by NorseGamer, HSM Editor-in-Chief

With visible pricing experiments being conducted for virtual commodities in Home, it’s natural that there’s going to be negative feedback of varying sorts, ranging from reasoned constructive questioning all the way to shrill “thou shalt not” declamations which provide little useful or applicable insight.

Let’s start with a basic assumption: no one wants to pay more for an item than they have to. Everyone wants the best deal possible. A beautiful example of this was the MechJet pricing controversy, wherein people seemed less upset over the ten-dollar price tag than they were over the pricing error which temporarily allowed some lucky users the ability to acquire the same commodity for three dollars.

If we look at Home’s early days, there were precious few commodities available for sale; and with no other console-based virtual reality to use as a template, Home’s developers created an artificially static economy wherein prices for various categories of items were more or less homogenized. I suspect that for some of Home’s more disenfranchised users, there was an expectation that pricing would remain essentially static.

(Ironically, had a proper loyalty incentive rewards program based on repeat spending been introduced back then, it might have insulated some of those users from the upward pressure in Home’s pricing. Alas.)

Let’s ask an obvious — but exceptionally important — question: why are prices for some virtual commodities rising?

There are, I suspect, three reasons for this.

1. Third-party developers may have their own pricing strategies in mind based on reports from Sony and their own efforts marketing their brand awareness and image. Keep in mind that these developers would logically need to pay a cut of the grosses to Sony as the platform provider, which may dovetail with this.

2. If you’ve read previous articles on this subject, then you know that social games follow what’s known in economics as a power-law distribution: most of the consistent revenue is being generated by a relatively small group of people. Anyone following Zynga’s IPO would have noticed, for instance, that only three percent of its massive userbase actually spends any money on the application. Home is likely much the same; if we use the Pareto Principle, I suspect only about two- to three-hundred thousand users (out of all the tens of millions of registered accounts) spend any money on Home, of which perhaps only about twenty-thousand people are what we might consider “hardcore” repeat spenders who consistently generate revenue. With any power-law curve, you have two objectives: how to broaden the curve, and how to derive even more money from the people who have already demonstrated a commitment to the service.

3. To see what the market will bear. After three years of open beta, Sony finally has sufficient consumer data (which it doubtlessly shares with other developers investing in the platform) over a long enough span of time to determine average sale prices and sales volume for various commodity categories. And the first thing any good manager or director does, upon scrutinizing those reports, is come up with ways to incrementally push those metrics north.

I’ve worked in resort development for nearly ten years. Amongst the many (many) metrics we focus on with our reports, we scrutinize average length of stay, revenue per available room, average daily rate, sales efficiency per channel, marketing costs, customer satisfaction scores and so forth. And the biggest question we face every single day is how to move all of those metrics north.

Home’s business model frankly isn’t any different. If I can sell twenty-thousand suits at two dollars a pop, then why not try selling ten-thousand suits at ten dollars a pop? Sure, the number of sales might be cut in half, but the revenue per sale is significantly higher and thus the sales volume is vastly improved. And, if marketed correctly (as an “exclusive”), I might just be able to motivate people to spend money who otherwise wouldn’t have, because they want the bragging rights of owning something that most people won’t have.

Now, does that mean that the marketing methods and pricing experiments have always been flawless and perfect? Oh heavens, no. 2011 saw some hamfisted attempts at pricing experiments that had all the subtlety of a crashing helicopter, and made me wonder if anyone over there has a grasp of behavioral economics. However, I’m also acutely aware of the fact that Home almost certainly follows a fairly sharp power-law distribution, which means that they’re incurring significant overhead costs and typically realizing fairly modest returns on most of their product deployments. The free service that we all enjoy is being paid for by the “silly” consumers who are willing to spend money consistently and at greater levels. Let us not condemn these users, but rather bless them; they are providing a significant source of capital which is being reinvested into further development and enhancement of Home.

Don’t believe me? Consider how developers publicly solicit community feedback, because they want to know what you’re willing to buy. Yes, some of the suggestions are utter rubbish, and some of the feedback has all the maturity of Baby Herman crying for his stogie, and — tragically — some of the really good ideas are just technologically impossible to achieve with the architecture Home’s running on, but there are some really good, applicable ideas which consistently emerge. Wait anywhere from six to twenty-four months, and it might just show up as a commodity or as part of a core client update.

Let’s shift gears for a moment and discuss marketing. Specifically, what is the “value” of a virtual commodity?

