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[Muz]

Hi everyone, long time TIGS lurker and game developer here. Would like to ask you guys for opinions. I'm thinking of starting off a games company and doing a little market research for this.

Overview
The main business would be a light game development business, probably focusing on easier, less risky games like MMORPGs, web browser games, and semi-casual games at first. Later, the plan is to move on to more serious, higher budget games, but that requires money, experience, and good employees. We'd plan to self-publish at first, especially if the starting game is an online game.

Side business
But in the long run, the money is still in high quality games and that's where we want to go. Since we have a marketing team and manufacturing facilities that's not doing anything while the game's in production, we'd like them to gain experience by publishing independent games.

The plan would be to publish independent games for a small fee per unit. If it looks like it has potential, we'd even look into marketing it.

Pricing
My idea for the pricing would be to make the prices automatically dynamic. The goal would be the assumption that sales are viral; if someone likes a game, he'd tell his friend, and his friends would tell friends. So, pre-ordered versions would be very cheap, almost at a loss, to promote more sales and talk about the game. As sales go up, the price also goes up, and once the game loses popularity, the prices drop, to cater for the type of players who wait for prices to fall before buying.


So... any comments on this idea?

[dspencer]

Are you saying that an MMORPG is a less risky game? Your other examples of less risky games look right, but isn't an MMO a huge investment? I don't know enough about economics to give a good opinion on the rest of the business model. I would be wary of people only buying below a certain threshold, like a dollar. I don't know though. G'luck!

[Martin 2BAM]

I believe he means that browser MMORPGs, not the 3D kind.
If not, with a team of 10 people can take years to make a decent 3D MMORPG.

[ஒழுக்கின்மை (Paul Eres)]

most games don't spread by word of mouth: relying on word of mouth is a *really* bad idea, you should at least plan for some basic marketing effort

[Craig Stern]

If your plan is to get into games development because you think it's "where the money is," then my advice is: don't.

[Muz]

Yeah, I meant 'browser RPG'. At worst maybe a downloadable multiplayer RPG, something simple to design and code. Extreme prices aren't really a problem, though, there's a minimum and maximum cap on the prices, so you can't really hope/worry about it going up and down too much.

Paul, don't worry, there's going to be some marketing effort. A lot at first really. The plan's sort of to spend quite a bit getting it rolling, but the idea is sort of that marketing dollars would be better spent subsidizing the price. Of course, we're going to tune the game design make it better to spread by word of mouth, like making them more competitive, or some filthy network marketing strategy to give bonus xp to people who invite their friends and such. Makes us stand out from the other producers that force most of the content to be visible from the first 60 minutes of the games.

Craig, why not? There's money everywhere, and investors say "games are bigger than Hollywood", but really, I'm in it because it's something I know. In just about any kind of business, you produce a high quality product, and sell it to as many people as possible, for as much profit as possible. You have to have an extra kind of passion to get into something with both high-tech and high artistic value, and try to charge them less for it

I was also sort of thinking that if it ever goes down to distributing actual CDs, we'd charge less for people living in poorer regions. Because in first world countries, $20 is like two hours pay, but in some other countries, it's like 2 weeks of pay. That's why piracy is rampant in places like China and Southeast Asia, all huge markets, but plenty of people who download a pirated copy and sell it at $3-$8 per game. The music industry made it into these places with lower prices, and I suppose the games industry could do the same.

Anyway, I wouldn't really mind heavy criticism if you guys have any. Don't pull any punches, better to get hit by a fact now than after there's some investment in it. Looks like some of you have dipped your feet in the industry and it's interesting to hear opinions

[moi]

IMO you should make a few small games first. Or get them done if you don't intend to be the worker
It's more difficult than you think.
Either you can do the work by yourself OR you'll have to hire some good creator but you'll need money upfront for that.
If you have no experience/knowledge and no money then it will be difficult

Pricing
My idea for the pricing would be to make the prices automatically dynamic. The goal would be the assumption that sales are viral; if someone likes a game, he'd tell his friend, and his friends would tell friends. So, pre-ordered versions would be very cheap, almost at a loss, to promote more sales and talk about the game. As sales go up, the price also goes up, and once the game loses popularity, the prices drop, to cater for the type of players who wait for prices to fall before buying.


