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How will developers make money from VR?

Price pressure is going to set in early for the all-digital platforms; game creators will need to explore how people are willing to pay

VR has barely uttered its first infant cries, with the packaging of the first shipments of the long-anticipated consumer headsets still littered on the floors of many eager early adopters, and yet the process so many developers dread has already begun. Within days of VR titles being made available to the public for the first time, a most cursory glance over consumer reviews of VR software reveals countless complaints about the same thing - price. The process of putting a price tag on an experience has always been a difficult one, and criticism of the perceived gap between the price of a game and its actual value is common; but in the case of VR software, this early pressure over high prices raises a spectre that many creators had hoped, perhaps naively, to avoid.

Look, let's address the elephant in the room from the outset; it is nothing short of utterly ridiculous to spend many hundreds of dollars on a first-generation VR headset, hook it up to a PC worth thousands of dollars, and then go online to complain about a game costing $20. It's daft. It's the ultimate, self-indulgent, first world problem. Yet, it's a real consumer behaviour, representative of a genuine economic instinct, and it's got a knock-on effect on the real world business models that the industry can sustain. Take as long as you need to roll your eyes at these people; when you're done, and your eyes have settled back into place in their sockets, come back and we'll talk about what this means.

This means, in a nutshell, that VR almost certainly isn't going to be immune to the price pressure which has, in recent years, seen the price of games on Steam decline rapidly, and made it nigh-on impossible to make money from anything other than F2P titles on mobile. Every open platform (consoles have been somewhat, if not entirely, immune) faces an undermining of its economic foundations in varying stages of advancement. On mobile, the process is complete; with a tiny number of notable exceptions, launching a game with any up-front price tag is just a more drawn-out and arguably less fun leisure time pastime than setting fire to buckets of your own money. On PC, we're not quite there yet, but the process in action is clear; price tags are being constantly eroded, especially on the AAA side of things, and the introduction of concepts like expensive "season passes" are little more than an attempt to use a narrow super-fan demographic to stem the bleeding from a growing unwillingness to pay high prices on the part of most consumers.

"It's pretty much inevitable that VR will follow this path, with price tags approaching zero and developers pushed into exploring different ways to make money on the platform"

VR, judging from various conversations over the past year or two, is seen as a bit of a holy saviour by some game creators. Burned by mobile, whose rapid pivot to the F2P model alienated developers unable or unwilling to embrace the new model, they see VR as being the promised land - a new platform, with open spaces in which a talented creator might make their mark, but simultaneously a hardcore platform for "Real Gamers", which will be untainted by the hordes of unwashed casuals who, in some imaginations, bear the blame for the rise of F2P on mobile.

There are two problems with that thesis. The first is that anyone who tries to draw a simple, tribal distinction between core and casual gamers is already fundamentally misrepresenting the audience; sure, games encompass many genuinely distinct stereotypes - the teenaged boy howling obscenity into a League of Legends match, the middle-aged lady playing Candy Crush after the school run, the twenty-something with a preorder he can't really afford for the recently announced Final Fantasy XV special editions. The territory in between those stereotypes, though, is far more complex and contested than can be summed up in an emotional appeal to tribal "gamer" identity. Assuming that all VR players will match up to whatever definition of "core" makes you feel comfortable with your own identity is not the basis of a sound business decision.

Secondly, and more importantly, there's the fact that mobile and PC haven't headed away from traditional, expensive, pay-up-front business models because of casual gamers. On the contrary; they've headed there because of a very well explored and supported micro-economic principle (micro-economics being the bit of economics that actually works, at least a decent chunk of the time). When the cost of manufacture and distribution of an item approaches zero, the price inevitably heads that way too - not least because if the legitimate market doesn't start providing the item for free, the illegitimate market absolutely will. This doesn't impact physical goods, which have a manufacturing cost that cannot be zero (though note the proliferation of cheap knock-offs of high-end brands, whose price is much closer to their manufacturing cost), but for digital goods, which have an almost-zero manufacturing cost and no scarcity to support prices, it's absolutely inevitable that price tags based solely on the perceived value of the item will tend towards zero - no matter how "core" the audience may be.

This isn't to say that you can't make money from digital goods. You can cultivate a community whose value perception is linked to their identity as a community member or self-identification as a "fan" - a niche group willing to pay high prices. You can create artificial scarcity of goods within the internal ecosystem of your game, which is essentially what F2P models based on energy or virtual currencies do. You can create a paid-for service, which has different expectations and thus different value perceptions to a product. You can tap into the psychology that underlies our value perceptions, and sell people things like in-game customisation items whose value is linked to the players' desire to project their self-image, rather than to their "real" value as digital products. You can do any of those things, or several of those things in combination; the one thing it's bloody hard to do is to sell a piece of standalone digital media for a sustainable price.

It's pretty much inevitable that VR will follow this path, with price tags approaching zero and developers pushed into exploring different ways to make money on the platform. PSVR will be somewhat insulated by being tied to a closed, curated platform, but Rift and Vive are PC peripherals and will face the huge dual pressures of piracy on one side, and developers undercutting one another on the other side. There's only one way prices go when they're squeezed between those pincers; down. There's only one thing developers can do when prices fall like that; diversify and explore new business models. This isn't unique to VR; it's a straightforward reality of every single media platform that has launched or will launch in the age of digital distribution.

