Lessons Learned From 'Pay What You Want'

Business Models

from the don't-knock-it-til-you-try-it dept

The ‘pay what you want’ business model is popping up all over the place. It has been applied to music, movies, games and even food. Some instances have been successful; some not so much. phreakindee alerts us to the results of one of the latest experiments in this business model.

Joost “Oogst” van Donge, the creator of the game Proun, wrote a very thorough examination of his 3 months long experiment with ‘pay what you want’. It’s really nice to see a developer so open with this much data. Very few companies or developers will do this. I really recommend that you read the whole thing. He shares some very good lessons about this model and how it can bring in some money, but maybe not enough to succeed as a game developer.

So rather than rehash all of his points, I want to take a look at his experience and what lessons we can learn from it when taken into consideration with the overall ‘pay what you want’ landscape.

One of the first things that come to mind when I read about these experiments is the Humble Indie Bundle (currently up to five sales). The Humble Indie Bundle made a name for itself by bringing together a number of great indie games and allowing the buyer to pay what they want. On top of that, they offered the buyer the ability to give all, part or none of the purchase price to two charities, the EFF and Child’s Play. This could be seen as one of the biggest draws of that bundle and is something that Proun’s sale lacked. While not a sure thing, a charitable option in these sales has been shown to change buyer behavior and pricing.

The roller coaster experiment showed that buyers paid 5 times more for the charitable version of the sale over the version that lacked the charitable option. This also brought in far more revenue than any option whether ‘pay what you want’ or not. Had Joost offered a portion of the buyer’s price to a charity, he may have seen an increase in the number of people willing to pay and an increase in how much they paid. Again, that’s not a sure thing but it would have added another variable to the calculations made by the customer. This could be something for him to try as he continues the experiment.

Let’s look at some of the numbers now. The first interesting set of numbers spring from the fact that this sale allowed buyers to pay nothing for the game. As Joost points out:

The $0 price point here is people who used the same store as the paying folks but filled in $0. They didn’t have to fill in there Credit Card details as a result. I cannot know the exact number of Torrent downloads, but since every install of the game contacted my server, I do know the total number of installs, so I can estimate how many people got the game from something other than my server.

Based on his estimates he found that 247,379 people either paid nothing and downloaded from his site or downloaded from a torrent. Now he did expect plenty of people to pay nothing. After all, he did offer that option. He is not mad and comes to a very valid conclusion to this:

I think the main reason why so few people chose to pay for Proun is this: the free version did not require a Credit Card transaction and was thus way easier to download.

That is quite the lesson and quite true. Users want things to be as convenient as possible when making a purchase. The more steps you add to the process, the less likely someone will make it to the end. This is a very difficult lesson for some game developers. Many game developers are adding more and more steps to not only the process to purchase the game, but also to the process of installing and subsequently playing the game.

Ask any gamer and they will most likely tell you, they simply want to get, install and start playing the game as soon as possible. Anything that slows that process down is a no go.

Next, we see that Joost recognizes that he may have made more money had he set a floor price on the game:

So I think if I had set a minimum price of $1, way more people would have decided to pay a couple of dollars for Proun. Simply because they already had their Credit Card out for the $1 and figured the game was actually worth a bit more. Fewer people would have played Proun, but I think more people would have paid, making Proun a bigger success financially.

However, that was not the main goal of this experiment as he says immediately:

Note the emphasis on financially: my main goal was to get as many people as possible to play my game, and the scheme I used was definitely a good choice for that!

If all you want is to get people to play the game, then, yes, you probably should offer a free version, even if the vast majority of people choose that option. This again is a hard lesson for some game developers. While the industry is trending toward free to play models, many other models that allow gamers to try a game for free have disappeared. We no longer see shareware games or even game demos from major game companies.

Next, we have some interesting trends in the prices actually paid. Most people who paid for the game chose a price between $2 and $2.99. Joost explains that $2 was the minimum price a customer needed to pay to get the free track along with the game. What this shows is that with a proper incentive, most people are willing to pay at least the minimum in order to get everything that is offered. This is also something the Humble Indie Bundle has shown. When it offered a bonus to people who paid higher than the average price paid, it tended to get even more money.

What this price trend also shows is that for a lot of people, $2 is about the max they are willing to pay for a game. We see this trend with the iPhone. When the iPhone was released, the price of games and other apps quickly shot down to the $1 range and the majority of the top grossing games are free to play. What this means is that when users have greater control over pricing, either through market pressure as with the iPhone or through a ‘pay what you want’ system, the price paid will almost always trend to the lowest possible price.

In the end, Joost is looking to continue the ‘pay what you want’ model, this time with a floor of $1. He feels that the first stage was a success. He got 250,000 people playing the game and hopes that word will continue to spread.

For the rest of us, we can look at this experiment and other versions of this and learn a number of valuable lessons. For me, I don’t think ‘pay what you want’ should be your only business model. I think it works great as a promotional opportunity, but if you expect to make a living this way, you have a hard road ahead of you.

Filed Under: business models, pay what you want, proun, video games