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Thursday, February 08, 2007

Station Exchange Whitepaper

Not the Station Exchange again. Please, Aggro, don't bore us. Oh, I'll bore you.

SOE recently released a white paper (think of it as term paper you get paid to write) on the first year of the Station Exchange service. What's more, Smed did an
interview with Gamasutra about it. You can download the entire white paper for yourself on the last page of that interview.
First off, major kudos to SOE for releasing this data. Very few companies would ever do that.

And the Gamasutra interview was excellent. They nailed the first thing I thought of when I read the white paper, the "popcorn analogy," and asked some tough questions. Smed was excellent and gave some honest and thought-provoking answers.

The white paper itself was informative and readable. I don't think it was great, but it was acceptable. The writer, Noah Robischon, is actually fairly accomplished in his field. You may know him as an Editor at Gizmodo but you can see from
his bio (near the end of the page) that he's done a large amount of this kind of writing. I couldn't remember where I heard the name, but then I realized he does the occasional segment for NY1 (a NY-centric cable news network).

I'm not out to knock SOE or the white paper. I just have a few points to make. There's been a lot of commentary already and I honestly haven't read all of it. I may have more to add at a later date. These are just initial impressions.

Money, Money, Money

The first point is: Everyone relax. I've seen a lot of people going wild about the amount of money involved but not one person yet distinguishing revenue from profits.

Everything seems so fabulous and massive when you see numbers like 1.87 million (cash that passed through the system). But cash that passes through the system doesn't mean a whole lot. What are the revenues? $274,803.

That may seem like a lot, but as Robischon states "Station Exchange is not a significant source of revenue for SOE, nor was it expected to be."

The number is also a little misleading to the casual reader.

Revenue, according to wikipedia (which we all know is never wrong), is "not to be confused with the terms 'profits' or 'net income' which generally mean total revenue less total expenses in a given period. "

So don't think SOE profited $274,803 from the Station Exchange in a year.

This is the point in the white paper where I would have loved further information. How much did the Exchange system cost to develop? How much was spent on marketing it? Factor in those costs and my bet is you're looking at a loss, not a profit.

But now I'm the one being unfair. Those are one-time costs, for the most part. And the Exchange will continue to bring in money. Well, I still think you have to factor in at least a portion of the initial start-up costs, but okay. What about the continuing costs? There have to be some bandwidth costs. There has to be at least one person who has to deal with Exchange related technical issues and at least a portion of his or her salary has to be considered a cost.

Let's make a random stab and say costs were $74,803 during that year (I really think I'm hitting the low end). So $200,000 in profit. At $14.99 per month over the course of that same year, one player pays $179.88 to SOE (at $14.99 per month). I'm being generous and not factoring in Station Players extras or an upgraded Total Access subscription.

So that $200,000 in profit represents 1,100 players. How much did SOE lose in terms of good will and reputation value? How many players left or stayed away because of it? What if the development money spent on the Exchange was spent on bettering the game or simply marketing it? How many players would SOE have gained? What about the costs of running two additional servers?

I honestly could be misinterpreting the numbers. I admit that. But it is also completely possible (based on my understanding of the way the word revenue is used) that the Exchange is running at a net loss.

So, again, relax about how this is the future of MMO profit until you have the full picture.

Customer "Service"

If you're going to point to something in the white paper this is the way to go:

"Prior to the introduction of Station Exchange, 40 percent of customer service time was spent on disputes over virtual item sales. Since the debut of the Exchange, the overall customer service time spent has dropped 30 percent."

That seriously is impressive. But there is no mention as to whether that is only for the Exchange servers or for the game as a whole. Oh wait:

"The remaining 28 EverQuest II servers are likely to see just as much illicit buying and selling as in the past. "

Wasn't one of the main ways the whole concept was "sold" to the players is that all the people who wanted to buy plat and all the sleazy sellers would simply move to the Exchange servers? Let's isolate all who like to use RMT and the rest of us can live happily ever after. This has clearly not happened. The activity on the remaining servers simply did not change.

But, hey, "Station Exchange was never expected to replace or eradicate the use of third party auction services."

So what did we learn? Legitimized RMT can reduce customer service costs. But it's all or nothing. All RMT on every server or none at all. I'll take none but, hey, that's me.

