Games as a Service is all the rage among AAA publishers and analyst. Rather than sell a strong product, these companies want you to keep playing and paying for things such as lootboxes. According to analysts, this method is the future and is the road to unlimited profits; however, they focus far too much on short-term profits. In truth, Games as a Service have a lot of long-term risk that are otherwise going unnoticed. Today, I am going to present to you the risk the publishers are ignoring.
Just before the housing crash in 2007/2008, everyone and their mother became flippers. They would buy a house cheap, fix it up, and sell it for more than they bought it for. When onlookers saw the initial profits from the first flippers (usually people who knew what they were doing), people started to jump onboard. When the market bottomed out, these people found their houses to be underwater. The market had too many flippers and not enough buyers. I heard a saying once that “Once teachers and plumbers enter a market, get out”. This rings true for Games as a Service as well.
Almost every major publisher is jumping on the Games as a Service bandwagon. Take-Two Interactive, in an investor call, said “We aim to have recurrent consumer spending options for every title that we put out at this company.” Activision has filed a patent for a system to lead players towards microtransactions. And other publishers like Square-Enix, Ubisoft and, of course, EA have stated they will continue Games as a Service.
What these publishers don’t realize is that Games as a Service only work because only a few games have used it thus far with many of the games being from series who reached popularity before microtransactions were a thing. Games as a Service works with a large playerbase who is engaged for a long time. With more games trying to have long-term engagement, the playerbase (and the population of those coveted “whales”) displaces across multiple different titles. The player-base shrinks; thus, users are less encouraged to purchase in-game items.
This is not and cannot be a long-term strategy; not just for the companies involved in this intense competition over a tiny sliver of the market, but for the industry as a whole. The fact that so many games are settling on loot crate mechanisms and their ilk is in part a sign of economic forces coming home to roost (the same ones that pushed mobile games towards free-to-play),
The article above is worth a read, and the author highlight the same concern I presented. These games target a specific, shrinking market. There are a lot of publishers who want to be flippers, but the market is running short on actual buyers.
If you want a good example of this problem, look no further than Lawbreakers. While the game wasn’t bad (scoring a 76 on metacritic), it failed to capture an audience. The reason was Overwatch. While Lawbreakers was an alright game, consumers would rather invest time into Overwatch, getting better in that game. There is a kind of logarithmic increase (and decrease) to the player base of these games. With Overwatch being popular, more people play it. The larger pool of players attracts and keeps more players. Lawbreaker couldn’t get a foothold resulting in long queue times. Long queue times made more people quit, resulting in even longer queue times. The problem exacerbated. Essentially, players consolidated around Overwatch, leaving other games (like Lawbreakers and Battleborn) with empty servers.
The same with happen if every game is “Games as a Service. Players will consolidate around a few games (usually the best in the bunch) and the rest will wither and decay as servers remain empty. This model requires large playerbases in order to keep players engaged and making in-game purchases. Why spend hundreds on microtransactions for a niche game with only a few thousand players. The market place could easily become an ocean of Lawbreaks and Battleborns with a few islands of Overwatch. Many publishers will be left out in the cold as players congregate around the best titles. When you have every publisher entering this space, get out.
What publishers haven’t figured out is that consumers can only take so much. Publishers hope that only a select few fans would be upset and that it wouldn’t have an impact on the business. However, we may already see that with EA’s Star Wars Battlefront II.
The game received massive criticism over the past few weeks. Consumers became frustrated as information came out about the extend of EA’s scheme. Internet goers were hyper-focused on the game and highlighted every negative aspect the game had. As a result of the backlash, EA earned the honor of having the most downvoted posted in reddit history and having the lowest user score on Metacritic.
The backlash prompted inquirers government officials. The Belgian Gaming Commision opened inquiries into whether Star Wars Battlefront II’s lootboxes constitute gambling. In the United States, the state of Hawaii is investigating EA for predatory practices. Already, the door is open for increased regulation which could kill EA’s and other publishers golden goose. As the saying goes, pigs get fat, hogs get slaughtered.
EA is even getting pushback from the licensor, Walk Disney. Walt Disney consumer products and interactive media chairman Jimmy Pitaro contacted EA’s CEO about the game’s microtransactions, resulting in them being temporarily suspended. While the details are unknown, rumor is that Disney may have threatened EA’s exclusive license. Even if it’s not true, I would not be surprised if Disney does pull the rug from under EA as their shoddy practices may have an impact on their property.
The resulting backlash has hurt EA’s stock price, and investors are worried the game won’t hit EA’s sales target. Already, the sales of the physical copy are down 61 percent compared to the last game. Although the claim has been made that “digital will make up the difference,” I see this as damage control as the medium doesn’t change consumer’s outrage.
However, I don’t think the Battlefront II controversy will not be the last consumer outrage over microtransactions. If anything, EA’s situation should be a warning to other publishers that Games as a Service can have a significant negative impact on the game. Moreover, the controversy may also impact EA’s other endeavors as consumers trust the company less and less. If anything, EA’s blunder shouldn’t not be ignored.
Conclusion: Publishers Beware
If you are a manager for the big publishers, you should know this: Games as a Service is not a golden goose. It’s not the new direction of the market. If anything, it’s more of a detriment. More publishers focusing on Games as a Service means more competition. Angry consumers means a smaller player base and fewer whales. Put these two together and you’ll see that the future is not Games as a Service. If anything, publishers who march on will see their profits and reputations drop while expenses rise.
I’d equate Games as a Service to a drug. Sure, the first few hits are great. The first few games make a ton of money. But eventually more people enter the market and consumers get more frustrated with your practices. You’ll need more “hits” to keep this going. More games. More microtransactions. Eventually, the bottom falls out through either customer backlash or through government intervention. Then, the publishers are left with no golden goose and ill-will from customers. The withdraws from Games as a Service will be tough to deal with.
If Games as a Serivce is the drug, then analyst are the enablers. Analyst seems oblivious to the backlash surrounding the game. Instead of recognizing that consumers don’t like Games as a Service and that is a problem, they see complaints as a “vocal minority.” The customer, not the analyst, is always right. If consumers are saying “I don’t like this,” then it’s better to listen to them over the Wall Street guy who hasn’t talked to a single gamer.
Publishers, if you want to know how to make the most money making games, do this: Make a good game, make it for a reasonable price, and make the customer love you. If you do this, you will not only see amazing sales, but you’ll see consumers greatly anticipating your newest game. This is the most reliable way to make money in the video game industry. Or better yet, learn from Moby Dick and stop chasing whales.