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Why Gashapon is ultimate monetization method in Free to Play : based on microeconomics.
by YongHee Kim on 05/06/14 05:41:00 am   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

Price determination for physical goods.

  In classical economic theory, price of particular good is most important factor for consumer’s decision to whether buy that good or not. And price of particular good is determined by supply and demand curve. Which is called equilibrium price. And at supplier gets highest profit at equilibrium price.

 1 unit of Amazon `Fire TV` is $99 Thus $99 is equilibrium price. And Amazon can earn maximum profit by selling 1 unit of `Fire TV` at $99. At least in theory. 

                     

[Figure I : Total Revenue at equilibrium price]

 

  All the consumers who’s willing to pay more than $99 for `Fire TV` will buy them. Therefore total revenue from selling `Fire TV` can be calculated by $99 * number of consumers who’s willing to pay $99 or higher. This is supply and demand model from microeconomics.

 

Price Determination for digital goods.

  Nicholas Lovell has explained excellently in his post here about price determination for digital goods and race to zero for whole digital game market.

  What I will try to explain is price determination in individual F2P game as closed economy from my own experience with live service of F2P MMORPG.

  Let’s assume that you've developed and released a game called `Game X` and somehow managed to draw 1,000 people to play your game. So You have 1,000 user base for your `Game X` and you have to somehow make them pay for your hard work of developing `Game X`. Your First instinct is introduce subscription model to your `Game X`. 1,000 people enjoyed playing your game thus far. So at least some of them are willing to pay small monthly fee to keep playing `Game X` right?

  Korean MMORPG developers had gone through same thought process `Nexus: The Kingdom of the Winds`(1996) like this. It started as free and after some time introduced subscription model. Same goes for all the MMORPG in the world at late 1990’s and early 2000’s. They started as free (or you can play free until level X) and introduced subscription model later.

 At first it worked. Many of users at free phase left, but enough paying user remained to keep business going. But as competition grows, subscription model didn’t work anymore. There are two problems with subscription model. 

Problem 1 : conversion rate of free user to paying user is lessened and lessened. Because when introducing subscription model after some free play period, users simply choose to play another game because there are tons of other free game to play.

Problem 2 : This was bigger problem. Even though we managed to acquire great number of paying user, they will keep shrunk. Because getting new user was next to impossible (they were going for newly released game) and acquired paying user were meant to decreases over time for natural causes(grow older, married, getting a job, etc….)

                       

[Figure II : Subscription model revenue shrinking over time]

 

  Digital product has negligible production cost, there is no supply curve in supply demand model for Free to Play games.

 Figure II shows what happened with subscription model MMORPG. At a P1 price your `Game X` had Revenue1, which was satisfying and enough to pay for the maintenance cost of `Game X`. But as time goes by user base has shrunken and you have Revenue2, which is not enough to pay the maintenance cost and you are not happy at all.

  At this phase you might think that lowering subscription price for `Game X` will increase your revenue. But as Figure III shows that whatever the price is, you can never earn as much as Revenue1. 

 

                        

[Figure III : Revenue from different subscription prices]

 

 Fundamental reason why revenue decrease is shrunken user base. But it is next to impossible to increase user base due to intense competition. What will you do? Forget the `Game X` and move on to the next project `Game X2`? That is one option. But there is more safer and cost effective solution. That solution is called `Free to Play`. 

 

Price Determination for Free to Play Games.

 

                       

[Figure IV : Revenue from Free To Play]

 

  By selling different product at different prices, you can earn even bigger revenue than `Revenue1` with smaller user base. (Sum of red areas in Figure IV). So you decided to adopt F2P model for `Game X` and not long after, you found there is extra benefits of introducing F2P model.

  For subscription games, subscription price is acting as entrance wall for new users. But for F2P games, there is literally no entrance wall. With proper marketing, user base could grow even with aged game. Games like `Maplestory`, `Dungeon & Fighter` was actually growing long after release. Not just in terms of profit but also in cultural influence and user base.

  But that's another story at another time. Let’s return to our `Game X` with shrinking user base. You introduced F2P model and you were able to earn revenue closer to your prime time revenue of `Revenue1`…… only for a short time. After sometime you realize that production cost for F2P merchandise is not negligible at all. To be profitable with F2P model, you need different merchandise at different prices. Creating those requires many peoples hard work. Say, that you are selling horses for `Game X` in your shelve you will have $19.99 for premium horse, $9.99 for average horse, $2.99 for crappy horse. you will have to create such merchandise for every month. What will you sell after horses? Unicorn? Griffin? Dragons? Commercially available idea runs out really fast and it becomes impossible to balancing all those merchandises.

