Kliuless? Gaming Industry ICYMI #13
Hi, my name is Kenny Liu, and I work in Revenue Strategy at Riot Games. Each week I compile a gaming industry insights newsletter that I share with other Rioters, including Riot’s senior leadership. This edition is the public version that I publish broadly every week as well. Opinions are mine.
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Artifact: Pay-to-Win or Pay-to-Lose?
Artifact community slams 'pay for everything' model
Related: Artifact review: Valve’s card game is deep, but burdened by its marketplace
In most digital CCGs like Hearthstone, players have the freedom to choose to invest their money and/or time to unlock cards, but these cards have no extrinsic value outside of their respective games
Artifact's business model, however, is more reminiscent to that of physical CCGs, in which players have no other option but to invest money to unlock cards, but these cards can be sold on a secondary market (Steam Marketplace) for credit that can be broadly applied to purchase anything (on Steam)
Why does Artifact's business model feel so bad for players?
Valve is swimming against the current of player expectations for the digital CCG market. Even Magic: The Gathering, which had for a long time held back from going true free-to-play for its digital products, finally adopted a Hearthstone-like model with its newest entrant Arena. Thanks to market-set player expectations, boxed product games have not been able to break the $60 price ceiling for years, and a similar logic applies here as well for free-to-play games and their associated genres
Valve takes a 15% cut of all Artifact transactions on the Steam Marketplace. To add insult to injury, taking 100% of primary market revenues is not enough, so Valve also levies an additional 15% tax on all secondary market sales. (While Valve also does this for its other games, Artifact is unique in that it contains no free in-game drops)
Even if we suppose the average player spend between Hearthstone and Artifact (net of secondary market sales) is comparable, psychologically the holistic monetization experience in the latter would likely feel much worse. Taking a page out of Kahneman's Thinking Fast and Slow to help explain, humans have two modes of thought: "System 1" is fast, instinctive and emotional; "System 2" is slower, more deliberative, and more logical. With entertainment products like games and in-game content, the purchase "impulse" (as opposed to "decision") is usually activated by our System 1 part of the brain. In fact, by asking players to instead turn on their System 2 brain each time they make a transaction, this alone may kill their original hype that would have otherwise been enough to drive them towards discretionary spend. Players no longer just think, "Oh wow, I really want that legendary card," and instead question themselves, "What's the expected value of this pack? Is this legendary card really worth its current market price? Do I buy packs or do I buy individual cards? Do I buy/sell these cards now or wait until later?"
Not to mention in behavioral economics there is also a phenomenon called the endowment effect, in which people ascribe more value to things merely because they own them, even when there is no cause for attachment or if the item was only obtained minutes ago. So players are caught in the middle of a lose-lose catch-22. If they do not sell on the secondary marketplace, they have to bear the full brunt of Artifact's heavy financial cost; but if they do sell their inventory, they will suffer from greater negative emotional overhangs. From a gameplay perspective Artifact may be pay-to-win, but economically for players Artifact feels pay-to-lose
Business & Revenue Strategy
HBR: How Much Does It Cost to Adapt to Industry Disruption?
"Companies in Quadrant 2 tend to bear relatively high indirect costs, because of the greater threat of cannibalization and the greater conflict for resources in a highly competitive environment. Traditional game developers facing the emergence of mobile gaming fall into this quadrant—Electronic Arts and Nintendo, for example. Their stock of assets—intellectual property, game-development capabilities—is compatible with mobile gaming, but they operate in a highly competitive market where product life is short and consumer preferences change quickly"
HBR: To Get More Done, Focus on Environment, Expectations, and Examples
Pokémon's strategy is cross-generational
U.S. Federal Trade Commission will investigate video game loot boxes
"Previously muted" free-to-play console revenues triple YoY to $64mm during Black Friday weekend
PC/Console
Microsoft’s New Studio Acquisitions Show How Much Xbox Has Changed
Nintendo currently testing game-streaming in Japan due to more robust internet infrastructure than U.S.
The Past, Present, And Future Of
