Why Consoles Didn’t Die

Yeah I was wrong. But hey, so were a lot of people. The PS4 barrels ahead with the fastest selling console ever. Microsoft is making a lot of similar but highly qualified statements about the XBOX One which leads me to believe it’s lagging behind significantly. Still, the recent European price cut and upcoming tent pole releases may perk things up.

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Regardless, most console doom predictions haven’t come true. This is because Microsoft, and primarily Sony, changed their business models in response to the looming threat from mobile and tablets. If consoles kept going the direction they were in 2008, we would see a totally different story.

What changed?

No more loss leaders.

Consoles historically launched as high-end hardware sold at a loss–but still quite expensive. This peaked last generation with the ‘aspirational’ PS3 debuting at nearly $600 in 2006. The idea behind this business model was that they’d make it up in software sales and eventually cost reduce the hardware.

This time, Sony took a page out of Nintendo’s book and built lower cost hardware that can at least be sold close to breakeven at launch. The downside being that the tech specs are somewhat mundane. Price sensitivity wins over performance.

Dropping the gates.

The tightly gated ecosystem that dominated consoles for decades would have been absolutely disastrous if left to stand. Sony has largely obliterated their gate and gone for a more authoritarian version of Apple’s curated model. Surely the most significant evidence of mobile’s influence on console to date. Microsoft has also adopted this posture with their ID program. The indie revolution is heavily influencing games, and allowing this movement to continue on consoles is a smart move. Especially when fewer and fewer studios can execute at a AAA level.

Users didn’t move.

A lot of analysts mistook stagnant console numbers for lagging demand. It turns out, there really was just nothing else to buy. Despite hype about core games on mobile–that transition has yet to happen. Most titles console players would recognize as ‘core’ games have utterly failed to gain traction on tablets. Core gamers want core games exclusively on console or desktop while reserving mobile for a completely different experience.

Eventually we’ll see a major disruption in how and where games are consumed. It’s going to take longer than one console generation to transform core gamer habits. It also may be too early to tell. After all, we’re only a few months into this generation.

The fact is, the AAA economy isn’t sustainable. Massive layoffs, even while Sony is basking in post-hardware launch success, shows not all is well with the AAA end of the spectrum.

$100: The New Alternative to Free

I was listening to the Combat Jack podcast over the holidays where his guest was Nipsey Hussle: A Compton rapper famous for successfully releasing a $100 mixtape. Considering mixtapes are used as a free giveaway to promote an artist, selling 1,000 copies at $100 a pop is kind of incredible. Nipsey didn’t just set the price, he turned paying for it into a movement.

Oh, and the mixtape is good, but I prefer the “Chop not Slop” remix version.

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During the interview, Nispey said he got the idea of the $100 mixtape from the book, Contagious. The first chapter is about a restaurant that created a $100 Philly Cheesesteak in an attempt to start some buzz. The rest of the book is a typical hand-wavey marketing tome using non-scientific anecdotal evidence to prove the author’s premise about why ideas catch on. Nispey is now working on a book with the author based on his experience selling Crenshaw. Maybe I’ll dig that one.

Still, this got me thinking about a similar trend in games. As we’ve discussed before, in this era of free everything, early access and alpha funding are new ways games are financing development long before completion. In some cases, you pay more for early access than the released game. Take Planetary Annihilation as an example. Early access runs you $90–nearly the price of Nipsey’s mixtape.

In other interviews, Nipsey stated that he wants to be less of a record label and more of the “urban Sanrio.” Essentially selling physical product and using music to promote it. This is a similar model that streetwear brands have used and somewhat reflective of a growing trend in gaming where physical products are starting to become a significant engine of monetization.

In the era of free, the relationship between your players and their wallets is evolving in surprising ways. It turns out, those who want to pay REALLY want to pay. The one-size-fits-all model of $60 games may be dead, but simply making everything a f2p hamster wheel isn’t a blanket solution either.

Game Developers: Don’t Compete, Disrupt.

In the old boxed retail model of games, publishers often waited for an “off year” to capture a hit title’s audience. For instance, a publisher would release a competing open world game the year after a Grand Theft Auto installment to monetize GTA fans who are looking for a similar experience. This successful strategy spawned many hit original properties despite its “fast follow” basis.

Today’s hit games such as League of Legends are constantly updated services and thus never have an “off year.” As discussed in a previous post, we’re in a winner-take-all game economy. Top games consume all of the time and money of their players.

It’s exceedingly expensive to go toe-to-toe with a leading game-as-a-service. Not only do you have to compete with the top game’s deluge of content and social network, but you must overcome the switching cost users bear to move to a new game. A player could have thousands of dollars invested in his League of Legends character. Now you want him to start all over on your new, unproven MOBA?

Competition is possible, but only with deep pockets. The only company posing a distant threat to League of Legends is Valve with DOTA2. Not only have they made an excellent game, but are lavishing massive development and marketing budgets to compete with the frontrunner.

What can you do if you’re not among the most financially successful developers in the world? Don’t compete, disrupt.

READ THIS BOOK.

As described in my bible, Clayton Christensen’s Innovator’s Dilemma, disruptive innovation typically arrives in a form that’s lower quality than the established player, but cheaper or more convenient to use for a low-end customer.

This low end customer is not as profitable, and thus not very interesting to big companies. The disruptive product’s quality improves steadily. By the time the threat is noticed by the incumbent, it’s too late. The disruptive competitor is attracting the old guard’s high-end customers.

A modern example might be what the tablet did to the netbook and is now apparently doing to notebooks.

How does one develop a game disruptive to the established players? Is it even possible to do so? After all, there are flaws when you apply the low-end disruption theory to consumer products. Let’s look at few vectors of disruption and how they may work in games.

Cost

World of Warcraft’s plunging subscriber numbers may be showing that Blizzard has fallen victim to Innovator’s Dilemma in the form of free2play competition.

F2p originally meant lower quality, lower commitment, and (supposedly) cheaper-to-play MMOs. Now, all major releases from Western companies inevitably become f2p. The quality bar has risen to where it’s possible to match or surpass the incumbent combined with a dramatically different business model.

Convenience

How about making a game more convenient to access? One way developers are trying is by bringing established PC f2p genres to mobile. The idea is that by making a MOBA simple to play on a tablet, it’s possible to capture a segment of the desktop customer. This ignores the fact that tablet-owning hardcore LoL players are still looking for an experience uniquely crafted for mobile–Not simply a long-session MOBA plopped into an iPad.

The problem when applying business model advice to the games industry is that most are based around solving a problem. The only problem games (and entertainment in general) may solve is boredom. When you aren’t solving a problem or “pain point”, you are selling based on other emotional qualities such a branding or user experience.

Lessons can be applied–but perhaps not literally. Which is fine. Slavishly following any business model or development methodology ends up in the creation of a process cult.