While at the GameOn Finance event in Toronto, I found myself in an interesting conversation about ways to maximize the revenue generated by MMOGs. I found it difficult to fully express my thinking on the matter at the time, so during my flight home I wrote this post. Consider it a sneak previous into my upcoming IGDA Leadership Forum lecture on MBA Lessons applied to the game industry. :-)

One of the concepts I learned in business school was the “two-part tariff,” which is best explained through a simple example that we’re all familiar with: a nightclub. Most nightclubs generate the majority of their revenue from the sale of liquor. Why then do some of them also choose to charge a cover fee? Doesn’t that turn away potential customers? Well, part of the reason is simply to “keep out the riffraff,” but bouncers at the door can (and generally do) already reject anyone who looks like they won’t be a valued customer. Part of the reason is to project an aura of quality and/or exclusivity, but again, a velvet rope and an obstinate bouncer can already accomplish that as well.

Two kinds of customers

The third major reason for a cover charge at a nightclub is revenue maximization, pure and simple. Here’s the underlying rationale: nightclubs basically have two kinds of customers. One kind buys a lot of drinks (the especially valued customer buy a lot of the most expensive drinks.) The other kind buys one drink and nurses it all night, or even — heaven forbid — just a glass of water. Both kinds of customers are attracted to the nightclub because it offers music, attractive people to dance with, etc. Both kinds of customers clearly value the experience. But only one kind of customer will be profitable for the nightclub. Sound familiar?

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The Freakanomics blog is worth subscribing to, if you haven’t already. Via it comes word of a neat experiment: in the psychology department coffee room at Newcastle University, prices for tea and coffee were posted on the wall, and an “honesty box” (i.e., in which to place your payment) was set nearby. This sort of experiment is fairly common, but the twist was that, in some weeks, a photo of flowers appeared above the price list. In other weeks, it was a pair of human eyes, staring directly at the person reading the price list. In weeks with eyes on the list, staff paid 2.76 times as much for their drinks.

This brought to mind my earlier post on the wonderful book Predictably Irrational, which noted that you could dramatically cut down on cheating in exams if you simply asked students to recall the Ten Commandments before they took a test, or — more pointedly — by reminding them of a school honor code. (You had to do this right before the test — it couldn’t happen weeks before and still retain the effect.)

A long time ago, I wrote an article for Gamasutra exploring the possible design of a feedback/rating system that would discourage antisocial behavior in MMOs. That system, which still may have merit, pales in comparison to the wonderful elegance and simplicity of these psychological tricks. And given that (1) one of the biggest challenges for online, anonymous systems like MMOs (and LIVE) is antisocial behavior, and (2) companies are spending tens of millions of dollars on these systems (if not more), why aren’t more companies hiring psychologists and behavioral economists as consultants or full-time employees? The cost seems justified, given the potential benefits.

(Actually, I’ve heard of a few MMO developers hiring economists, but I think that most are focused on the optimization of in-game economies, as opposed to tackling anti-social behavior. There is a relationship between the two, but they are not equivalent.)

I’ve been meaning to write about a web-based MMO called Travian for a long time. Travian is, to my mind, the very embodiment of the phrase “so close, and yet so far.” It has all the basic components of a perfect low-budget MMO, but a few maddening design flaws make the game basically unplayable (in the long term) for most people. The following is a very long deconstruction of the game. If you’re interested in MMOs, read on. If not, it’s safe to skip this post. ;-)

Travian in a nutshell

In a nutshell, Travian is a pseudo-real-time massive multiplayer strategy game. You build towns and armies, and use your armies to conquer and pillage other towns. I say “pseudo-real-time” because, while the game operates in real-time and you can take action whenever you wish, each action requires a variable but substantial amount of time to complete. (For example, building a granary might take 20 minutes in the real world; upgrading it might take several hours. And while you’re building your granary, you can’t build anything else. Likewise, sending your army on a raid could take as little as 30 minutes or as long as a day.) There is real genius in this — it preserves the feeling of a real-time game while effectively preventing people with tons of spare time from overwhelming competing players. The eleven-year-old who wants to can obsess over the world map and communicate with allies to his heart’s content, while the forty-year-old parent with twenty minutes to spare can quickly take his turns and tune out till the next day.

