Pay What You Want — a Sustainable Business Model? 133
revealingheart writes "As 2010 comes to a close, it could be remembered as the year pay-what-you-want pricing reached the mainstream. Along with the two Humble Indie Bundles, YAWMA offer a game and music bundle, and Rock, Paper and Shotgun reports on the curiously named Bundle of Wrong, made to help fund a developer who contracted pneumonia. More examples include when Reddit briefly let their users donate an amount of their choosing for upgraded accounts when they were having financial difficulties; the Indie Music Cancer Drive launched Songs for the Cure for cancer research; and Mavaru launched an online store where users can buy albums for any amount. Can pay-what-you-want become a sustainable mainstream business model? Or is it destined to be a continued experiment for smaller groups?"
Re:Publicity worked for Humble Bundle (Score:5, Insightful)
I don't think it can function without the fixed price system working in sync.
Sooner or later more people will get used to paying less than $60 for a game by using a digital download like the Humble Bundle and sales through Steam. I don't think I can ever justify paying even $40 for a game ever again, just in my experience. I've now come to think that full feature titles are only worth about $20 - and if they aren't on sale throughout the year, they will be eventually. When I can get any number of indie titles for 5 or under, that's even more reason.
Eventually it'll reach a point where I think $20 is almost too much, and that $5 is average, and that a "Pay what you want - oh sweet, only $1" scheme might take over. Which won't be nearly as profitable.
I need those higher up publishers ripping people off in order to keep my perception of a games worth in perspective.
And then years down the road, pay what you want turns into basically freeware.
Re:Publicity worked for Humble Bundle (Score:0, Insightful)
Due to high production cost most games even at the $50 and $60 level loose money. It's easy to say make nothing but hit games but no one has pulled that off yet. It's like movies people like the big budget stuff. If Call of Duty sold for $5 they couldn't sell enough copies to pay the production expenses and it's the biggest hit going. The system used to be market driven in that budgets were determined by potential profits but soon the reverse will happen in that profits are starting to drop so budgets and quality will drop as well. In 10 years the big budget games may disappear between steep discounting and piracy. Everyone will just have to get used to low budget games since they don't want to pay for the big budget games.
Re:Publicity worked for Humble Bundle (Score:4, Insightful)
Sorry but you "zero cost" people are talking utter bullshit. Support, patches, maintaining a community, marketing, hosting, payment processing, running a real-life bureaucratic nightmare (i.e. a business), all that annoying shit you need to actually survive while you make the next game and so on don't grow on trees for free. How about you publish a game and run a business yourself, then come back and tell us how everything is free and runs by itself?
Also, the "better 5 than nothing" argument is heavily flawed. They definitely lost full-price sales to people who only paid a fraction of that. It's only really viable if you get a huge volume to compensate the massive decrease in per-sale profit. For one of those games it's likely around several dozens of bundle sales to compensate one full-price sale (low average price divided by 5 games, minus donations and fees is hardly anything). Without the publicity to back it up, it wouldn't work.
Re:Publicity worked for Humble Bundle (Score:3, Insightful)
Also, the "better 5 than nothing" argument is heavily flawed. They definitely lost full-price sales to people who only paid a fraction of that.
I know I'm probably falling for a troll here, but can you prove that those who paid less for a game through a pay-what-you-wish thing are guaranteed to have paid full price if the cheaper option wasn't available?
If you can prove this, I recommend you apply for a job on the RIAA's legal team. From what I read here on /., they could probably really use proof of this idea.
And just to disprove your statement with one (admittedly, anecdotal) counterexample already: I know I've come across games before on Steam that were $20, for which I would have been willing to pay $10, or that were $10 and for which I would have paid $5. Therefore, I am not guaranteed to pay full price if the cheaper option isn't available. Therefore, your statement is false, and you cannot know how many full-price sales you lose to events like Humble Bundles.
Re:Publicity worked for Humble Bundle (Score:5, Insightful)
You're failing basic supply and demand principles here.
For computer games, supply is effectively infinite, so we can ignore that side of the equation, and we need only look at demand.
The question is, is $20 the optimal price point?
Taking your example, only 100 people will pay $20 for the game. At $30, say the number drops to 50. Sales just went from $2000 to $1500 by raising the price. However, if the $30 price point only has 10 fewer purchases, well now your sales went up to $2700. In this case, the $20 price point is clearly too low.
On the other hand, if $20 is too high then things will go something like this: the price is dropped from $20 to $5, and 900 more people are willing to buy the game at the drastically reduced price. That's $5000 for selling 1000 copies at $5 vs $2000 for selling 100 copies. The $5 price point is the clear winner here. To continue, dropping the game to $1 may only increase sales by another 3000 copies, sounds like a lot, but that only gets you $4000 total - a loss from the $5 price point. On the other hand, dropping down to $1 may actually boost sales to 10,000 copies, a clear win.
Each product has an ideal price point, where the demand for the unit and the price needed to match that demand produce the greatest possible profit.
This is why stores have sales. Think for a moment about Black Friday - the most profitable shopping day of the year. It is called Black Friday because it is the day when most retail stores go from being "in the red" - i.e. no profit for the year - to being "in the black" - profitable. How can this be, when it is the day when retail items are at the lowest price they will be all year?
The answer is demand. You will always increase demand for a product by reducing the price. For almost all products this also means an increase in profit. The question is not whether reducing the price will bring in more money, the question is at what point will reducing the price stop bringing in money. With retail sales there are hard limits - things cost a certain amount to make, so the price cannot be reduced below that and still make money (on that item - you can sell for a loss to boost sales of other items, for an overall profit gain - see Xbox 360 vs Wii for a good comparison of the two strategies). With digital sales the limit is simply a number that needs to be met (the cost to make the first copy), the hard limit (bandwidth & server costs) is so minimal as to be insignificant.
This also illustrates the genius of retail sales. At retail, an item initially sells for its highest price. Once most of the people who are willing to pay the high price have purchased the item it goes on sale, bringing in a whole new set of customers who were not willing to buy at the higher price but are perfectly willing to buy at the new, lower price. Depending on the nature of the item, the new price could become the permanent price, or it could go back to the old price. Either way, once sales level off, there is another sale, and a whole new slew of customers come in to buy the product.
This allows the retail stores to extract the full profit at each stage. For my example, it would combine the $30 profits, $20 profits, and $5 profits. You would end up with $1500 for the 50 who would buy at $30 or less, another $1000 for the remaining 50 who would buy at $20 or less ($2500 for the first 100 sales), and $4500 from the remaining 900 who would buy at $5 or less. Once the money train has dried up, you can then even drop to $1 to catch the remaining 3000 people, for another $3000. This brings the total profit to $10000, and eliminates the risk of dropping the price too low.
As you can see, in my example the last two bumps were the most significant, but for other products that could easily happen at other price points. For example, a polarizing game with a core of fanatical fans but not many others who would be willing to purchase the game no matter the price. You might only get 100 people to buy,