Monetizing software applications: Lessons from the games industry

Please note: As always, this is an opinion piece based on my current reading and industry understanding. It therefore contains no peer reviewed references and does not claim to be academic research in any way.

Just jotting down a few rough thoughts on the similarities of pricing strategies for games and productivity or non-entertainment based software applications. I am writing my dissertation based on this, and I am hoping that this will help me formulate my rationale better. I find having to express these thoughts in a one pager bullet list such as the below helps me focusmore. I also think it's actually an interesting subject and thought I'd share the rough ideas here from time to time.

Pricing Software

What lessons can be learned from montetization strategies in the games industry for pricing non-entertainment based applications? 

Evolution of application context

I believe both games and non-entertainment applications (NE-Apps) have undergone a similar evolution with the advent of the publically accessible internet. Both have moved through comparable stages:

1. Single Player/User, local installation, no connection, single user experience, but results may be shared outside of the application (e.g. sharing highscore screenshots or emailing office documents)
   
   
   • Games: Classic 8Bit and 16Bit era games
   • NE-Apps: Classic productivity suits (Office)
2. Multi Player/User, local installation, local connection, usage as well as results are share
   
   
   • Games: IPX LAN games such as Doom
   • NE-Apps: Workgroup collaboration on productivity apps
3. Massively Multiplayer/User, local installation, WAN connection, usage as well as results are shared
   
   
   
   • Games: MMORGPs such as Ultima Online, World of Warcraft, EverQuest
   • NE-Apps: DropBox filesharing and other cloud connected installed client based apps
4. Massively Multiplayer/User, purely cloud installation, WAN connection, usage as well as results are shared
   
   
   • Games: Facebook games such as Farmville, browser games
   • NE-Apps: Salesforce CRM, Google Apps, Social Media communication tools such as Twitter

Evolution of licensing / pricing

At the same time, monetization strategies have changed for both sectors. In broad terms these can be classfied as follows:

1. Single license purchase with once off payment, unlimited usage
2. Per user license with once off payment unlimited usage
3. Per user license with recurring payments (subscription), usage based on license
4. Pay as you go license with payments based on usage pattern
5. Free to use, but payment for features when they are used

Games are currently maturing to the fifth stage of the above, while NE-Apps are still focussing on stage four in their majority. Many successful games have embraced the "free to play" approach and montetize based on virtual item sales. The majority of NE-Apps have yet to make the jump to this model.

Arguments against Free-To-Use

NE-Apps arguments used against the free-to-play model may include:

• Subscription pricing is easier to predict
• Subscription pricing creates lock-in
• Free to use appears to lower barriers to exit
• Traditional Revenue management may look at free-to-use as a loophole for customers that would have paid otherwise

These arguments could have been made by the games industry, too. Infact, even many games industry actors have a hard time overcoming these fears today.

Counter arguments  for Free-To-Use

Those that do embrace stage 5 however have proven that they can make it work to their advantage. This is especially true for most of the social network based games such as Farmville or Free-To-Play MMORPGs such as Runes of Magic.

Arguments for free-to-play therefore frequently include:

• The social part of the experience is important, and free-to-play creates a much bigger usergroup
• Marginal price for one more user is near zero, so it may as well be "too cheap to meter"
• Subscription prices create too high a barrier to entry
• Users create lock-in by investing time and effort into an application rather than just money. Sunk costs are an accounting term used with a view to money spent. Sunk cost however rarely factor in the actual emotional investment into an application. Change management shows how important such emotional investment is though.
• Revenue management actually proves to be much more effective by setting near infinite price points when combining free-to-play with a virtual item / consumption model. Users will pay which ever much they need to to achieve their goal. The barrier to entry based on price is zero, so no revenue below the price point is lost

Future outlook

It will be interesting to see how the NE-App sector can make use of the trail that has been beaten by the games sector. I believe that just as with the games sector, it will require either a major player in the industry to set precedence, or it will require a critical mass of independent procuders to hollow out the market from below until the damn breaks.

