Since you’ve been talking about MBA Lessons, can you think about the accounting ramifications here? Maybe you’re as unqualified to think about this as I am, I’m not sure. I know that Apple has been showing iPhone revenues on a subscription model so that they can deliver free OS upgrades. This has caused the iPhone’s success to not appear as AMAZING as it would if they accounted for this differently. Is there a difference in the way that the $50 cost of admission is accounted for differently than a subscription that is beneficial to a company? Does the same apply for a microtransaction vs a subscription?

Hey Jason — while the appeal of the “two part tariff” concept may increase if you have limited physical space for customers, it is ultimately independent of space/bandwidth considerations. Whether you can support 100 or 100 million customers, the question remains: what is the most effective way to maximize your revenue from those customers who ultimately choose to engage your business? (Revenue, not profit.)

A $10 tariff is unlikely to discourage the visitor who has $1,000 to spend on booze or virtual items. So what percentage of the other visitors (let’s call them “normals,” since they comprise the vast majority) will walk away because of the tariff, and how many will pay? If even a small percentage choose to pay (enough to maintain a vibrant world for the rich kids to play in) then the revenue generated by those players may well exceed the revenue “lost” to normals who chose not to stick around. In fact, I’d go so far as to call that scenario extremely likely, because as we all know, the vast majority of normals do not ever pay a cent to play. And like I mentioned earlier, the rich kids are unlikely to be deterred by the tariff.

Now, you could argue that a tariff will depress word of mouth — which may lead to a smaller number of rich kids finding their way to the virtual world — but it’s not clear how much of a problem that would actually be for a well-marketed virtual world with a reasonably long free trial. And it’s also not clear that the loss of a few rich kids would outweigh the revenue extracted from the normals who would have free-ridden but who are now paying a tariff. So bottom line, I’m still pretty enthusiastic about this (for the right MMOG!)

The club analogy doesn’t quite fit right, as the managers have to contend with limited space. Maximizing revenue per body-space is key, and drives the economics of the club.

This does not hold true in MMO/VW settings, and as such the same logic doesn’t quite apply.

Though, agreed, the various payment methods do not have to be mutually exclusive…

Jason

To extend your nightclub analogy, some clubs (e.g. Tokyo ones do this a lot) have an entry fee that comes with N ‘free’ drinks. No difference between that and saying N drink minimum with no entry fee.

I’m sure there’s room to combine them, but there are differences in the game design, I’d imagine. Sub-driven games looking to get people on a levelling treadmill – good hearty fun you have to earn your way through. the item-driven games are fun from day one, but you can increase your standings or showboat via ingame items.

To dial up the tension on that argument to make the point: Ideal customer in paid-item game is someone who comes in and blows $1000 in one night decking himself out to be the cats meow. Someone who does the same in WoW (via a goldfarmer or whatever) is reviled.

So, you have to have a game that supports both gameplay models in an orthogonal, non-conflicting fashion, so that neither group is bothered by the presence and measure of success of the other.

“Tastes great, less filling”?

I haven’t explored exactly what you suggest, but for one of the projects I’m currently consulting on – a Flash CCG based on a kids TV program – I’m considering implementing a subscription fee that grants x amount of virtual currency every month. I.e. pay $5/month, get 500 points to spend on cards. At any time, you can also top up by purchasing points with add’l cash.

But I’ve still allowed for free players, as I believe that unless your product is insanely popular already, free players provide the masses that fuel a lot of microtransaction purchases (i.e. status items require a community large enough to be worth showing off to). A large player base also ensures that there is always someone to match-make with, which in the case of the CCG is crucial to justifying the purchase of cards.

So I’d be less comfortable in the situation I describe above moving to a pay-at-the-gate model. No matter how low that gate tariff is, the penny gap would cut the player base by 90% in most games.