Entries Tagged 'Opinion' ↓

Gambling as a video game business model

The eternal problem of selling a video game as a stand alone package is that it can and will be stolen. If people think that they can get away with stealing then they will, so the level of theft can easily reach the high nineties in percentage terms. In other words often very few users of your product are actually paying for the work that you have done.

The way round this is alternative business models, so the customer is forced to pay in a different way. These can include online games with a monthly fee, pay per play, sale of in game items, advertising or sponsorship, etc etc. All these and more are being used successfully and the industry continues to experiment in order to find viable ways to be rewarded for their work.

When I was Head of Corporate Affairs at Codemasters working for the Chairman, Jim Darling, we were fully aware of the blight of software theft on the business and often discussed ways round it. One idea was online gambling, where we made money from people betting within the game. After analysis we concluded that the level of expertise and investment needed was too big a risk when we were heavily geared up for the conventional gaming business model.

Jez San OBE

However one major figure in British video gaming who was in the same position did take the risk and that was Jez San and he has explained much of this in an interview he did for this blog. In it he says “Trust is everything!  The honesty and compliance issues surrounding online gambling are a huge obstacle for a computer game or video game company entering the gambling market.  in computer games we simply accept that there are cheats and try to avoid them.  in online gambling we simply cant allow cheating of any kind.

His online gaming company, PKR, is a huge success.

There are two kinds of gambling online. Some games, like roulette, the player plays against the house. This is a pure percentages game with the odds slightly in favour of the house so that over time they always win. The second kind of gambling is a multiplayer game where the players play against each other, such as poker, here the house makes their money out of taking a small percentage of the winnings, known as the rake.

Online poker has a huge advantage over real world poker in that it has very low operating costs, all you need is space on a server. Whereas real world poker requires a building with all the associated overheads which are very difficult to finance with a rake. This, and the fact that it more a skill than a chance game, have made online poker extremely popular. If you want to increase your skill there are even online poker schools.

Some people have moral scruples about gambling. I look at this two ways, firstly that it is just video gaming monetised in a different way. Secondly that people only have so much leisure time in which to spend their money doing what they enjoy. Gambling is very enjoyable so why shouldn’t people be allowed to spend their money doing it if they want to? The only problem comes with the minuscule minority who become addicted with bad social consequences. But there are plenty of other addictions, some of which are much worse.

One problem the online gambling industry has is that the main companies involved are not American, obviously the people who govern America, who are very trade concious, didn’t like this. So it is no surprise that online gambling is banned there. Which is pretty abusive of the state, taking away their citizens’ freedoms. It also dampens the business model when the largest market is officially closed. Of course Americans who want to get round the silly restraints can do so very easily. An Antiguan credit card sorts the money and it is easy to hide behind a proxy server when online.

Which brings us to an interesting facet of online gambling. As an industry it is very new, far newer than the video game industry. So their marketing is fairly unsophisticated and their communications even more so. They obviously have issues with stakeholders, just as the video games industry did with the issue of violence, for example. But the video games industry engaged with government, and other stakeholders, worldwide to explain their case. The online gambling industry seems to be a long way behind with this sort of engagement.

It will be interesting to see how much, in future, the video game and the online gambling industries move together. One thing that may ease the process is when individuals, at all levels, move between the two. This way the culture, practices and technical knowledge will be on a two way street.

Why the video game industry is in such a mess

I thought that with the way things are going in the video game industry just now it would be good to give one person’s view as to what is going so badly wrong.

Just two years ago the game industry seemed to be booming, rapidly growing sales, lots of new titles, exciting leaps in technology, popular new platforms. It looked like the place to be. Then look at it now, moribund, going nowhere and , frankly, pretty boring. So what has gone wrong? Well the fact is that during the boom far too many products made a loss and for the last few years far too many games publishers have run at a loss (we all know who they are) and this is mostly down to the sheer ineptitude of many of the people who run the industry. There are plenty of customers out there with plenty of money who want to spend it on interactive entertainment but our industry has failed to give them compelling reasons to spend it.

So let’s look at what is causing the problems.

Platform proliferation. Not so long ago if you were a game developer you made games for the Playstation/ Playstation 2. That was the market. An occasional PC title added a little bit to the mix, but the real market was with Sony. So business models were easy, put about 20 fairly gifted people together for 18 months and you had a good chance of actually making a profit. Now there are more than a dozen viable, thriving, gaming platforms. So knowing where and when to apply assets has taken a lot of skill and that skill has been conspicuously absent.

