WoW: some thoughts on game economics

The launch of the World of Warcraft item store with two minipets available has provoked a lot of discussion on various blogs.

I'd like to look at the bigger picture because some of the views I've seen seem misinformed or (frankly) naive.

Opinion has generally split into two camps whose beliefs are as follows:

Either: Blizzard owes us, man, they'd be nothing without us loyal customers, charging us money is biting the hand that feeds them

Or: Get real, they're a business run by android accountants, $0.001 more per head is the only thing they look at.

Both have a grain of truth but distort that element to get a position that is nonsensical.

First the "Blizzard owes us" viewpoint. Yes, customers make the company profitable and the company recognises this not only with respect to those of us who have contributed money in the past but also looking ahead to people who will continue to regularly buy their games in the future.

It goes to quite sophisticated lengths to keep people happy while increasing revenue. For example the controversial petshop is mitigated by the announcement that half of the proceeds for one of the pets will go to charity. This costs them money but increases goodwill. Blizzard clearly feel that goodwill is crucial to their business and that it's worth several thousand dollars. It's not all about wringing the last cent out of their customers, they clearly want to be liked despite raising the cost of the game for those people who don't want to miss out on a cool WoW feature.

Next, the blaming the accountants viewpoint. First off accountants generally don't run companies. Also they are people too and probably a high percentage of the accountants who work for games companies are games fans too (otherwise they'd be working in better paid accountancy roles in other industries, for example the financial sector). Next not all accountants are pencil-counting morons who will run profitable businesses into the ground by grubbing every cent they can at the price of customer good will. Just because their job is counting the cents does not mean they are devoid of common sense or any recognition of the other elements that make a business profitable.

By and large Blizzard has handled this introduction of an item store well.

They let their competitors go first. SOE introduced an item store to EQ2 amidst storms of protest a couple of years ago and then went further and introduced special RMT gold-buying servers. Eve has its plex system. Champions Online recently tested whether respecs would be a viable shop item and got a pretty resounding No from its player base. This is generally not an area where pushing the boundaries is rewarded.

They tested the waters with veiled item store like offers. You could get in-game items with the collectible card game, with the collectors' edition, with blizzcon tickets. This has been amazingly effective camouflage for a fundamental change in charging policy. People who have recently been upset by the item store pets get responses of "spectral tiger dude, it's been in the game for years". But it is different to have an in-game item shop. So it's very clever of them to muddy the waters.

They're giving 50% to charity! Or wait actually they're not. They're giving 50% of one of the two pets so about 25% to charity and only for slightly under 2 months. Plus their accountants will claim back a lot of tax (that's what accountants actually do btw for those out there who still think their job description is to destroy games companies and make fans cry). Still people in general are terrible with numbers and 50% sounds like a lot even though the net cost to Blizzard will almost certainly be under 1% of what the cash store takes in over its lifetime in WoW.

However the main thing is the pets are nice, gorgeous even, they aren't game-breaking or even capable of any gameplay impact if you don't have them (except for achievement completion and arguably achievements are fluff anyway) and the fans I'm sure will love them and buy them in great numbers.

They've made two mistakes though.

First, they've screwed the non-Americans.

Gordon of We Fly Spitfires explains it here.

It's astounding considering how careful they've been in so many regards of the goodwill of their fans that they screwed half of their premium price fanbase. Essentially they've ignored the real exchange rate and gone with an exchange rate of $1 = 1 euro and a rate close to $1 = £1.

People have suggested that it is reasonable because the dollar is weak. This is nonsense. Back before the Euro Europe had several terribly weak currencies like the Italian Lira and the Turkish currency and those countries were over-charged just as much as the rest of us.

Exchange rate is not value.

People have suggested it's a cultural thing, like Coca Cola being cheap in the US and expensive in Europe. I don't buy this because I think virtual game fluff is too young a commodity to have this kind of cultural identity.

I think rather that they decided to have a comparitively cheap price point in the US to keep their more vocal fans calm and are comfortable with a more expensive overseas price point which collects more revenue out of foreign fans.

Remember what I said about goodwill above? Goodwill is very important to Blizzard, they will get a lot of future sales simply because "it's a Blizzard game". For Blizzard a big part of goodwill is US goodwill. The US players are the people Blizzard developers meet at conventions, they are the people who post on the WoW forums that Blizzard developers read (a summary of the Euro WoW forums is compiled weekly and sent but that's obviously a much lower impact) and I think Americans in general are more expressive and quick to vocalise complaints than we Europeans who are descended from stock that decided to meekly submit to authority rather than brave the frontier life hundreds of years ago.

This is what I think of the price points: $10 is too cheap from a bean-counting point of view. Sale volumes would be almost identical if they charged US customers $20. £10 or 10 Euros is probably about right for Europeans - if they pushed it any higher I think sales would fall off sharply.

But the big advantage of making it cheap to Americans is that their most vocal, closest and most important fanbase can accept this change comfortably.

That's what I think they are doing.

The reason I think it's a mistake is that they are causing a big backlash of goodwill loss this side of the pond in exchange for a small amount of extra revenue.

Had they charged us £7/7 euros people would not have had any issue other than general discontent about being triple-dipped (ie we've bought the box, we've paid the subs and now we're getting microtransactions too? Meh).

But they're adding insult to injury by over-charging us. Because we're passive. Schmucks. Too spineless to object. After all, we're descended from the timid ones too scared to get on ships like the Mayflower, right?

Now that's not worth three quid. We're actually not spineless even though we generally don't complain. Unlike Americans who as a people will generally complain about something for a long time before ditching it, we tend to stifle our complaints for a limited time then say "stuff this" and leave. We are much less likely to complain but we are much more likely to up and leave.

For me Blizzard has been off my "must buy their game the day it comes out list" since November 2004. That was the month WoW did not launch in Europe. It eventually limped over the Atlantic three months late.

Treating customers differently is a fundamental cause of loss of goodwill. Treating customers unfairly for three lousy quid is just bad business.

The next mistake I think Blizzard has made with this making the pets transferrable. This makes them similar in some ways to plexes in Eve and diamonds in Runes of Magic in that people can spend dollars on an item they can sell to another player for gold, effectively legal gold-buying.

I don't have a problem with legalising gold-buying as such but I think it opens up two potential problems for WoW.

First the gold-buying mechanism is pinned to a highly volatile good. These pets will be cool for a few weeks then people will be just as impressed with a whelpling. So the first few sold will get a fair whack of change,. player speculators will then step in to try to flip, the price will soar, then once interest in owning these wanes at the same time as interest in using them to legally buy gold booms the market will crash and many speculators will dump their stockpiles.

Speculation is a huge part of this kind of tradeable in-game item, in Eve which is a much smaller game a recent dev blog revealed there are about 16 000 plexes (about $240K) being sat on by speculators.

So whatever your views on legalised gold-buying establishing a legal gold buying facility which will inevitably crash like it's 1929 is a terrible way to implement this feature.

My advice to readers is don't touch this market, even if you would like to legally buy gold except in one circumstance:

If you want a panda and don't mind waiting a month or two buy one for 50 gold or so after the market crashes instead of paying £10 now.