How 'Free' Economics Are Going To Impact The Video Game Market
from the it's-coming... dept
Reader Ben points us to a well done article over at GameIndustry.biz warning the industry to start understanding how “free” plays a role in digital economics. It does a great job summarizing the key points associated with “free” infinite goods, such as the fact that it really has little to do with “piracy,” though the “piracy” may be an early indicator of where the market is heading:
The notion of Free isn’t new in economics, of course. It’s well understood that as a commodity becomes less rare, its value tends towards zero. When something becomes sufficiently commonplace, you can no longer charge a notable price for it – unless you artificially create a market based around image and prestige (bottled water) or find a way to add value (pure oxygen canisters, flavoured water).
You can also create artificial scarcity to keep prices high, although there are obvious moral problems with doing that with anything other than luxury items – and markets, like networks, interpret this kind of interference as damage, and usually find a route around it.
The whole thing is worth reading, and does a good job laying out the issues. It doesn’t, however, suggest much of a solution — though, there are plenty of potential solutions for the video gaming industry, focusing on finding scarcities to provide that can’t be had for free. So, for example, giving away the core game for free, but charging to play multiplayer versions on an authorized server. As many are finding, that can be quite a nice business. Unfortunately, it does seem like some think the answer is to sell virtual goods within a game, but that has the potential to face the same eventual issue (the goods are really infinite, and will face the same deflationary economic pressure). But the fact is there are always additional scarcities created, which will present opportunities.
Figuring out just how to break out those scarcities from the infinite goods was the point of that economic series I wrote up a few years ago, which we’re now offering nicely packaged as the Approaching Infinity book (as a part of our CwF+RtB experiment) — which actually helps demonstrate the point. You can read most of the basic content for free online in the series, or you can buy the physical (scarce) book in a nice readable package which has been updated and expanded with more material and edited to better flow as a book (and you get a t-shirt as well). You can always take infinite goods and find a scarcity… whether it’s with blog posts or with video games. So, yes, free is important to understand, but equally as important is understanding how to use it to your advantage, rather than just worrying about how it may hurt your old business model.