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Real-time communication in modern MMORPGs is a funny thing. With rare exception, it tends to resemble anything but “role-playing”. MMO user text generally consists of acronyms (LOL, ROFL, etc), poor grammar, and a million little references to the outside world (“hang on, my dog is barking.”) Speech is, in some ways, even worse — nothing like the screech of a petulant 10-year-old (or the sound of a toilet flushing in the background) to disturb the illusion of fantasy.

Outside the context of self-policed, dedicated role-playing servers, this may be impossible to “fix”. I put “fix” in quotes because it’s unclear that this is a problem of any real significance — it’s quite possible that the majority of potential players really don’t miss the opportunity to role-play more deeply, even in the “perfect” environment for it. But my gut tells me that, at a bare minimum, there’s room for something more than what’s available today.

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Lots of interesting news this past week about real money transactions (RMT) in MMORPGs. I’ll get into specifics shortly, but first, I encourage you to view the following information through this lens: are traditional MMORPGs first and foremost a game, or first and foremost a social networking service? (And assuming you think the distinction is even meaningful, what bearing does your answer have on RMT, user-generated content, cross-cultural communication, and “virtual property rights” in these games?)

For-profit power-leveling

First, from Raph Koster’s blog, a look at the power-leveling industry. As Raph points out, the average market value of a WoW level is $8, and an hour of WoW play is worth under 75 cents. Clearly not enough to turn most US citizens into WoW entrepreneurs, but certainly enough to keep inspiring “level farms” in China. What I found more interesting was a comment by Raph outside the article:

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I was reading Raph Koster’s Theory of Fun and something caught my attention. A quote: The only real difference between games and reality is that the stakes are lower with games.

Interestingly, this statement is becoming progressively less true over time. For example, the extremely successful Diablo franchise offered, among other things, a (“hardcore”) mode of play in which character death was permanent. People who opted for hardcore mode played in constant fear of the single mistake that would end their character (which may have survived through hundreds of hours of gameplay.) For them, every moment in-game was deadly serious.

MMORPGs have taken in-game consequence to the next level; not by introducing permanent death (in general, recent generations of MMOs have made death less punishing, not more), but by creating an environment in which the social consequences of your actions may be severe. As in real life, poor teamwork, cheating, etc in an MMORPG can cause people to avoid and/or badmouth you in the future. As social systems in some MMORPGs continue to evolve, this will become an increasingly powerful phenomenon with very real consequences for players.

The emotional connection that people have to their virtual characters and pets is quite strong. It’s remarkable to see descriptions or video clips of the elaborate rites that some people go through (in-game and out-of-game) when finally quitting an MMORPG. They lay their virtual pets to rest in the same way they might a real dog or cat. They quit their character with as much regret as they might quit a failed romantic relationship.

Of course, Raph knows all this. He was almost certainly talking about stakes in the broader sense; i.e. when you go mountain climbing, there’s a very real possibility that some accident could kill you. There’s a real chance you’ll wreck your car every time you test yourself by driving aggressively (or drive at all, for that matter!) So what he wrote is true, for the most part. I just felt a counterpoint was worthwhile.

A couple of days ago, Sony announced a new MMOG bundle. Starting March 14th, you’ll be able to buy EverQuest Evolution, EverQuest II, PlanetSide Aftershock, The Matrix Online, and Star Wars Galaxies for just $39.99. The move (among others: 1, 2) has its fair share of detractors; this Penny Arcade comic sums it up.

While I do believe that the game industry generally over-emphasizes the importance of pricing signals (we desperately need more $30-$40 high-quality games), I have to agree with Sony’s critics on this one. The MMOGs that Sony is pitching are (mostly) “high playtime” games which, when they’re successful, tend to encourage long and frequent gameplay sessions. And they all appeal to a hardcore audience. The problem is, a hardcore gamer who’s going to play an MMOG for ten, twenty, or thirty hours a week isn’t going to care overly much about the initial price of the game. He/she is going to care about who’s playing it, and how it compares to other MMOGs on the market. When you’re going to pay $10 or $15 a month for something, and play it constantly, the first $50 doesn’t mean a whole lot.