Barriers to entry. In the Playstation/Playstation 2 days the barriers to entry were just perfect. It cost a handful of millions to develop a game. This was sufficient barrier to keep the hordes out but it was low enough to make risks acceptable. Now the barriers to entry are either too high or too low. To make a profitable hit for current generation platforms now takes a £100 million plus punt and there are not that many people with the balls and skill to do this. At the other extreme iPhone and Android games can very easily be made for a few thousand pounds, so anyone can and is putting products on these platforms. There is such a plethora of titles that it is difficult to stand out and attract custom. This dichotomy of high and low development costs has really caught out most of the world’s well known game publishers, they have not known how to deal with it.

Poor development tools. The way we make games is still very primitive, between the creative talent and the finished product there is just far too much mindless, repetitive slog. This really needs to be fixed if we are to go forwards with ever more powerful platforms. The number of man hours that the development process consumes can be radically reduced.

Industry pathetically slow at going online. The customers have been well ahead of the industry here, many big name publishers are trailing two years behind what the market is really doing. Video gaming is no longer about cardboard boxes in retailers, it is about interactive online entertainment. Just read the gaming forums and see what the real customers are doing in the real world. I could name names here, but there is no need, the spectacular failures are very evident.

Microsoft’s pricing policy. This is an epic fail. Sony with PS3 made a platform that was too expensive to manufacture and Sony as a company was on the ropes. Microsoft, with the Xbox 360 had a platform that was cheap and elegant to make, and they had the riches of Croesus to invest in it. They could have, should have, taken the market by the scruff of the neck and driven it. Instead they have dilly dallied around with no obvious purpose. The prime example of this is their pricing policy on the console. This has always been far too high. It is too high today. We are in a razors/razorblades market here, what is important is getting volumes of platforms out there, whatever the cost. The proven mechanism is price elasticity of demand and Microsoft have failed to use it, they just haven’t had the drive to break out and become mass market.

Sitting round waiting for saviours. The big platform manufacturers and most of the big publishers are equally guilty here. “Just wait till we have 3D and everything will be OK” or “Just wait till we have a gesture interface and everything will be OK”. This really, really doesn’t work, if you are not making a profit out of what the customer is actually buying today then you have made some big mistakes.

I could go on, but you get the idea. Now I thought I would highlight two people who have massively outperformed the herd by having the brains to see what is going on and the balls to do something about it. The first is Bobby Kotick at Activision. He saw clearly that the console market was going to consist of two sorts of games, blockbuster and loss makers. When so many chose the latter he chose the former. A small number of huge hits with no distractions allowed has proven him right time after time. Secondly Kristian Segerstråle, who has been absolutely on the button at making money from where the market actually is, I have heard him almost angry at the stupidity he saw all around him in the industry.

The really frightening thing is that both of these guys quite openly said what they were doing and why, yet so much of the game industry management thought they knew better, ignored them and then made massive losses.

Smart.fm and educational gaming

Regular readers will know that I expect educational gaming to eventually grow to be bigger than recreational gaming. We consume an immense amount of education throughout our lives and the classroom method, which is currently the main formal education system, is woefully inefficient. We already have the technology to do massively better.

Gaming is brilliant for learning because it has the task/reward cycle which comes naturally to the human brain. Additionally, as I have said in previous articles, because educational games are on computers they track the student’s progress, so there is no need for exams.

Smart.fm takes this one step further. It tracks the student’s progress and presents material at the optimum moment for the most efficient learning process according to the Ebbinghaus Curve. Their system of spaced rehearsal ensures the absolute most efficient absorption of knowledge over time. Take a look and you will see that it is individually tailored by feedback loop and that it uses computer processing power to apply the science. This whole methodology would be simply impossible in a classroom but is straightforward for a video game to achieve.

To me it is immensely frustrating that we have the means to massively improve our formal education system yet we persevere with the archaic relic that is the classroom.

Libel reform petition

Please sign: http://www.libelreform.org/sign

England’s libel laws are unjust, against the public interest and internationally criticised – there is urgent need for reform

Freedom to criticise and question, in strong terms and without malice, is the cornerstone of argument and debate, whether in scholarly journals, on websites, in newspapers or elsewhere. Our current libel laws inhibit debate and stifle free expression. They discourage writers from tackling important subjects and thereby deny us the right to read about them.

The law is so biased towards claimants and so hostile to writers that London has become known as the libel capital of the world. The rich and powerful bring cases to London on the flimsiest grounds (libel tourism), because they know that 90% of cases are won by claimants. Libel laws intended to protect individual reputation are being exploited to suppress fair comment and criticism.