How about a simple: "Our customer service policy is not to get involved in disputes over virtual item sales. Period." Congratulations, you just eliminated 100 percent of the time spent in disputes over virtual item sales.

Step 3: Profit

Everyone loves to look at studies like this and wax poetic about how people can earn a living by playing a game. But let's be realistic. Yes, the Top Seller sold $37,435.47 worth of goods. But how much did he or she buy? What other costs did he or she incur? And look at the very steep drop-off point. Top Seller number 3 sold less than half of what Top Seller number 1 did. The more telling point is this:

"None of the top 20 zip codes showed a profit for the first year, although the June 2006 end date may not represent a full year of trading for these sellers." None. It's not like people are raking in the dough.

If you take the average numbers from Robischon's assertion that you can make between $200 and $500 a month spending five to six hours a night ($350/5.5 hours x 30 days) you're making $2.12 an hour.

I'm not even going to get into the fact that Mr. or Ms. $37,435.47 had better have a really good accountant if they are thinking that is tax-free pure profit. IRS: Oh sure, 37k, no we don't expect tax on that, much love - keep the change kid lol. Hey, sure, maybe that's possible.

Boredom Overtook Us

Following is my favorite part of the white paper:

"He is, in essence, getting on-demand access to the best battles and quests in the game."

"It offers a fundamentally different approach to play: a means of skipping the boring parts."

That just says it all. Here's a novel, revolutionary idea: Don't have boring parts in your game.

The early levels are boring and should be skipped? The early levels should clearly be the most exciting part of the game. They should be your best stuff. If they're not, you're doing something wrong.

As a bit of a play on Robischon's popcorn analogy: Let's pretend you go to see a movie. It's great. Only every twenty minutes there's nothing but a test pattern on the scene for a boring five minutes. As the producers of this movie do you:

A. Remove the test patterns.

B. Charge people $10 to skip each test pattern and get to the "good stuff."

Look, I'm not saying SOE agrees with Robischon's comments. I'm sure the designers who worked so hard to create the "boring parts" sure don't. And EQII's early level revamp is clear indication to me that the EQII team is hard at work making all aspects of the game exciting. I'm only pointing out what I believe to be the fallacies in the "get to the good stuff" way of thinking.

Final Note

"What’s more, players enjoy strutting around and showing of their wares in front of a live audience."

What are you strutting about? No, seriously. You figured out how to enter your credit card into a computer? Congratulations.


Blogger cyan said...

I'm would like to see the same stats in July maybe from June of 2006 to June 2007, I don't see how we are going to get any reliable data with those servers markets fluxing like mad the first couple of week's they opened. They need to marinate a few months before trying to get a fix for any of this data imho, when you are averaging the price at 2 or 3 bucks a play and also at 497 a plat (initial server release) I don't think any of the averaging is going to give a good picture. But kudos to Sony for actually releasing the data though. I would love to see more, and love to see them this transparent with other data on the servers.

5:12 PM  
Blogger cyan said...

It's also good to see you blogging again aggro ;)

5:13 PM  
Anonymous Faymar said...

Your test pattern analogy is severely flawed. The low level game is considered exciting and fun by a number of players and has recently been effectively revamped with the inclusion of Kelethin. And still, there are those who find the lower levels boring and a waste of time.

If you want to stick to films, a better example would be to stick people watching the Sound of Music and offer to fast forward past all the songs for a tenner.

A friend of mine (who, to my amusement, actually ended up with nothing but hours of arguments when he attempted to buy in-game cash) put it very clearly for me:

"I don't have time to keep up. I want to be one of the first on the server to achieve things but I don't have that kind of time. I'm at university and working hard and there are these people playing all day long. The only way I can keep up with them is to pay for plat to get my upgrades."

So it comes to, why are you playing the game. And if you are playing it simply to raid or to get that server first or to show off (despite your dismissal of the showing off, it is a real reason for buying plat) then I really don't see how a game can be developed around that.

Personally, it wouldn't occur to me to pay someone to play the game for me -- I'm already paying to play. But I think you are way off base in your assumptions of what people ARE paying for.

8:03 AM  
Anonymous Anonymous said...

I honestly could be misinterpreting the numbers. I admit that. But it is also completely possible (based on my understanding of the way the word revenue is used) that the Exchange is running at a net loss.
No. I can tell you from experience, even though the game I work on is old and creaky, and bolting something like this onto its architecture was VERY expensive, a similar service paid for itself twice over the first year. Since then, the incremental cost of running it has been close to zero -- that is to say, we were able to support it using resources we were already paying for. Ergo, that money is almost entirely profit.