  There is easy and simple solution for this problem. Actually all the RPG game have this solution at the very core of game design itself. Japanese named this solution as `Gashapon`. Users pay X amount of money/gold/time and they get the reward based on fixed probability table. Gashapon can cover all the price range with single product, encourages impulsive purchase. And most importantly, It is highly cost effective. Lottos sells tens of millions dollars for every week without any need of developing new product. If `Game X` has stable economy, you can make Gashapon with existed resources within the game itself.

  Now you packed Gashapon with in-game resources and put it on your shelve with $0.99 price tag. Any paying user who’s willing to pay more than $0.99 they will buy Gashapon until their maximum spending capacity. Single merchandise with negligible development cost can cover whole red areas in `Figure IV`. And you can do it over and over again for every month or so. Users got tired of Gashapon? Don’t worry, putting balance breaking item inside Gashapon as a bait and little bit of marketing tweak will persuade them to buy again and again. And not long after you company account will be filled with hundreds millions of dollars.

 

  You may feel something wrong here. Isn’t Gashapon is exploiting psychological weaknesses regarding gambling behavior? What about providing actual fun and value for users? Do our users get what they deserve for their money?

Well… that’s the capitalism. I guess.

 

 

 


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Comments


Michael Stevens
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It's probably worth noting that using set-based Gachapon is illegal in Japan, so you have to be careful if you don't want to step on different region's gambling laws. And I'm not sure that implementing gachapon is a solution to the issues you see with à la carte DLC. Obfuscating the prizes behind a randomization doesn't necessarily reduce the number of assets you need to produce. One of the secrets to Puzzle&Dragons is that it adds new monsters frequently. If you're randomizing such a central element of the game you need to at least be giving players items they haven't seen with some frequency, otherwise you risk fatiguing your mid-low budget players (which in turn will critically injure the player base for most designs).

YongHee Kim
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Only certain kind of Gachapon is illegal in Japan and we are selling other types of Gachapon at Japan without any problem. And you are correct, that we need to create some new assets for Gachapon. But selling new assets inside Gachapon earns much more revenue than selling them individually (in our case, Gachapon revenue was about 3 times higher). Which means you have to create more assets to match the Gachapon revenue with selling non-Gacha merchandise.
Selling plain Gachapon is most simple form of obfuscating the prize behind a randomization. Guild wars2 gives player Gachapon chest for free, then sells the key. Puzzle & Dragon you get to open Gachapon after killing the bosses and it consumes stamina, so buying stamina potion is essentially same as buying Gachapon.

Ara Shirinian
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That is most certainly not the capitalism. That is the psychopath's road to earning money by the most effective means possible without regard to any other variables. Capitalism at its essence is profiting by providing value for customers whose lives are improved by the transaction.

Christian Kulenkampff
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No, in capitalism the sole goal is making profits. Even breaking laws can be a calculated risk in some ideas of capitalism. Imo gambling is very "natural" to capitalism. In its purest form there is no idea of fairness in capitalism.

Ettore Luigi Gislon
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"Capitalism at its essence is profiting by providing value for customers whose lives are improved by the transaction."

Well, that's a pretty accurate description of the stock market imo.

Luis Blondet
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"Users got tired of Gachapon? Don’t worry, putting balance breaking item inside Gachapon as a bait and little bit of marketing tweak will persuade them to buy again and again. And not long after you company account will be filled with hundreds millions of dollars."

http://bbsimg.ngfiles.com/1/22927000/ngbbs4dfecc4481f9b.jpg

Curtiss Murphy
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Ubisoft's Trials-Fusion (mobile) uses the slot-Gachapon style behavior. Random roll determines a race, and if you win, you get a random rewards - which you can spend hard-currency to spin again. In addition, at the end of each race, you get a random bike part by spinning a dial. This impacts game-play very early in the process.

Supercell's Boom Beach has no Gachapon style mechanics that I can see. And it is VERY generous with both hard currency and free gameplay.

Josh Charles
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I miss gaming.

JoseArias NikanoruS
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"Well… that’s the capitalism. I guess."
Hahahaha, well said!
I've thought for some time that the worst problem with capitalism is that it appeals to emotions that may be harmful for humanity on the long term (like egotism or taking advantage of other people's weaknesses as if they were objects to be exploited and not humans).

Paul Schwanz
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Actually, you covered "the capitalism" in your classical economics discussion on supply and demand. Exploiting psychological weaknesses to increase revenue is simply the greed. Trying to obfuscate the greed behind a political appeal would be the smoke screen.