The cost of a libel trial is often in excess of £1 million and 140 times more expensive than libel cases in mainland Europe; publishers (and individual journalists, authors, academics, performers and blog-writers) cannot risk such extortionate costs, which means that they are forced to back down, withdraw and apologise for material they believe is true, fair and important to the public.

The English PEN/Index on Censorship report has shown that there is an urgent need to amend the law to provide a stronger, wider and more accessible public interest defence. Sense About Science has shown that the threat of libel action leads to self-censorship in scientific and medical writing.

We the undersigned, in England and beyond, urge politicians to support a bill for major reforms of the English libel laws now, in the interests of fairness, the public interest and free speech.

Just how much trouble are Google in?

There are many ways you can view Google. Firstly there is this large group of people sitting on a campus, each with a brain the size of a planet coming up with amazing ideas that advance humanity and all of these people as wealthy as Croesus because of their stock options.

A second view is of a company with enough money in the bank to buy a couple of countries but which only has one revenue source, and that is under threat from several directions.

The third view is from that of being a consumer. Google has some pretty neat free products, without which the internet would be less rich. And they have pushed the technology to make all their competitors perform better.

Just as there are more than three views of Google, so there are at least four major problems they have to address. The first is that their sole big contributor to wealth is search advertising. They also have YouTube, which they bought and which is big, but not profitable. Gmail is also a success, but again not a massive earner. Then they have the failures,  Lively was a 3D virtual world which is now canned, Knol is an online knowledge competitor to Wikipedia that hardly anyone uses, Wave is a new way of communicating which is not taking off and Reader is another failed idea. There are loads more: Orkut, Video File, Catalog, Answers, Web Accelerator, X site, Checkout, Viewer, Voice Search, Coupons etc etc.

The thing is that most of these would have worked if Google had understood marketing. They seem to think that just because their original search succeeded as a result of product excellence it means that everything else will do the same. And they are very wrong. They need to communicate with the outside world a lot more effectively. Which brings us to their latest failure, Buzz. This social networking product was tested rigorously by the thousands of genii in the Googleplex till it was perfect. But when released to the real world it suffered an immediate disaster because of its disregard for privacy.

Their second problem, and the one most relevant to gaming is that computing and the internet are moving away from being desktop PC dominated to being mobile phone dominated. Over the next few years the production of smartphones will ramp up to a billion units a year. So processing power and an internet connection in people’s pockets will become ubiquitous throughout the developed world. In much of the undeveloped world there will be a jump from nothing straight into smartphone based computing. Google’s revenue depends on the desktop PCs that will soon be very much second best, they are yet to demonstrate a convincing business model to monetise this move to smartphones.

The third problem is that their flagship product, Google search, is becoming less relevant as people’s internet usage changes. Social networking is now more important. Facebook has now beaten Google for weekly page views in America. And Facebook can often provide a richer and more rewarding browsing experience than search can.

Number four is that their competition are wise to them now. Google search won purely because it was vastly better than the alternatives. For years nobody tried to take them on seriously with a better product. But now with Bing we have something that is actually considered better in several key areas. So people are moving to it in ever increasing numbers. And when it comes to mobile operating systems, Google made their Android open source. Nokia retaliated by making their Symbian operating system (which has about 40% of the smartphone market) also open source, in one of the biggest commercial give aways of all time. So for the first time Google is having to take on equal competition, which is not good for Google because they lack the marketing clout of these competitors.

It is this lack of marketing understanding that is Google’s biggest weakness. Their world view is technology driven whilst the real world is marketing driven. Steve Jobs at Apple understands this and is happy to release weak technology (no Flash or multi tasking on iPhone for instance) with strong marketing, knowing that it works commercially.

AAA games. A broken business model

I have written about this before, but now some commentators have had their $0.02 worth, so I thought I would revisit the topic.

Game executives and financial people all over the world must be looking at how quickly Modern Warfare 2 romped to a billion dollars at retail and thought to themselves “I want some of that”. They are deluded and misguided even thinking about it and here’s why.

