Five-Forces Analysis has Grim Tidings for Free-To-Play on Mobile

Image from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1

Let me start by saying I like all kinds of video games. I like console games. I like PC games. I like shooters. I like RPG’s. Basically, I enjoy anything except sports games (and that’s really a comment about my attention span for professional sports rather than sports games themselves). I also like mobile games and free-to-play games. And I like F2P on mobile. I’ve had some great experiences with that combo when it’s done well. I still periodically dip back into Avengers Alliance*, and I had some great times with Hay Day and Tiny Trains.

My point is THIS IS NOT AN ANTI-F2P/ANTI-MOBILE/ANTI-MOBILE-F2P RANT.

The intention of this post is not to castigate mobile-F2P, but to point out a structural flaw in the current direction the market is taking. In general, it’s healthy for the industry to have a wide swath of business models, platforms, and vectors for people to games (or consume them, in business terms). There is a massive amount of potential in the mobile/F2P combo, but the market seems to be cannibalizing itself for short-term gains.

Competitive Advantage and the Productivity Frontier, Or Why Dark Souls is the Ikea of Game Development

One of the major figures of business academia is a man named Michael Porter. Porter, a professor at the Harvard Business School, is possibly most famous for his trademark “Five Forces Analysis”, but he is also the author of one of the definitive books on competition, Competitive Strategy.

Porter argues that efficiency, while important, is not enough to create a true competitive advantage. Even if a firm is using the most cutting-edge technology and best practices of an industry, to the utmost level of efficiency (what Porter refers to as “the productivity frontier”), all a competitor needs to steal the lead is to find a new best practice, technique, or technology and become just that much more efficient. In simpler terms, being the most cost-effective company only puts you in the lead until someone else figures out how to be more cost-effective (Porter calls this “expanding the productivity frontier”). Further, Porter argues that a firm can either iterate (do things better) or it can innovate (do better things), but it can’t do both at once: a new technology or product will, by definition not have an established best practice, so iterations must occur before that relevant productivity frontier can be found.

Corporations Exist to Make Money…But That Isn’t Really the Point

Corporations exist to make money. It’s becoming a well worn phrase. Cliff Bleszinski employs it defensively. Jim Sterling rages when the concept is used to excuse consumer-unfriendly practices. But it’s really a meaningless notion. Of course corporations exist to make money. EVERYBODY working in a capitalist society exists to make money. It’s much like when the anti-vaccination movement attempts to offset accusations of scientific ignorance by saying that they do support vaccines that aren’t dangerous. No shit, huh? Thanks for clearing that up. What separates corporations is not that they exist to make money, but how much money they require to exist, or more specifically, how much more money they require to exist than an independent developer.

Let’s take an, admittedly, simplistic example. Three developers start an indie studio called Fun Pants Games, and spend 6 months eating ramen, living rent free with their significant others, and making a game, Zombie Cocoa Pants Party, which they then release on the App Store. This game goes on to make $600,000 dollars in revenue and, after Apple’s cut, $400,000 in gross profit. At that rate, they could each take a $75,000 cut and Fun Pants Games would have a net income of $175,000. That’s a pretty good take for a start-up indie studio.

How Publishers View New IP

Recently, 1Up’s Chris Pereira penned an article examining how Bethesda’s Dishonored bucked the notion that new IP will not sell well at the end of a console cycle. The article brings up an interesting argument and, perhaps, draws the right conclusion, but misses the underlying issues.

The gist of Pereira’s argument is expressed thusly:

[A successful launch for Dishonored] is encouraging news. As wonderful as seeing refinements of the franchises we already know and love can be, it’s the completely original titles that are often the most exciting to see.

But considering what we’ve been led to believe, this doesn’t make much sense. This month marked seven years since the Xbox 360 was released, and six years since the PlayStation 3 and Wii debuted. With it only being available on 360, PS3, and PC, the launch of the Wii U (coming just over a month after Dishonored’s launch) can’t be used as the reason for why Dishonored has done well. If anything, it signals either the end or fast-approaching end of this generation of consoles, so surely Dishonored had no business performing the way it did.

In logical terms, Pereira’s argument through the bulk of the article goes like this: if Dishonored sold well, then the assertion that new IP will not sell well late in a console’s life cycle has been rendered false. There is a kernel of truth in his assertion, but the fault in his logic is that publishers do not believe that new IP is absolutely guaranteed to fail during a console’s twilight years, only that there is a better return on investment for sequels.