"Assuming that VR software will be bought and sold like PC games were ten years ago is a path to financial failure"

The problem is that while it's easy to say "well, the old model won't work", it's a lot harder to pinpoint what actually will work. Part of the problem is the extent to which VR is, even now, littered with known unknowns. We simply don't know how people are going to find themselves interacting with their VR hardware in the long-term. Will VR headsets be something you put on for 20 or 30 minutes at a time, having a short experience here and there? Will they be something we're willing to wear for hours and hours, immersing ourselves totally in a rich, complex world? Will we want to use them for online social interaction? Everything right now is experimental; not until VR has a significant installed base will we finally understand not only what is physically comfortable, but what is socially and psychologically comfortable, for the majority of users.

Upon that revelation will rest the fate of VR software's business model. If online social interaction turns out to be a major draw, fortunes will be made from avatar customisation, virtual furniture and so on; the draw of "making yourself look awesome", already powerful in PC and smartphone titles, will be irresistible in a fully realised VR world. If short experiences transpire to be the way we're most comfortable interacting with VR, then perhaps episodic content will reign, and something like a "cable network" approach - a subscription that provides regular curated "packs" of content from different creators - may also work. Existing F2P energy systems are a poor fit (simply because taking someone out of the VR experience to ask for money to complete an action is likely to be a jarring, horrible intrusion, much worse than in a PC or mobile game), but if more immersive, long-play games are workable on VR headsets, other types of F2P are likely to be experimented with, and both subscriptions and timecards may be a part of the model.

The early years of VR are going to be a hugely experimental phase - figuring out what works and what doesn't is a mammoth but very exciting task that awaits VR creators. That task extends to the business model, too. As creators start to understand what people want to experience in VR and how they want to experience it, it's vital that they also come to understand how they're willing to pay for it. Assuming that VR software will be bought and sold like PC games were ten years ago is a path to financial failure; nobody should expect tomorrow's technology to resuscitate yesterday's business model.

Latest comments (15)

I think the biggest problem is that so many people assumed that VR is a thing and jumped that bandwagon. Billions of dollars spent on VR without a single customer existing and with history of one failed VR revolution and one failed stereoscopic 3D revolution.
It is not possible to jump into VR development and enjoy the perks of being one of the early supporters, like it was possible with the original iPhone or to lesser extent with new game consoles. Competition is already there.

So, you have got a market that is already quite filled with content and a relatively low number of customers due to the limiting cost. And yeah, someone may pay $2.000+ to buy VR equipment and PC, but they don't see the point in paying 36.99 for Fantastic Contraption or Job Simulator because they want their Division with a VR twist. Seriously, whoever though that people are going to be Ok with these prices for such games should be erased from existence.

VR is a market with a high price of entry that only the hardcore fans will pay, but filled with content that these players probably won't like at all. You already got competing technologies, each doing something little different, having different controllers, etc.

It's a nightmare. Or to be more precise... it's a bubble. Don't be on it when it bursts.

Edited 1 times. Last edit by Jakub Mikyska on 8th April 2016 12:36pm

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This could be the main reason why PS4 VR eventually is the winner.
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João Namorado Project Manager, Portugal TelecomA year ago
@John: My thoughts exactly. I think PS VR is ticking all the boxes so far to be a viable product and platform. As long as they don't overprice the software.
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Show all comments (15)
There have been a number of elephants in the room regarding the latest phase of trying to adopt VR in the mainstream. The promises from the kick-starter of the open-platform aside, there has been an incredibly high attrition rate from the developers that supported the DK1 back in 2013 to the reality of being able to field a product on a platform at this delayed stage.

Those early supporters have literally paid with their lifeblood for the hoped success of the CV1 today. And already the cracks, warned of back in the early period and dismissed by a growing hyped fanboy-base, have broken open with ferocity. We now look at a mess of platforms (mobile, console, PC), needing a superior hardware platform, and no guarantees of an installed base or a target architecture, (the jury still out on Sony, at this time).

All this not helped by a walled-garden approach by some that has already seen once loyal developers abandoning support and deserting to SteamVR, or sadly throwing their hands up in frustration and looking at alternative ways to make a living; while others fight over trying to dominate the VR meta-verse!

As many of you will know, I favor the digital out-of-home entertainment (DOE) market, an industry that has already started to deploy VR content into the public space and generate revenue (VR Arcade just one example). However, developments are afoot not only to broaden the reach of VR content into this emerging market sector, but also to construct a delivery platform that will monetize the developers work, and ensure a reliable revenue stream of business – blasting the megalomania of controlling VR… out of the ballpark!
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Jordan Lund Columnist A year ago
Making money isn't the hard part. The tried and true "make a good game, ask people to pay you for it" still works fine.

The trick is how do you market a VR game? It's immersive, static images and vine videos are only going to get you so far. Can you Twitch stream a 2D version and effectively sell an immersive 3D version? We don't know yet.