On the other hand, I think there is room for experimentation on the recurring fee side of the equation. Significantly reduce the recurring fees, and/or increase the “free” initial play period, and people may choose to try your game (and/or maintain a mostly-inactive account) just because it’s “cheap”. This is different from waiving the fee but capping the player to a newbie area or restricting their level growth; that strategy might work for casual gamers, but not the hardcore gamers who want to level up fast, and who are the most likely audience for a game like EverQuest II. Of course, if you’re battling for the hardcore audience on price, you’ve probably already lost the war…

Long story short, I think this is one case where a negative price/quality signal will be sent. There might very well be an influx of new players when the bundle hits the shelves, but I bet they don’t stick around for long — unless subscription fees go down. And even then, I wouldn’t hold my breath.

I just sat in on the “Continued Growth of Gaming” panel at the MBA Media and Entertainment Conference in New York. Moderator: Cyrus Beagley (Engagement Manager, McKinsey Entertainment Practice). Speakers on the panel: Greg Costikyan (Founder, Manifesto Games), Chris Di Cesare (Director of Marketing, Xbox), Nique Fajors (VP of Brand Management, Atari), Frederic Markus (President, eRelevant Games), Joseph Varet (Sr. Director of Biz Dev & Strategy, MTV Networks). I managed to catch most of what was said, except in the case of Greg Costikyan, who speaks two to three times faster than most normal human beings.

Topics discussed: What makes a franchise successful, MTV’s role in the video game industry, innovation, the attractiveness of various game markets, and some questions for Microsoft about portables and shortages.

Read the full transcript here.

A particularly interesting post on Terra Nova reveals the results of an eight month, detailed study of World of Warcraft. The dataset includes information from over 150,000 characters, so it’s certainly thorough enough. The post claims that the results of the study contradict the commonly-held assumption that people play MMOGs primarily for the social interaction they offer. However, it isn’t clear to me that the data really supports such an argument More on that.

Among the study’s most interesting findings: early-stage players (level 40 and below) spend only 30% of their time in groups, and less than half of WoW players belong to a multi-person guild. Furthermore, the average guild member collaborates (in quests, etc.) with only 11% of his/her guildmates for more than 10 minutes over the same month.

First, this data could indicate that many players rush through the early levels in order to enjoy end-game content with their friends. (Indeed, the study also found that end-game characters spend far more time in groups.) Second, guild members may form strong relationships with a small percentage of their guildmates and choose to group with them whenever possible. (They may not even have a choice, if those guildmates are the only guildmates who regularly play WoW at the same time of day.) Of course, all this could be incorrect as well. I’m just saying it isn’t clear.

The post also states that players favor “soloable” classes like hunters and warriors. (Data here.) That certainly has merit as an argument against social inclination. However, Warlocks are soloable, and they’re the least-played Alliance class. Players may prefer warriors and hunters for any number of unrelated reasons (for example, some may choose warriors because that class enjoys access to the broadest variety of weapons and armor.)

Lastly, from the post: “despite features like WoW’s ‘group xp bonus’, grouping is an inefficient way to level, which naturally steers the more ‘hardcore’ players away from groups (at least, in the early stages of the game).” But if the system is inherently biased against group play at early levels, I don’t see how you can make any major assumptions about social inclination from the data.

Long story short, I’d like to know more before accepting any pronouncements. That said, I’d bet a few developers would be pleased to learn that social interaction is not so important, since accommodating social interaction tends to engender the thorniest design problems.

As promised, I wrote an article about designing an MMORPG feedback rating system, which Gamasutra was kind enough to publish. You can read the full article here.

I’ve already received a few thoughtful emails about the article, some of which I’d like to address here. One person asked how my proposed design might relate to previous designs that took PVP activity into account. The answer is: it does not, and should not. My design is intended to help ensure that people enjoy group play (which, in many MMORPGs, is 90% of the fun at later levels). PVP is extraneous and should have its own control mechanism(s). After all, someone who mercilessly hunts you down in a PVP setting may still be an excellent group member.

Another person asked how my system might compare to the feedback system in EVE-Online. Unfortunately, I haven’t yet had the opportunity to try EVE; I’ve been meaning to for weeks. That said, the EVE system sounds interesting, if somewhat more complex than what I’ve proposed. It also appears to dictate some NPC behavior, which I’ve left open in my proposed system. It isn’t clear to me that a user feedback system necessarily has to influence NPCs, since that could intensify user desire to try to game the system, and it could (in general) amplify any unanticipated negative side-effects of the system.

Thanks to everyone for all your feedback thus far.  :)