Well, what’s the empirical value of the money in your wallet? You know, that fiat currency which hasn’t had anything tangible backing it since 1971?

I think you see my point. All “value” is relative. The value of a bottle of water at a supermarket is far lower than the same bottle of water to a man trapped in the Atacama. And herein lies one of the biggest contentions I’ve seen with the pricing experiments in Home: that the “value” of the commodities doesn’t scale with the price tag.

And you know what? In some cases, I’d actually agree.

Let’s use the Mansion, since it’s one of Home’s biggest lightning rods of controversy. Certainly a very aggressive pricing strategy. I personally don’t own the Mansion. I’ve panned it in the pages of HomeStation Magazine. Seriously, even a Premier League footballer living in Chelsea would think it’s rather shouty. So I don’t own it. They can garnish it with a bunch of extra goodies (as they have), but it doesn’t change my personal view that that’s a hell of a lot of money for a personal estate that doesn’t offer nearly enough aesthetic or interactive return on investment.

Here’s the thing, though: that’s my personal viewpoint. If someone else wants to go blow thirty-five bucks on the Mansion, how does this somehow affect me? God bless them, because they’re helping to pay Home’s bills.

It’s a very slippery slope to castigate people for what they choose to spend money on. Ultimately, once your basic necessities are taken care of, money is simply a means to acquire experiences. Recently, for instance, I went and saw the new Mission: Impossible movie. All I have to tangibly show for the expense is a ticket stub (essentially worthless) and a shirt with some popcorn salt on it. I paid for an experience. Now, granted, some people may question the aesthetic choice to spend money on seeing that film, just as I arch an eyebrow at the hordes of Twilight fans out there. But, hey, there’s no accounting for tastes. The beauty of America is that we get to choose.

So let’s apply this to Home. A virtual commodity is by its very definition an intangible — and, given how Home is set up, it has no resale value. So what is it worth? What is a Mansion worth? What is a gold suit worth? What is access beyond a rope to a staircase that goes nowhere worth?

Whatever the market will bear.

Now, does this mean that developers can do no wrong? Absolutely not. Reskinning a gold suit as a diamond suit and then going down the list of gemstones is almost certainly going to invoke the law of diminishing returns. And well it should, because it was poorly marketed. Content may be king, but how you present it to your audience is critical. You don’t see anyone shouting about a ten-dollar Dream Yacht with exclusive two-dollar clothing items, do you? If there’s one area where SCEA falls short, it’s in properly marketing their luxury pricing initiatives. But, hey, considering they spent a bloody fortune on the Hub and it’s all free, I’m inclined to cut them some slack.

I’m also inclined to cut Sony some slack because they’re pioneering the first console-based social network for gamers to an in-world userbase with limited social skills and relatively few keyboards, whilst simultaneously trying to divine consumer trends from some users who display a facepalm combination of self-entitlement and a remarkably low level of business logic. Doesn’t mean that Sony does a great job with their PR outreach, but it does mean that I’m going to encourage Sony to keep experimenting with different ways of increasing revenue. It is only through these efforts, coupled with the results and feedback they generate, that allow The Powers That Be to determine what works and what doesn’t.

After all, while New Coke might have “failed,” the idea of new flavors certainly worked out well with the concurrent release of Cherry Coke. Where would we be, as consumers, had the Coca-Cola Company not experimented?

There are two concerns floating out there which are less rational, and I want to touch on them for a moment.

Fallacy #1: If we as consumers keep spending money on virtual commodities which aesthetically or functionally don’t justify their price tag, developers will have no financial incentive to deliver commodities which the community “wants.”

No. Ludicrous. First, what the community “wants” is rather blatantly spelled out on the sales reports. I may personally dislike the Mansion, for instance, but I can’t ignore that a lot of people bought it and it thusly made a tidy sum for Sony. The fact that it doesn’t appeal to me, personally, doesn’t give me the right to tell Sony not to create it and milk it for all its worth. Nor am I going to be personally offended by this, as though it’s somehow an affront to my enjoyment of Home.

Second, what the community presently wants and what is presently being delivered are not mutually exclusive. Ignoring for a moment that some services or commodities take literally years to develop (and revenue from, um, sales to fund), no good business ignores well-reasoned consumer satisfaction feedback. Note that I say well-reasoned consumer satisfaction feedback, because frankly there’s no shortage of feedback that’s utterly useless. I know that it feels nice and cathartic to engage in destructive criticism rather than constructive criticism, but it does little more than to devalue the opinion of the person typing it.

