Tuesday, February 22, 2005

Independent game industry business models

Small game development companies are trying to find ways to cut down the cost of producing games. One popular method is direct online sales, right from the company’s website. This approach is somewhat limited by the modest visibility of the game. As a result, company has much higher margin from direct sales, the sales volume fall far behind typical retail sales distribution.

As I see it, there are basically three ways to work around this problem:

Shareware model
Micropayment model
Service model

The first approach is based on the good old shareware model. In this model, game is finished and shipped via network and people can try it out quite freely. These games have extra features or time limitations, which cut the playing experience short. At this point, if the player wants to have more he has to pull out a credit card or other kind of method of payment. Company gets decent exposure for the game but risks sales with too high prices and suffers from high advance development costs.

Other companies, which follow the second approach, believe that getting people to upgrade or order the real version is possible but difficult if the requested fee is high. They rely on micropayments that must be paid if one desires to advance in the game. These games are often simple and static. They run with straightforward logic and have cycles and to complete one must pay. Casual games, casino games and other money or classic games fit into this group very nicely. Once again, retail level is cut off and customers are served directly. The only problem here is that the whole micropayment business model hasn’t really kicked off. It seems to be all too difficult to agree on common method of doing this and now different technologies are competing and spreading on the market place. At this time, it seems like the companies, which are doing most of the money are actually those, which offer the billing technology for micropayments. For so long micropayment has been popping up here and there, it sure has potential, but when it becomes reality...

Personal memory takes me back twenty years to the time of C64. At that time I was engaged in an exhausting fight to get one for myself. I was on the other side and my parents on the other. They thought that C64 was waste of time and money, so I spent my pocket money on arcade games. Without a doubt by the time I finally got myself a C64, I had blown away enough money to buy two of them. Just to get the record straight, this took a year or two. I repeat, the potential for micropayments is there.

Third approach offers the game as a service. After the player has been lured into playing the game, it is just a question of making the game so interesting that people keep on playing and paying. Laser Squad Nemesis is one example of such a game. Game’s developers started from humble beginning, but they have been constantly improving the game and now it is packed with features. Players like it and compete against each other, and in the end a community forms around the game service. No retail in between.

In the next article I tell you about a company that is trying to push the envelope.
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