

    The problem is that while MMOs don’t necessarily require $50 million to launch, they do require a fair amount of money. This means that funding a rational MMO falls between the multi-millions with the expectation of spectacular ROI on the VC side (if they’ll give you the time of day) and the hundreds of thousands you can get from individual angel investors. Trying to line up a dozen angels to get the few million you need is a LOT of work, meaning either a developer has to spend time dealing with investors or you bring on a “biz guy” with all the headaches that can imply.

    As for FFXIV, even if the people who love the game love it, it doesn’t matter. From everything I’ve read they’re getting savaged in reviews and on blogs. Squeenix has announced that they’re giving people 2 additional months on top of the free month in an attempt to keep people playing. They’ve promised radical changes to the game; we’ll see if those changes amount to “try to copy WoW more and hope people like the game anyway.”

  6. “Instead of wanting the next WoW, now they want the next Farmville. This has put me in a bit of a mood about the business side of things.”

    Oddly enough, I had put that same token in my original article – I ended up taking it out but I feel WoW is working to become more Farmville and less MMO. I took it out to not be snippy to WoW, but they are dumbing down the game to look more like it.

    Growing capital is frustrating, especially in a skittish market. My fascination with the business of games is how messed up it all is. It is all contrary to common business practices and expectations. That part drives me nuts.

    My ‘claim to fame’ in my business life thus far is that I was able to pry millions from a bank DURING the credit meltdown. Smack dab in the middle, a month after Lehman Bros went the way of Tabula Rasa. I suppose that feat has many in business circles wondering how and people ask me often. It wasn’t a miracle pitch or anything either – sound plan, right team, right message. While it was quite the fight during that time but I kept pushing, and now, funny enough, lenders are approaching me to give me money (which I don’t need). It probably has to do with the fact that I paid back over 30% of the money in the first year, but the whole experiment is done in the ‘real’ business world.

    My point about FFXIV, with it’s estimated 80 million dev budget, is that 400k people paying $50 for the box is 20 million, not bad. If half those people pay the $15 a month and the game stays stagnant, they’ll make 36 million over the first year. That’s a one year return, and year two will be mostly profits. That’s a good business plan. If they can build those subs up a bit, and sell a few more boxes, it’s poised to make millions. This from a deep pocket developer who has had many successes in the past.

    So, who cares if the community thinks it is a flop, if the game is positioned to make millions of dollars over a couple years, it’s a good business. As you mention, that’s ill-labelled as a failure in an industry that can’t figure out what a success is.

    I have a lot more to spew here, but will save it for a new post =)

    Best of luck with that funding.

  7. My fascination with the business of games is how messed up it all is. It is all contrary to common business practices and expectations. That part drives me nuts.

    You and me, both.

    sound plan, right team, right message.

    Doesn’t matter what you have if they shut you out as soon as MMO is mentioned. I was in a call with one VC that went in circles. Zero interest in investing right now, but he didn’t want to close down a potential avenue later, of course.

    It just reinforces what I’ve been saying about why innovation doesn’t happen and why user support for something beyond the dominant game is so very important.

    So, who cares if the community thinks it is a flop…

    Squeenix does, obviously. As people have said, the game industry runs on cool. Having an MMO that is perceived as unpopular not only discourages others from trying it, but also lowers morale on the dev team. This can lead to long-term problems.

    You are absolutely right, of course. This is still a project that could make a significant chunk of money. But, it’s not enough.

  8. “‘So, who cares if the community thinks it is a flop…’

    Squeenix does, obviously. As people have said, the game industry runs on cool. Having an MMO that is perceived as unpopular not only discourages others from trying it, but also lowers morale on the dev team. This can lead to long-term problems.”

    Of course – and apologies for not clarifying – you are absolutely right. The ‘who cares’ is not directed at that, more that they shouldn’t care that it isn’t the next WoW ROI-wise, cater to their happy customers, and sit happy knowing they will stand poised to make millions. Sure, maybe not WoW-millions, but millions nonetheless.

    (also, just read box sales are now up to 680,000 units)

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