So... any comments on this idea?

Commercially that doesn't make sense. Especially in the videogames trade where it's so easy to get games cheap (not even talking about piracy or free offers)
People will just stop buying if the price goes up.

[bateleur]

How you go about a project like this depends a lot on who your team is and what your funding source is.

For example, if you have a team of two programmers and an artist and are self-funding then I recommend you start by producing a small game to make sure you have your working methods and production pipeline set up in an effective way. This at least gives you a chance to publish something before your company folds. (That's not intended as a criticism of your plans, it's a reflection of the proportion of aspiring dev teams who finish at least one game.)

On the other hand if you have a team with dead weight like marketing people, designers, producers and so on and are venture capital funded or similar then you'll need to go straight for a fairly ambitious project in order to break even quickly enough.

Your "side business" idea suffers from a critical flaw: publishing for indie games is currently free. Offer to publish people's games and you'll likely receive a hostile response from people assuming you're trying to rip them off!

[Muz]

I planned for the price to go "up" to around $15-$20, still cheaper than most games, and it would still be cheaper than most "cheap games". It'd also show that there's a lot of other people buying it, and that caters for the type of people who actually wait and see how the price is. Besides, if people stop buying, it goes back down.

Heh, bateleur, good point. We were so busy trying to calculate costs for publishing onto CDs, we forgot that it's really free I'm sure there's a market for the smaller gamers who don't want to build up a website + security and do their own market research. If anything, it's an excuse for me to produce my own riskier games without getting investors involved in the creative process.

It's VC funded, btw, which puts a very heavy demand on growth. So, it's likely to rely on a small, professional team.

[moi]

I planned for the price to go "up" to around $15-$20, still cheaper than most games, and it would still be cheaper than most "cheap games". It'd also show that there's a lot of other people buying it, and that caters for the type of people who actually wait and see how the price is. Besides, if people stop buying, it goes back down.

Yeah but don't underestimate the cheapness of game buyers these days, they will be very vocal if they see price going up.

[Movius]

Hello, I am a well-paid richman with more money than sense. Suppose I was to sink a large sum of cash into your organisation, convince me that I am not just pissing it into a black hole. Cause thats what it looks like i would be doing at the moment.

[moi]

Are you ready to apply boots to the back in order to get things done?

[Zaratustra]

Are you going to pay developers in advance? Cause then I'd be interested.

[obscure]

Paul, don't worry, there's going to be some marketing effort. A lot at first really. The plan's sort of to spend quite a bit getting it rolling, but the idea is sort of that marketing dollars would be better spent subsidizing the price. Of course, we're going to tune the game design make it better to spread by word of mouth,

Not sure I understand this.
Paul said "word of mouth isn't enough"
You said "Yes, we will spend money on marketing"
You said "But we won't spend it on marketing we will spend it subsidizing the price" (huh?!?)
You said "and make the game better so it spreads by word of mouth.

So you actually said you won't be doing any marketing and will rely on word of mouth.

Also how does spending your marketing money on "subsidizing the price" help you. Your game wont sell if no one knows it exists (and if they don't know it exists they can't tell other people about it). You spend money on marketing so people know the game exists, try it and (hopefully) tell others. If you don't spend the money on marketing but instead make the game cheaper (which I am guessing is what you mean) then no one will know it exists. Just making it cheaper won't make knowledge of your game suddenly pop into people's minds.

Can you explain what you mean by this?

[ஒழுக்கின்மை (Paul Eres)]

i think games in the top 1% in terms of polish (note: not gameplay or fun, just polish and graphical presentation) can get buy on word of mouth alone. but even for those it's not a great idea: braid looks fantastic, but jon blow didn't rely on word of mouth, he worked extremely hard to market braid, and that's why it did so well. same thing with world of goo and so on.

the indie games which succeed usually have three factors: marketing, polish, and game quality. and it's multiplicative, not additive. in other words, if you have:

0.0 marketing x 0.4 polish x 1.0 quality

the result is 0.0

whereas if you have

0.4 marketing x 0.4 polish x 0.4 quality

the result is 0.064

likewise if you have

1 marketing x 1 polish x 0 quality

the result is also 0

[BlueSweatshirt]

the money is still in high quality games and that's where we want to go.