Either way, I believe stage 5 is on the horizon, and it may well prove the number one pricing trend of 2011.

Looking for a topic for a minor research dissertation

Its my final year in my M.Sc. Management Information Systems at Trinity College, and I will soon have to choose a topic for the minor dissertation to end this postgrad course with. I have been going over a number of subjects, and find myself torn between topics that are either far too broad for a 20k research paper or less than inspiring. I'm currently looking at a shortlist, but am still mulling ideas about.

I have to narrow the focus to a specific question in each of them, but these are a few of the areas I currently think about:

The religion of platforms
I am thinking about comparing the dedication to a specific platform to the involvement with an organized religion. In this context, a platform can be anything from a framework (jQuery vs. MooTools), to a programming language (PHP vs. .NET) or and operating system (Linux vs. Windows). As an example, I would like to examine the spread of an organized religion to the spread of a particular platform, as well as the transferability of religious concepts and entities, such as monotheism or prophets, disciples and gurus.

The personality of systems
I believe that more often than not, complex, proprietary or legacy systems are not rationally understandable to their users. They must be treated like a black box and as such, they can tend to display mannerisms or produce opinionated outputs. In this context, I would like to examine how tools of human communication science, such as the Interactive Model Of Meaning Making, apply to the communication with such systems. As an example, Google's inner workings are not clear to the user, yet people very quickly develop a strategy of submitting queries, and hence communicating with the system.

Virtual Reality as the Final Frontier
Space has long been heralded as the final frontier for humanity, but I believe that, like the seafarers of the golden age of sail that were limited by a two dimensional drive for expansion, we today are limited by a three dimensional perception of boundaries. In Virtual Reality, such a limit of dimensions does not apply.
Many people today have already forgone the pursuit of extraterrestial boundaries in lieu of closer, more achievable spaces for expansion. These substitutes are the readily available alternate realities such as MMORPGS that we as consumers have access to today. Crude but simple examples of a not simply three dimensional experience are instanced pieces of virtual reality, as already heavily used in online games such as World of Warcraft

Augmented Reality and Telepresence 
I think that the next big leap in communication will come in the possibly overlapping areas of augmented reality and telepresence. On the one hand, augmented reality will allow us to interact with the world and each other based on a richer cognitive experience of the surroundings that we find ourselves in. On the other hand, telepresence will allow us to detach the mind from the body and go to places that we are either not able to visit, or where a physical visit is not feasible.This will have a profound impact on human communication and collaboration and the exploration of space and realities.

The browserless future of the World Wide Web
Thinking in smaller boundaries than the topics above, I believe that the days of the browser as a tool to navigate the web are numbered. This demise comes with the emergence of more and more non-desktop devices, such as smartphones, photoframes and TV Screens as well as widget driven platforms that decouple access to information from the traditionally limiting confines of a full screen browser. This will have a profound impact on web strategies in commerce in particular and the sharing of knowledge in general.

The influence of SciFi on Science in the area of ICT
In a classic chicken before the egg question, I want to examine the causalities between Science Fiction themes and ICT, trying to distill if works of Science Fiction greatly influence the direction of science in this area, or if the relationship is of the opposite nature. Classic instances to examine include the geosynchronous orbit as proposed by A.C. Clarke or the impact of popular science fiction universes such as Star Trek on the design of consumer devices such as PDAs.

There are a number of other options and areas I would like to explore, but I think the biggest challenge will lie in formulating a research question that is manageable in the 6 to 8 month time frame given for the dissertation. As I am not about to give up the demanding but exciting dayjob at X Communications, I may yet have to write about something rather uninspired, such as the impact of the introduction of cheap laser printing on the bill presentment process in Irish SMEs in and around the Ballysomewhere industrial park before and after the recession... That would be a pity, but part time students have to be mindful of their time, so it may yet happen.

The Long Tail

Making use of commuting time on the DART, I have been able to catch up on reading a lot of books that have been on my wish list for quite some time now. These include some Arthur C. Clarke titles, The Big Switch by N. Carr of "Does IT matter" fame and presently The Long Tail by Chris Anderson.