  • There are too many AAA games in the market. Not slightly too many. Vastly too many. And most are making a loss. Just look at the accounts of the big publishers. The ones whose AAA titles miss the mark are making very big losses.
  • There are too many publishers trying to churn out AAA games. We need more industry consolidation so that the production pipeline comes under some sort of control. At the moment Darwin is at work and some publishers who are structurally incapable of making a profit in the current market will find themselves subject to major externally exerted change.
  • AAA games now cost far too much to make. The PS3 and 360 have HD that requires far more content to be hand crafted. So their games consume several times more man hours than previous generation games. Publishers are getting round this to an extent by making some games a lot shorter, but the public are not stupid. Next generation platforms will have the power to run a lot of middleware, considerably reducing the effort needed to make a game.
  • Competition from other gaming platforms. The original Playstation had the market to itself. Now the typical gamer has many platforms to spend their time and money on. Facebook, iPhone, DS, MMOs etc. The average gamer is now promiscuous with their attention.
  • To generate a hit that is profitable requires global marketing and distribution resources. And a huge investment in that marketing. Modern Warfare 2 spent more on marketing than some publishers’ entire budget for a AAA game. This is a big boys game at the top table and very few have the resources to play.
  • Brand dilution. Executives see a game succeed so they just rush in and pillage the brand to make money. Meaningless sequels geared up for maximum exploitation are not the long term road to success. To get it right just look at Nintendo, who are one of the few game publishers on planet earth who understand managing a game brand properly. Their management of their key brands is a lesson that the rest of the industry refuses to learn.
  • Customers who enjoy your game without paying you for it. Piracy and secondhand sales can often be bigger than legitimate purchases. Will Activision even bother putting Modern Warfare 3 on PC? And if they do, how will they protect their IP?
  • Stupid game themes. Interactive computer based entertainment has infinite possibilities, the human imagination is the limit of what can be achieved. So what does the industry give us? Shooting. Then more shooting, then yet even more shooting. Can they not see how limited and stupid this is? Once again look at Nintendo for inspiration. They manage to run some of the biggest AAA gaming brands on earth without shooting in them. Or look at other entertainment media like books, television, the theatre, even the cinema. They all have shooting, but not the incessant, mindless glut that the gaming industry is currently serving up.
  • Too little of retail revenue gets back to where the value was created, in development and marketing. A AAA console retail game has to give the retailer their retail margin, also in many territories give their distributor their cut, then there are the logistics costs such as warehousing and transportation, the game has to be manufactured so there is plastic and cardboard to pay for, finally there is the platform holders’ substantial cut. Not much left for those who have done most to earn it.
  • Games have a very short tail. This is getting a little better with Downloadable Content (DLC) but it is still pretty bad compared with music and film which have multiple revenue streams providing income for years. Decades in some cases.
  • There are far, far better things for a game company to do with their money, brands and human resources. Obviously I am not going to tell the world here and now, when I can actually get paid for the knowledge. Read the nearly 800 articles on this blog and you might get a bit of an idea.

So there you have it. At the current state of the current platform generation AAA games are a very dangerous place to be investing, unless you happen to own one of the handful of “dead cert” global blockbusters.

I bought a smartphone

So at long last the day has come, I don’t use a mobile phone very much. And when I do I don’t use the extra features, I don’t even text. I bought my trusty Nokia 6300 when it first came out and it is just about perfect. In fact all the Nokia phones I have bought over the years have been good. And every non Nokia phone less so. There is a reason they tend to have a 40% market share.

The thinking behind the move is to use the new phone as a web browser and email terminal. To carry the internet in my pocket.

After much looking at the market (and not being swayed by fashion) my new smartphone is a Nokia 5800. And there are some very good reasons why:

  • It has multitasking. I cannot believe anybody selling a general purpose computer that isn’t. Non multitasking is a primitive restriction from our historic past.
  • It supports Adobe Flash. You know, the industry standard for moving images on the internet.
  • The battery is removable and replaceable. So I can carry a spare, charged battery in my pocket. And replace any batteries that get tired in their old age.
  • It has a very nice form factor. Ergonomic in the hand and relatively light. Some smartphones are far too wide to actually comfortably use as a phone.
  • No keyboard. Thought about this and concluded that the smaller size when you go without is advantageous. If I find I am inputting a lot of text then maybe my next phone will need one.
  • High resolution screen. 640 x 360 is more than some offer.
  • 2 cameras. One on each side, so you can videophone. How cool is that?
  • When using the satnav the (free) maps download into the phone. So you can use it on the plane! And it doesn’t eat up expensive airtime when you are navigating.
  • Swappable memory on Micro SD cards. And web rumours say that the 32MB cards work.
  • Carl Zeiss autofocus camera with flash, autofocus and zoom.
  • It’s a Nokia, so all the actual telephone functions such as signal strength, network compatibility, global roaming, voice quality etc will be spot on.
  • Frequent firmware upgrades. The 5800 is a vastly superior phone now to the one they released just over a year ago. They even increased the processor clock speed in one upgrade!

There’s loads more, but those are the big ones. I have bought the phone outright so can put it on any service I want and upgrade as and when I feel like it. Smartphones are going to drop massively in price this year and the operating systems are going to become a lot more capable. But, as before, I won’t be swayed by fashion and will only replace the 5800 when there is a very good reason to do so.

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