I highly disrecommend making games if you plan on making them just for money. If you're not, more power to you. But it takes serious passion to make a brilliant and memorable game.

Just saying.

[Muz]

Paul, don't worry, there's going to be some marketing effort. A lot at first really. The plan's sort of to spend quite a bit getting it rolling, but the idea is sort of that marketing dollars would be better spent subsidizing the price. Of course, we're going to tune the game design make it better to spread by word of mouth,

Not sure I understand this.
Paul said "word of mouth isn't enough"
You said "Yes, we will spend money on marketing"
You said "But we won't spend it on marketing we will spend it subsidizing the price" (huh?!?)
You said "and make the game better so it spreads by word of mouth.

Can you explain what you mean by this?

Hmm.. loosely defined, I'd imagine it to be something like this.
Awareness = AS*e^(-C1*e^(-Viralness*C2))
Popularity = Marketing*Polish*Quality
Viralness = (Popularity-Marketing*C3)*Sales + (Popularity - Quality/C8)*C9
AS = Available Sales = MarketSize - PreviousSales - Pirated + ReformedPirates
Demand = Awareness*exp(-Price/(Wage*ExpectedQuality*C4))
Sales = Demand(1 - Piracy)
Piracy = (Awareness-Demand)/(DifficultyToPirate)
ExpectedQuality = Popularity - Marketing*C7
Profit = Sales*(Price - Cost)
C1,C2,C3,etc are some constants

It doesn't fit exactly to the formulas, but the shape is sort of what I'd imagine it to be. I'd draw a graph but I think this explains it a bit better, even though it's harder to visualize.

In English,
Awareness is capped at the market size, growth is a function of how viral it is.
Popularity is like what Paul said. I'm a little wary about where Ninjabread Man fits in there, though :p
Viralness is how many spread by word of mouth (likely 1 extra sale per 40 customers) plus the sales from how good it looks, with C8 being how bad reviews are.
Demand takes a huge drop with any charge at all, but is dampened by the wage in wherever it's sold.
The actual Sales takes into account sales lost to piracy.
Piracy is from the people who don't think the game is worth buying, but not lost when they can't actually steal it.

tl;dr Using a lower price makes up for it later on. Marketing needs to be high early on to boost sales, but later on it matters less. After a certain point, $1 spent in marketing is better spent for lower pricing.

[ஒழுக்கின்மை (Paul Eres)]

that principle is true of products which people know about, but indie games which have zero recognition are not going to get any more attention or sales simply by lowering the price. in other words, if only 140 people know of your game, even lowering the price by half won't get you more than a few extra sales. i imagine at least a few thousand people have to know about your game before changes in price have any effect at all.

[Muz]

I'd have to disagree with that, because I have a few 'friends' who are 'professional software pirates'. These are the guys who buy a game, crack it, burn the cracked version onto a disc and sell it for $5-$10, even exporting them. According to them, these games sold quite a few copies, even though nobody's ever heard of them.

When you have something that sells for the price of a burger and a movie date, people expect it to be at least as fun, and let's face it, most games don't reach that level. You could argue that $20 provides a week of entertainment, but not much, nothing memorable. When you price at the same price as a burger, it's more likely to be a purchase on impulse. I've seen some completely unknown games selling for $5-$10 on impulse.

Trying to make a bigger profit is a real question, though. After all, it takes 2-5 'impulse' purchases to just to cover up for one 'well-thought' purchase. Yet, if there are 4 extra people playing the game, would it mean that they'd invite another four friends?

[ஒழுக்கின்மை (Paul Eres)]

but in order to sell those copies, they had to put them in stores, right? stores give you an automatic audience of the hundreds of people who pass through it on any given day, that's how people learned of those games. if it's just online, nobody will pass on by and randomly come across it, so the comparison isn't perfect.

also, i thought you posted this topic to get opinions on the subject from people with experience in it? if you're just going to argue against everything they say, what's the point of the topic?