During the lecture of Monday, I thought of an example of versioning (Shapiro & Varian, 1998). It is often used in Pre-ordering of video games nowadays. In this blog I will use the example of the new Fifa 19, which will be available, if you haven’t pre-ordered it, next week on September 28th.
If you look at the possibilities for pre-ordering the game, you can see the following offered by bol.com:
– A regular version sold for 59,99.
– A ‘champions’ version, where you get extra features in the form of ‘Fifa Ultimate Team’ boosts sold for 89,99.
– An ‘Ultimate’ version, which gives you even more ‘Fifa Ultimate Team’ boosts as well as 3 days of earlier access, sold for 99,99.
(Bol.com, 2018)
This is a wide spread trend in the video game industry. If you pre-order a game you, usually get a small extra bonus feature, which usually consist of cosmetic, in game, products. It is however possible to spend more on a game and therefore get more features. This is seen in games like Call of Duty, Fifa and Star Wars Battlefront. It shows that video game sellers became aware of their different segments of customers in order to maximize profit. However, there is a debate going on if this is not illegal when looking at the law on under aged gambling (Maessen, 2018; Vegelien, 2017)
It is debatable whether the element of betting is present in games, when paying for certain ‘loot boxes’. Lately, a trend in the game industry is to generate rewards through an algorithm that assigns rewards. Even if you decide to spend more on a game, you still do not know what you actually pay for, since what you buy is randomly assigned through an algorithm. This, in combination with the lightning effects and sounds game producers put into these features should be to addictive towards the segment of young players that play the video games (NOS, 2017).
Sources:
Bol.com (2018). Fifa 19 offers. Accessed through [https://www.bol.com/nl/s/algemeen/zoekresultaten/Ntt/fifa%2B19/N/0/Nty/1/search/true/searchType/qck/defaultSearchContext/media_all/sc/media_all/index.html] on 19 August 2018.
Maessen, L. (2018). Kansspelautoriteit dreigt met miljoenenboetes om loot boxes. Accessed through [https://www.nrc.nl/nieuws/2018/06/19/kansspelautoriteit-dreigt-met-miljoenenboetes-om-loot-boxes-a1607140] on 19 August 2018.
Vegelien, S. (2017). Zijn loot crates in de nieuwe Star Wars-game een vorm van gokken? Accessed through [https://nos.nl/op3/artikel/2203135-zijn-loot-crates-in-de-nieuwe-star-wars-game-een-vorm-van-gokken.html] on 21 August 2018.
Shapiro, C., and Varian, H. (1998). Pricing Information. In Information Rules: A Strategic Guide to the Network Economy. Cambridge, MA: Harvard Business School Press.
Versioning and the gambling debate in the video game industry
21
September
2018
Hi Ton, very interesting read – I really like the part on versioning. It’s nice to see another empirical example of versioning, and confirms what we talked about on Monday during class. Of course, EA or Activision are not able to price discriminate upfront, and therefore opt for versioning, in which the crowd discriminates itself.
On the part of gambling, it’s curious to see how this will play out. I know that Belgium is also considering banning the loot boxes, for the same reasons as the Netherlands is trying. Do you know of any alternatives that EA/Activision will offer if these Loot Boxes are banned? In the end, the loot boxes are very very profitable to these companies – so I can imagine they are eager to offer new propositions.
Hi Maarten, I believe the companies will ban the gambling aspects in these situations. What I think will happen is that it becomes possible to do ‘the gambling parts’ with coins you can earn in the game by playing. A second component will become apparent for EA, where you will know upfront what items a player will get. They can just make a demand/supply analysis and know what to charge for which player. Imagine having to pay, for example, €500 for Ronaldo in Fifa Ultimate team. This way, it is still highly profitable for EA to offer micro transactions. I would also like to hear your thoughts on the matter!
What is your personal opinion on this? I think it is dangerous to allow this within kids’ territory and I have seen adults spendings hundreds, approaching thousands of euros, on this game each year. Even when the game itself does not seem to change significantly (I’m no expert, I haven’t played consistently since FIFA2014 or something). There apparently was talk about Dutch and Belgian governments wanting to place a ban on games with lootboxes, do you think that governments can enforce that on a country-level in this digital era where there are basically no national boundaries?
Hi Jeffrey, Thank you for your comment. Most of my thoughts and opinion, I put in the comment I placed under Rodrigo’s post. I think that will satisfy your question as well.
Cheers,
Hi Ton, first of all, thanks for your article! It is indeed quite impressive how companies in the video games industry have been able to segment its market and identify different consumers’ willingness-to-pay in order to maximize their profits. The example you gave of the pre-order bonuses is very good because companies, in this case EA, are able to bundle digital goods or small benefits into the game at almost no marginal cost, as is the case of Ultimate Team currency, booster packs and early access.
Regarding the “loot boxes” topic, legal battle was started by Belgium and now other European countries are joining in, including The Netherlands, declaring it a “form of gambling”, leaving us waiting for the outcome of this legal battle. I believe however that this “drama” is related to the fact that the loot box concept is being over explored, since similar concepts have been introduced in video games before and did not attract such public attention. The big difference here is the emphasis given to the microtransactions and to the fact that companies are building whole game modes and “bonuses” around loot boxes, feeding the “pay-to-win” mindset with random outcomes.
What is a fact though is that companies are finding more and more ways to render the initial upfront price of €70.00 rather useless. From the release of Day 1 DLC content (that sometimes seems like content that was directly cut from the main game, like in Mass Effect 3), to subscriptions (that give you monthly or annual access to online components of the game like The Elder Scrolls Online), to the Online Pass that ultimately failed or even to the loot boxes you mentioned, companies are making more and more profit from these practises rather than from the “full price” we pay when we buy the game.
This brings us to what was mentioned in Friday’s guest lecture, in which Jan spoke of how companies are increasingly turning goods into services to maximize their profits and it is no different when it comes to the video games industry. Would love to know, what do you think will be the next way companies will find to leverage this growing tendency?
Hi Rodrigo, Thank you for your comment. During Fridays lecture, Jan also spoke about the shift from ‘owning to access’ of products. I think, this fits what you describe with the transformation from a good to a service. I believe the result, if we stick with the example of Fifa for the moment, is that it will become a subscription based service, like with the Elders Scrolls Online or World of Warcraft if you will, with it’s updates every year when the ‘new Fifa’ will be released. What this means for the lootboxes, I do not know, but I will try to use reason.
I agree with you, that the pay-to-win aspect has become more prominent in videogames over the last decade. First, it was vastly present in free-downloadable games, but it has spread over to ‘normal’ games that have become unplayable in some cases (Shadow of War and Star Wars Battlefront were two games that were heavily criticized for the micro-transactions systems). I have been playing video games from the age of seven years old and I am not yet accustomed to the idea of paying extra for a game, unless it gives me additional content in the form of a story line or extra maps, like in Call of Duty or Gears of War.
Paying to win was something unfamiliar to me until I encountered my nephews friend. He beat me in a game of Fifa Ultimate team, back in 2011, because he paid an extra €60 for his ultimate team to be stronger. This gave me a very weird feeling and after this beating, I decided to give up on Fifa Ultimate Team. Since I did not grow up, paying to win in video games, I know how it can be different (in the old days we did not pay to win!), but kids growing up with the games nowadays, don’t know any better. Therefore, I cannot see it disappearing unless there will be governmental interventions in the form of anti-gambling laws. Since older players, and customers will gradually disappear from the market, because they get older and play less, or stop completely with playing video games.
My answer is quite extensive, but I am curious to hear your own thoughts on the subject!