Even though the concept of the Long Tail seems obvious now that it has been discussed and indeed showcased excessively by the success of companies such as Amazon, EBay and Apple through its iTunes store, I can't help but smile at the simplicity of the idea.

In fact, reading Anderson, I cant help but feel empowered, mostly by his stipulation that for every small producer of creative works, there is an audience out there somewhere that is willing to consume said works. Previously I would have felt that it is pointless to produce anything online, because it would just get lost in the vast sea of content that is the web. Now however, I feel that there is an audience there that just needs to be reached.

Truthfully, I should have been aware of the effect of The Long Tail quite some time ago, back in the mid 1990s, when we were producing low key freeware games at Horizont Entertainment. We created a turn based strategy title, named Battlelords.

The game started its life on an Atari ST platform, using Omikron Basic, but was ported over to MS-DOS using Borland Pascal in and around the time the commercial Internet launched in the middle of the 90s. The game, when finished, was more for our own entertainment than for a general audience, but with the ability to make it available online at almost no cost (bar the 100 DM hosting per annum), we figured we might as well share it with the PD / Freeware community.

To cut a long story short, the title was growing in popularity at a slow but steady rate and was eventually downloaded several hundred times a month. For a game that we only ever intended for personal entertainment and as a pet project, these figures were a bit of a mystery to us, bearing in mind that this was at the early stage of Internet adoption.

Even when Microsoft released Windows 2000 and then Windows XP, which were platforms that were no longer able to run our code without the use of an emulator such as DosBOX or a virtual machine running MS-DOS, we still continued to have a sizable count of downloads every month. Even more interestingly, the stats package we ran on our cheap shared hosting plan revealed that a lot of the traffic was actually coming from South America and Eastern Europe, which were markets that we never even thought about when we made the software available in the first place.

We have since tried to make time and port the game to Java, upgrade its graphics and sound and allow it to run on modern day systems, even including mobile phones. Having been written for what today seems like very low hardware specs, the game now even runs on some Windows Mobile platforms using a pocket DOS emulator. Sadly, we have never found the time, and frankly, given the abundance of competitive offers out there, we had never thought it really worth pursuing seriously.

Reading The Long Tail has however left me with a gut feeling that we should not abandon this idea after all. Maybe, if Anderson is right, which he certainly appears to be, there is demand for a solid turn based strategy game today. And maybe, we could even charge a small fee for a well designed game that has already proven that its mechanics, balance and scope are appealing to a wide range of users around the world, even without any serious effort of SEO or other marketing.

The bottom line is that I am left much more optimistic about the possibility of publishing creative content on the web. I no longer feel that the abundance of alternative offers will make a single user's contributions disappear, but rather that the ease of access to all forms and shapes of content can help us reach those people that are actually genuinely interested in our contributions.

Journalisms death or rebirth?

I have become an avid Lifehacker.com reader over the past few months, and thanks to their RSS trickling into my inbox at a steady rate, I happen upon many great tools to enhance productivity (and frankly, not rarely the opposite, i.e. wiping a few hours of my Saturday by playing around with something I will probably never use).

One such find was Qik.com, which allows you to use your phone's build in camera as a webcam, streaming life (and live) from where ever you are, as long as you are online of course - Mobile phone operators are rejoicing at the promise of extended data package usage. That seems like a simple value proposition at first, but once you spend only a few minutes on the site and see what is actually available there, it begins to grow on you that there is much more behind this... It could be the next YouTube.

YouTube is great for its user participation, but even though it allows direct capture from the webcam, it still relies on content that is often edited, or at least cut and filtered before it is made available. Qik on the other hand is based on live broadcast. You can see what is happening, right now, when it is happening. YouTube was once feared as the possible death of professional journalism, and the same could be said about Qik. However, having just watched footage from the Palestinian protests in London, it dawned on me that that is not quite the case.