I want Home to grow huge and massively successful. I want lots of people spending lots of money in it. Because the more people involved in it, the louder the chorus grows of people who want to see improvements to the social aspects of Home.

Fallacy #2: If there’s an overall rise in prices for Home commodities as a result of these experiments, then users will be priced out of the market.

Also incorrect. The more commodities arrive on market, the more pressure and competition developers feel from each other to make products which stand out in a more crowded marketplace. If I have to compete with nDreams and Lockwood and LOOT and Hellfire and the rest for your finite amount of disposable income, then I’d damned well better bring a commodity to market which is at the very least competitive with their offerings, and capable of generating significant marketing buzz in a short period of time.

A highly competitive Home with tons of commodities vying for our dollars gives us the luxury of caviling that various items aren’t worth their price tags. And those few useful insights which can be gleaned, underneath all the self-righteous kvetching, help developers up the ante with the next go ’round.

There will always be a market for paying an egregious price tag for items that don’t really justify themselves. Some people just really like spending over a thousand Euros on a Sidecar cocktail at the Bar Hemingway (which, being a teetotaller, has never ceased to amaze me). It has to do with the experience, not the ethanol. Indeed, I’m fervently hoping Sony will experiment with offering some commodity or service in Home — anything — for a neat $100 price tag, just to see what happens.

That said, there’s a law of diminishing returns with that tactic. I certainly don’t take it as a personal affront to my enjoyment of Home, but I also recognize that simply pricing stuff at a higher level when you’ve built a baseline expectation to compare against is a recipe for discontent. Sony had to practically give away the house for years to generate sufficient metrics to attract content developers to an untested power-law distribution, and now they’re actively trying to figure out ways to generate a better return on their investment. As they should. If they’re smart, they’ll explore some of the other tactics out there beyond mere pricing stunts. Some will work and some won’t, but it’s important to keep trying.

Is it somehow morally wrong for a business to experiment with pricing strategies and attempt to generate more revenue? I certainly don’t think so. If we’re going to ask a business which is providing a free service for our enjoyment to further enhance that service, I fully expect them to come up with all sorts of enticements to lure out my wallet.

I get that one of the big lures of Home is its escapism, and how disenfranchised some people feel with what they perceive as the growing commercialization of Home. But let’s not forget that this escapist utopia is paid for with cold, hard cash.

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2 Responses to “Pricing Experiments”

1. KrazyFace says:

   October 8, 2012 at 10:54 am

   I agree with all of this, except the part about the mansion not being worth it. Now, a year ago I’d have whole-heartily agreed that it’s not worth its price tag, now however, I think one investment of a part of it is well worth it. Why? X7.

   I like the club scene and I’ll take it anyway I can within Home, but that wasn’t the attraction of it for me. The real ‘win’ moment for me with X7 was when I found there was a bunch of extra single dollar value packs, freebies and early access to various things within the place. Making the mandatory Mansion purchase a lot better value. Not only that, but the other 100 items for a dollar packs were very useful to a thrifty Scot such as myself. Because of this one single purchase (of the Mansion pool) I have hundreds of extra items on my US acc that I’ll NEVER fork out for in Pounds Sterling; because there’s very few value-packs over that side of the pond, and no such incentive to put down the same money on the EU Mansion.

   Because of this, I have a wealth of furnishing and clothing choices in US (where I’ve been for about 1 year) as opposed to my now pathetic hoard of EU freebies that I’ve been gathering since Home opened its doors 3 (or four?) years ago.

   Reply
2. Burbie52 says:

   October 8, 2012 at 3:27 pm

   Well said Norse, I agree totally with your reasoning here. As one of those “fools” who has invested quite a bit of real money in this virtual reality, I think it is no different than going to a movie, which nowadays costs as much as a 20$ PSN card with much less continued enjoyment. Think about it, movie -- popcorn, soda, candy + tickets + $20 or more per person. $20 PSN card -- up to 4 personal spaces or a combination of a lot of furniture and one or two personal spaces and clothing. Movie = 2 hours enjoyment, Home content will always be there.
   Not only that but for free you can do quite a bit in Home including watch movies. I think it is a no contest decision, at least in my perspective.
   The endless hours of enjoyment I have gotten in Home is priceless, and though I have decided to put a price on it by purchasing items, that was a decision gladly made to help support the great developers who brought all of this content to us to enhance our experiences here.

   Reply