David DeWald
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I think one opportunity that was not mentioned is "Status" items. Items that have no real impact on the game but to show others that someone has the ability to buy an item.

For example, you have three permanent mounts and all give the same +10% bonus to move rate. One looks very much like an Ostrich, another Fox like and a third looks like a very fine Horse. Again, no matter which one is purchased you get the same bonus.

However in polling your users you find that 80% of them would choose the Horse, 15% the Fox and 5% the Ostrich. Clearly there is more demand for the Horse simply because it is a much better looking model. So you could charge more to capitalize on that desire for the better looking mount.

Thats what we did... and we sold a lot of those Horses at $40 USD a pop.

Kenneth Blaney
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Depending on your player base there, raising the price of the Horse increases the social value of the horse thus possibly actually increasing sales. Veblen goods are a pretty powerful tool for F2P games that really don't get talked about a whole lot.

YongHee Kim
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Even with Veblen goods, Gachapon can generate much bigger revenue than selling them individually. Commodity with price tag of $1,000 won't sell much. But putting them inside 1$ Gachapon with 1/1000 probability will have nice sales figure.
In my case, our user base was mostly consisted with people under 20's and doesn’t have much purchasing power.

Alan Barton
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Ok, so lets get this straight. You are describing Gachopon in a way that implies you haven't implemented it yet in a game. Therefore your assertion that its the "ultimate monetization method" is based on your assumption, not fact.

Also you assume people will be willing to buy *random* items in the game, that they *need* to play the game. That implicitly implies they can't see what they are buying. Great you implement this in your game, then we will all clone your game idea, but we will tell customers what they are getting for their money, then your customers will be our customers, as they can buy what they want and *need* in our games. :)

I'm playing devils advocate of course to show you your wonderful dream of untold riches is built on very shaky assumptions that can also be easily counteracted and undermined by your competitors.

Also if you think you can just add gambling as a monetization method, you haven't even begun to see the scale of the legal problems, because you are entering a vast legal minefield that is different in every country and constantly changing.

For example, the US specifically has anti-internet gambling laws. e.g.
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer
/8455641/Poker-company-bosses-charged-with-violating-US-anti-inte
rnet-gambling-laws.html

Plus game monetization is very much under the political spotlight currently and politicians think games are for kids, and here you are want gambling in (as they will call) kids games! … Good luck with that! The politicians will burn you with pleasure. e.g.
http://www.gamesindustry.biz/articles/2013-09-26-office-of-fair-t
rading-warns-devs-on-high-pressure-monetisation

By the way, the monetization method you are describing is often called an AWP. E.g.
http://en.wikipedia.org/wiki/Amusement_with_prize

And its definitely covered by laws as gambling.

Also if all of that isn't bad enough, Gachopon (kids cheap plastic toy Vending Machines) work only because the machines are placed where kids can pester their parents with "I want, I want" ... and the parent, desperate for some peace and quite, thinks they can get some peace by distracting their offspring for a while with a very inexpensive *one off* throw away toy.

That isn't a good long term monetization model for games!. :)

However there is a hint here as in *need*. Making things available in game that people want and need, is a good driver for monetization, but a far better method is to make the things people want and need a consumable, then they need it repeatedly. Then they have a choice. Work hard to get consumable, or buy consumable.

Plus that has been shown to work by many developers in F2P games.

/Disclaimer: Sorry if this advice sounds like a mauling. Its nothing compared with what government officials would do to you ... and I did add a softener in the form of an alternative at the end, to ease the pain! :)

Bokshik Kim
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Card Battle Games (such as 'Million Arthurs' or 'Puzzle and Dragon') provides both of gochapons and consumable items.

Basically, you can grind for good cards without paying any money but it consumes your stamina. You can wait for hours to replenish it or you can buy some cheap consumable items such as potions.

But if you have some very good cards, you can grind more cards with less stamina. You can save some time(and money) with them. Those special cards can be obtained from gochapons. Of course you can buy them, but the game gives them for free also - as a reward for playing, achievement, participating in an promotional events, and so on.

Even though you couldn't get the best prize from a gochapon, you still got something useful. You can play with it, you can sell it for game money or you can use it to grow or evolve other cards. Whatever you use it, it will save your time and money. That's the big difference between gochapon and gamble in which there are only 2 result - win or lose.

Although it is often misunderstood, gochapon isn't fraud nor gamble. Players buy gochapons to save time, not expecting the best prize. Of course they want the best prize, but they want it because it would save much more time, ultimately.