I belief that services like Qik emphasize the need for professional journalism more than ever. You see unedited images and footage that is up to your own interpretation. You could argue that thereby you see unedited, unbiased reality, but you would be wrong. The bias first of all lies with the person holding the camera of course, but secondly, it lies with the omission of one major benefit you get from professional journalism: Context.

For example, I see enraged people on the streets of London, I see devastated shopfronts on Kensington street, I see flags of Palestine, and I see angrily chanting individuals calling for a confrontation with Israel. If I did not know the context of this story, I would not have any sympathy with these protesters at all. I would possibly put them into the same corner that I would put radical Islamists supporting the perpetrators of the 9/11 attacks. But because I know that the demonstration started out peacefully with over 10,000 people protesting against the Israeli ground offensive, and I have been following the news over the last few weeks, I understand why they are angry. That may not mean that I condone the violent tendencies expressed by individuals among them, which have led to the destruction caused in the wake of the protests, but it makes me more understanding to their motivation. Context makes a huge difference and adds a significant amount of value to the product that is information.

In this light, I do not think that services like Qik make traditional journalism obsolete. On the contrary, I believe that journalism becomes more important then ever, as long as it is done professionally with a minimum of bias (for the record, I do not count FOX television as serious journalism).

Is it time to rethink the division of c-level executive power?

Totally out of my depth, and probably labeled crazy for thinking I may comment, but on a Sunday night, thoughts are going through my head... and I promised to use this outlet for it, so here it goes:

Is it time to rethink the division of c-level executive power?

Traditionally, there are three main disciplines in forming business leadership and strategy, namely the financial (CFO), the information (CIO) and the human resource management (HR Manager) functions.

As suggested by the titles, this is somewhat evolved from the pre neo-classical division of capital, and no longer focuses on land, labour and production stock, but on finance, information and human beings.

The question is, are these divides really helping to structure the modern day formulation of strategy at c-level, or are they not the proverbial boxes that acteurs should be thinking outside of, having grown to be a barrier to true strategic vision instead?

No one can argue against the fact that information technology is becoming more pervasive in every function of business each day, almost to the point of ubiquity. Similarly, the human factor, by its very essence, is integral to every part of the modern business, in that it has a visible impact on accepted thinking standards, where leadership is valued over administrative management, knowledge over information and even EQs over IQs in an environment where personality is examined equally if not more thoroughly than factual expertise in the recruitment process of many companies.

Why then separate the functions at the highest level of strategic thinking? Why create artificial divides and competition for resources?

With a shift from information to knowledge, the function of the CIO shifts towards that of a CKO, which ultimately needs to annex part of the HR responsibility, where knowledge is not detached from the people that utilize it. Even in the constant battle to transform tacit knowledge into explicit knowledge, the CIO's ultimate goal must be to create an environment where this knowledge is made available again to the human aspects of the organisation, be they executive decision makers or front line workers.

This clearly underlines the need for a CIO / CKO to have not only a strong technical background with outstanding strategic understanding of the business as a whole, including significant insight into financial management to cooperate with a CFO peer, but also the desire to understand human aspects in excess of processes and procedures to manage inanimate objects.

With that in mind, the CIO / CKO looks to be set for becoming a sort of super c-level executive on par with the CFO, combining the current functions of the CIO and the HR Manager under one hat, combining the responsibility of managing both tangible and intangible, animate and inanimate assets of the company, both in regards to but also in extend of their monetary value in the CFO's balance sheet.

Clearly, this development warrants the formulation of a new nomenclature to avoid the pitfall of forcing the competencies of one originating discipline into the mindset of the other. The most logical solution here seems to be a title that reflects both backgrounds without favouring the other.

Hence, the Chief Facilitating Assets Officer (CFAO) is born.

Use the f(a)rce...

I have just been on Grafton street, innocently running to get my lunch. Grafton street at this time of the year, i.e. what is meant to be summerish, is usually a vibrant mix of busking musicians, human statues and begging homeless and not so homeless people.