What are you strutting about? No, seriously. You figured out how to enter your credit card into a computer? Congratulations.
This is just you being an RMT hayta. If you take a step back, this statement is obviously ridiculous. In the real world people strut over things they've paid cash for (new laptop/new iPod/new Porsche e.g.) all the time. That's because cash does represent achievement in the real world (money is the xp of First Life).

10:04 AM  
Blogger Aggro Me said...

Faymar - that analogy was based on the statement:

"It offers a fundamentally different approach to play: a means of skipping the boring parts."

That was from the white paper - not me. I happen to enjoy the early levels and I think doing away with archetypes made them significantly more fun. I just think the "boring" argument is a weak one in support of RMT because it could be addressed by other means.

To mirror your analogy (which is probably closer to the truth) the statement should have been:

"It offers a fundamentally different approach to play: a means of getting to type of gameplay each individual gameplayer prefers."

That's a lot harder to argue with. So is the desire to play with friends - I've felt that myself. Some of that can be dealt with through systems like sidekicks, mentoring, fellowships (not yet implemented heh). But never totally.

Anon: Even if I accept your point that the incremental costs were close to zero, don't I still have to factor in the initial costs?

i.e. Let's say it took 1 million in development, marketing, time, etc. to get the thing off the ground. Just a random number. And how long will the Exchange servers have a steady population? 5 years? 10 years? Wouldn't you have to, in essence, have to knock 100,000 of the revenues each year before talking about real profit?

Yeah, I'm a RMT hayta - just part of my nature and I like to open up a nice bottle of hatorade whenever I get the chance. Just remember I make fun of the "strutters" even when they don't pay for it (even though I'm one of them). And I'd argue that their achievement is a bit more valid. Sure it's mostly a measure of time - but mostly isn't completely to me.

I realize people strut in the real world with their material stuff, but I don't think that's the best idea either. Remember that while some money and material success comes from achievement, hard work, etc., some doesn't. It's the achievement people should strut about.

Oh, and since no one called me out on it yet - that "reduce customer service by 100 percent" by not handling virtual item disputes is overstated. You wouldn't really know if it was a virtual item dispute at first, etc. But I do strongly believe that by changing customer service philosophies and procedures you really could make a huge dent.

11:00 AM  
Anonymous Anonymous said...

I just never understood why someone would want to move to one of those servers. It is clear that although you can make money from it, it isn't much and you would have to put in so much work that you would be better to go out and just get a second job... Then it makes the game work which is why most people play. Who wants to feel like they are putting in overtime without pay in a game world that is suppposed to be fun.

3:19 PM  
Anonymous Anonymous said...

Let me tell you what people are paying for, as someone who has done it several times...

I level the first character to max game on my own steam - I do all of the content, choose and maintain my professions, keep myself geared and life is fine. Now several months in, it's time for something new - bored with that character but there isn't an entirely new experience to be had. Once you get passed a certain level in ALL MMOs you will repeat content if you level additional avatars.

I level the second one but no way in hell I'm doing new professions. No point. No fun. Don't have the time for it, so I pay some one to grind the dumb crap.

Second instance... Friends join the game but of course they go to a different server and want you to come play. Now, once again, new avatar doesn't equal new content. So I'll go but I'll be damned if I'm doing any of the grind shit again. So someone is either going to replace the professions I'm losing by going over there with friends or re grind rep or any other time-sink that I just dont have the time nor would it be pleasurable to repeat.

Last example. You're end game in something like WOW. You've leveled a couple of toons but you need something new - want want to continue raiding but just a different class. Exactly what would it prove for me to start all over again just to get a character in which I can play in the same damn instances? Experience? Not hardly, hardcore raiders now how every class is played. You can get enough experience by soloing a few weeks after the power leveled toon is delivered.

There are MANY valid examples of why someone uses RTM that have nothing to do with trying to out do other players or having the best shiney. The games are repetative!!!! No matter what class you choose you end up and the same place. It's fun getting there the first time - possibly the second time, but for chripsake isn't not fun after that. It's just a grind. So if you need a little variety, want to add a new twist to your play but still be with your social group, for people who can afford it, it makes much more sense to pay for that to happen.

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