If the game is so unfair that a player can't enjoy without those special cards exclusively from gochapons, nobody would play it. They play games to be happy and they pay for gochapons to be even happier. That's the true nature of gochapon monetization.

dwayne hammond
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You seem to be making some pretty misleading or problematic statements.

For example, "That's the big difference between gochapon and gamble in which there are only 2 result - win or lose." Obviously in many gambling games, the option is not "win or lose". Almost all of these games are designed to have enough small prizes, and prize variety, such that you "win" enough of the time to keep you interested. There is little difference between what you describe and a typical gambling game.

As well, "Players buy gochapons to save time, not expecting the best prize. Of course they want the best prize, but they want it because it would save much more time, ultimately." Again, this is very much like gambling. Players typically play lottery games not EXPECTING to win the big prize, but simply hoping to. That is the same as your "gochapon" example. As well, given that for most people, time=money (they work for their money), gambling can be considered an attempt to "save time", as a significant win could result in more "free time".
I appreciate the value of the approach you are describing, but given that in many jurisdictions this could certainly be considered a form of gambling, which could result in massive fines if the government decides your game has violated laws in their jurisdiction... I would echo the advice to be very careful in any assumptions you make that COULD result in very serious penalties if your assumptions prove to be false.

Alan Barton
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@"gochapon isn't fraud nor gamble."

Try implementing it on a phone, so players can try their luck multiple times for money, then see how badly the governments react, because it is a gamble. Anyway trying to argue "is and isn't" points like that with the governments won't save you from being taken down very hard by some governments. They don't care about arguing grey areas of definitions of what is and what isn't gambling and they won't stop at fines, they will hit as hard as they can and as fast as they can with criminal charges, like money laundering, like the US for example. Because there has already been many examples of them already reacting this way. So the governments won't care if you are a solo indie developer or a games development company, because these people take down criminal gangs for a living as fast as they take down companies and anyone for breaking their laws!

The US in particular has a very scary attitude to any kind of money in return for a gamble for something. The background to this is basically the US government doesn't like the idea of US money, especially gambling money, going outside of the US and the US gambling lobby are very rich and very powerful and they also don't want US players gambling outside of the US either. Also look at the money and power of places like Vegas and what that money and power can buy.

Its a very scary and expensive legal minefield and the governments want it that way. If it wasn't scary, far more would move in, in no time. Why do you think more companies don't risk getting into gambling?

Plus all of that is before you even get into a discussion about the morality of adding gambling to a game and how some very vocal players and non-players will react very negatively to that. Gambling is forever stigmatised as immoral and while almost every human activity taken to excess can be harmful, (even the usually good ones!), gambling in particular is forever chastised and held up as a symbol of great immorality by some in society and you'll never change that stigmatization. For example I can loose far more money on a shop loyalty card (which is basically a credit card) than I can loose on gambling, as most of gambling (certainly before Internet gambling) was banned from allowing gambling on credit, whereas shopping on credit isn't banned, its greatly encouraged!. But still many societies take a disproportionally negative view of gambling compared with other activities that *some* can take to excess (and they always stress the few that do, as a false example of most) and these often very vocal people love crucifying straw men whilst ignoring other more harmful activities in society. You can even try to argue its all just fun and entertainment if done only a bit and it is, many of us like a gamble here and there, but it won't matter, because some will delight in trying to crucify you and they don't want to listen to reasoned debate. They get too much out of often loudly crucifying others.

Entering the gambling industry isn't easy, which is basically what you are suggesting trying to do.

Bokshik Kim
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Generally, gambles are deeply related to randomness of the result. That's true. But in legal sense, having randomness isn't the critical feature that can define which is a gamble or not.

The first feature is quite simple. If you can exchange the prize with the real money, it's gameble definitely. It's universal. But the scond one is more complicated.

In gamble, you can earn or lose money. If you bet $100 and got $50, you lost $50. Yes. There is a chance of losing money always. If not, it can't make any business. In gachapon, you can't lose money because you always get something. Of course a player can think he lost money because he couldn't get what he wanted. But he got something. It's very important in legal sense.

Although it gives the reward randomly, it's not gamble as long as it gives something which isn't clearly and objectively valueless. That's the most important legal feature of gachapon. It's basically a kind of 'Starbucks Lucky Bag'. Players buy it because you'll get as much as you paid at least, even in the worst case. If he is lucky, he'll get better reward and would be happier.

As far as I was told by company lawyers, that differs gachapons from gamble legally in Korea(and Japan maybe). It's not a game of win or lose but a game of get something, something better or something even better.