Today however saw something new even for me. Unfortunately, I didnt have my camera ready, but suffice to say that the bottom of Grafton street was populated by an oversized leprechaun asking for money because he had put on a disney world mickey mouse sized comic costume left over from the paddy's day parade and, I kid you not, a skinny guy in a black T-Shirt and a Darth Vader mask handing out leaflets promoting the NO vote to the Lisbon Treaty referendum.

I dont know if it was Jedi mind magic or the same inhuman drive that compells people to watch a trainwreck happening, but I actually couldnt help but take the leaflet, even though he and his "The more you think you know the more you dont know" shouting companion already discredited themselves by this comic mascarade right from the start.

As expected, the leaflet was full of the usual anti EU arguments, nothing standing out to be worth mentioning. To be fair, I should quote their website at wiseupjournal.com though, advising you that they do not share my views or opinions (on the contrary).

[start rant of blissful political naivity]
Its people like these that always made me question the validity of a referendum on anything, because ultimately, the vast majority of people voting are un- or misinformed on the issues thanks to pro and contra propaganda in place of objective campaigns. People investing money in such campaings almost always aim to establish a bias to one or the other side and blur the facts instead of laying them out unobjectively.
[end rant of blissful political naivity]

Everyone has an agenda, such is the world of politics I guess.

Gained in translation

It has been an eventful two weeks, with ups and downs, pleasant surprises and not so pleasent proverbial spanners thrown into the works of our wedding preperations.

As an example, we thought we had our paperwork in order for the German wedding, but unfortunately, that was not the case. The office in Poland had refused to issue a paper valid for more than 3 months, even though according to various sources, these papers exist on an EU basis for a validity of 6 months.

That was not a problem though, or so we thought, given that Kasia could pick it up 3 month before the date (we are talking about the Polish version of the Ehefaehigkeitszeugnis or Certificate of Marriagability here). Well, werent we in for a treat, when it turned out that the paper was issued on March 7th and thereby, according to German law, no longer valid after June 6th. Our wedding was to be on June 7th.

Well, even that should not have proven a problem, was it not for the Polish office refusing to reissue, claiming it was valid on the 7th, too, whilst the German office refused to accept it, claiming it expired on the 6th. At this stage Kasia's father got involved, forcing the Polish office to reply with an official statement certifying the validity including the 7th. They however replied that the document was valid 3 month and refused to confirm if this meant the 6th or the 7th.

To cut a long story short, our court translator in Germany, the very helpful Danuta Treder from Pfalzdorf, Goch, called the office in Germany, explained the situation, then contacted the office in Poland via telephone, got their official statement, got back to the German office, negotiating a resolution that consisted of her remark on the official translation stating that the document was vaild on the 7th of June. With her official seal on the document including this note, the Standesamt in Goch now finally accepted the validity and has now confirmed the date of the 7th, albeit with the caveat that the ceremony is to be held at 10, not 1030.

I have to point out that Mrs Treder did all of this on her own initiative, without us even asking her for this wonderful assistance. We certainly feel a great deal of gratitude towards her and will have to make sure to express this (there is a bottle of finest Irish whiskey inbound at least).

Shopping like a serial killer...

Wow, same day, first post, I know, shocking... But I just came home from doing a spot of shopping and noticed something, when going over the items I bought in the Fonthil Retail Park.

Let your mind play around, here is a list of what I bought:

• A role of Black isolation tape
• 5 amp copper wire electric connector
• 1.5 m extra heavy duty rubber isolated cable
  
• Cream Cleaner for tiles and other surfaces
• Black extra strength plastic bin bags, XXL size
• A wooden roling pin

Can you guess my weekend project yet? Well, I also picked up some woodchippings and guinea pig food (you have to get rid of the body somewhere)... not to mention an energy drink and low fat extra smooth bread spread (together with the roling pin I am getting a pretty bad mental picture here...)

Well, they also had a hacksaw on offer in Homebase, but I somehow felt that I wouldnt make it home without a police escort if I went for that.

The girl at the first till, where I bought the roling pin and the cream cleaner actually asked me if I was going to do a spot of baking... "Yeah... thats it... I...um...I'm going to bake some cake... hence the cream cleaner... I am a messy baker...".