I'm not sure about U.S. law, but gachapons are already making money in U.S. (Rage of Bahamut, Puzzle and Dragon, Marvel Puzzle Quest, Marvel Heroes Online and so on)

Alan Barton
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"having randomness isn't the critical feature that can define which is a gamble or not."

You are missing the point. You are right, randomness on its own isn't gambling, its randomness as a result of taking money, which is the connection you are missing.

"In gachapon, you can't lose money because you always get something."

You can loose. You can get something you don't want or need, which is therefore useless, so its the same a loss.

"I'm not sure about U.S. law"
I'm not a lawyer, but I've worked as a Programmer/Games Designer in the UK gambling industry twice in my career, (I've got about 8 years total experience of the gambling industry). I worked within the UK laws on gambling, but I also closely watched the US laws for years and they are scary and getting ever worse and they will interpret a *virtual* gachapon as a gambling machine like game. Real gachapon machines have always been seen as bad enough, but they scrap by the law often as they are argued they are just one time impulse purchases of very inexpensive cheap plastic toys. You won't be able to argue automating it on a phone, because that is gambling and the authorities are exceptionally ruthless about gambling. You really have to be careful.

Also if there is a industry trend toward trying to blur the line between games and gambling, the authorities will hit the games industry very hard indeed. They have very strong laws and powers. For example, if you don't abide by the laws, they can easily raid you and shut you down instantly and that is before you get into arguing about it in court cases. In many countries if you want your company to enter the gambling industry, you will have to apply for a gambling licence. In the UK its currently called an "operating licence" as far as I understand that side of the law. I've not gone through the licensing process myself, as that was my employers job :) ... I just made games and had to design within the legal restrictions. (I was designing physical slot machines, but we were watching the changes in online gambling very closely as well).

I've been out of the gambling industry for about 3 years now and I know as an indie games developer I couldn't afford to re-enter it. Its a market for big players and they throw millions around in all directions (advertising, legal, etc..). Not least of which the laws are changing endlessly around the world, so its a full time job just keeping up with how the legal requirements around the world change. If your company breaks any of the laws around the world, ignorance of the law won't be a defence and they will hit very hard, so you have to be very careful.

If you are still interested in getting into the gambling industry, the Gambling Commission is a good starting point for the UK. As I say, its different around the world. Also be very aware that they are constantly discussing what new ways to change the law to better regulate gambling and online gambling is a big focus for them. So what they allow now they won't allow when they find better ways to control it and its always moving in the direction of more control. Anyway, here's their home page. http://www.gamblingcommission.gov.uk/

But with online gambling, its the US you really have to worry about. They have arrested and held many non-US gambling company executives on entry to the US. They want to send a very strong message to not allow any non-US online gambling companies to take US money. If you are not based in the US, they will hit you hard if you allow US players to play your game. If you are based in the US, the gambling laws are different in many states, so it depends where you are based.

As I say, its a minefield.

Bokshik Kim
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And gachapon monetization is also crucial in F2P PVP games - FPS games, especially.

In FPS games, there are two kind of players. Most of them are not willing to pay to win because it seems unfair. And that's the reason why some players are. Because there are players not paying, the paying users can have advantage. And because some players pay, non-paying players can enjoy game. The proportion seldom changes because it's about the fundamental philosophy of each player.

But even if a player want to have more and more advantage with paying, there should be limitation. Once he has a set of equipment(weapons, armors, boosters, skins and so on), buying additional equipment is meaningless.

The only way to get more money from him is to sell even more expensive and powerful items but it can harm the basic principal of game - it should be fair. If the cash items are too powerful, the non-paying players would leave. If there are not enough non-paying players to kill, there would be no meaning of paying and getting stronger. If the items are not powerful enough, they won't buy. That's the dilemma of monetizing F2P FPS game.

An then, gachapon comes in. The low chance and the high expected cost can justify its performance. Players can spend as much as he want and can afford. And it's even fairer than just selling the good weapons directly in the shop. In such traditional model, there is no chance to get better service(items) with paying less. But it's possible in gachapon. Even you can get it without paying any money(if the gachapon is given). Of course it's actually theoretical, but that little chance justifies and keep players from leaving game for unfairness.

Of course, I don't think it's the only and ultimate monetization method. It harms the basic principal of 'Fair Game' which is especially important in FPS games. But there are a lot of obstacles in monetizing FPS games and it can be a compromise. (The show must go on, right?)

I personally prefer Pay-to-Play model in World Of Tanks. But it's not FPS and requires much bigger and longer meta game which is not easy for FPS games.


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