The best bet would be to have a free demo version that everyone can try for themselves and decide if they want to buy it or not. Again, not a new idea when the Xbox 360 required all XBLA games to have a free demo version.

If you're going to ask people to pony up $400 to $700 for the hardware, it only makes sense to give them something to do with the hardware for free... even if it's a bunch of demos of games.
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Craig Page El Presidente, Awesome EnterprisesA year ago
I just had an incredible idea, for VR and all games. Give the games away for free, but charge the player for bullets!

Call of Duty would probably make even more money charging a penny a bullet, instead of $60 for the whole game.
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"...but charge the player for bullets!"

Play to shoot! Just like porn!!
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Mark Reed Chairman, Heaven Media LtdA year ago
Rob I am sorry but you cannot question how VR developers will make money and that pricing could crash at this early stage. If you are talking about price erosion it took nearly 15 years for console game publishers to question their pricing models, as they felt the pressure from lack of innovation or lack of relationship to their consumer. I am not sure we need to be worried about the VR games market having their prices slashed just yet. 3 clear reasons, VR is not like normal console games, which are not like PC games, what are not like Mobile games. You get my point, you cannot suggest that people that game will have one unilateral view on what a game is worth. Why does their need to be one model and quite frankly why does any of the existing models need to fit VR. There will be new ones and yes many will learn the hard way in their attempts to make it work and as always there will be a Rovio, Riot, Wargaming style company that will come out of nowhere with a hit and create a new era of companies. Publishers are still trying to work out ‘Free to play’ strategy when there were companies you had not heard of, and probably still haven’t, making more money than EA and Ubisoft put together years ago. Just Google search; ‘Crossfire free to play revenue’ and read about the Tencent company that made $957m in 2014.

Sorry guys but you cannot be so lazy to try and apply current ‘way things work’ or worry about naïve initial reactions that are not representative of the masses, to an exciting market like VR. It is developing slowly and for that reason I agree it is hard for Devs to work out when to go 'all in' but remember it is usually the ones that go first that get the spoils. That is business. Also remember VR will be as big or bigger outside of gaming. This is actually where indie and big games publishers alike can evolve into Software companies and not just Gaming companies because no-one is better placed to build training VR software, education VR, modelling programs. VR will be very disruptive in many other software area’s and game developers are in the very best place to exploit.

Talking of lazy, on the comments from Jakub Mikyska;
It is not possible to jump into VR development and enjoy the perks of being one of the early supporters
: Actually it looks like it is going to be quite easy as so many companies invested in making VR work that cheques are already flying all over to cover any bets devs are making. Great news it is going to lots on Indie devs.
And yeah, someone may pay $2.000+ to buy VR equipment and PC;
Prices for VR ready PC’s will be on par with non VR ready gaming PCs by middle of 2017.
they want their Division with a VR twist
t; NO THEY DON’T, that is like saying in 2006 no-one will buy Wii Sports as they like FIFA and call of duty. Yet it was the second best selling game of all time…. This is where you say “ yeah but that got sold with a console or because you needed to buy it to experience the new technology!"….'aaahhh' I hear you say, did they penny just drop for you Jacob?
VR is a market with a high price of entry that only the hardcore fans will pay
; Actually Mobile will be the first place it takes off and we all got one of those and it will be very cheap games and experiences. As for PC it will be what it will be and people will pay. We have been getting completely ripped off for console games for 15 years even when we can buy the same games with better graphics for half the price on Steam for a PC. We love paying too much.

As for the other comment; Playstation will do well but will not be the winner. VR will quickly split into 3 close but distinct markets. Mobile is 1 and will be 1st to do well, the 2nd market will be console but the experience will not be so emersive (hardware restriction) and the 3rd PC. All will have different pricing models, all will have different experiences.
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Greg Wilcox Creator, Destroy All Fanboys! A year ago
@Craig: Well, damn. You made me think of this: https://www.youtube.com/watch?v=VZrFVtmRXrw
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Morville O'Driscoll Blogger & Critic A year ago
On PC, we're not quite there yet, but the process in action is clear; price tags are being constantly eroded, especially on the AAA side of things
I have a hard time taking anything seriously after this sentence. Price erosion (especially in AAA PC games) is over-hyped, and if that whole paragraph is meant to be a basis for your argument, there's no hope.

Consumers have a price in-mind for many items that they buy. Steam has shown that multiple pricing tiers can co-exist, and the consumer will pay a price depending upon experience/perceived experience. Yes, Death Ray Manta got a price-drop recently to £1.99, but the current number 1 and 2 on the Steam Top Seller charts are Dark Souls 3 regular and deluxe editions (£39.99 and £59.99).

Why should VR be different? Valve are pushing the Vive on Steam, and will no doubt continue their practice of recommending a price to the dev if they wish, but leaving the final choice to the people releasing the game. Scare-mongering articles like this only reinforce the notion that the consumer will pay nothing/the world's gonna end.

Ohmygoodness...
It's pretty much inevitable that VR will follow this path, with price tags approaching zero and developers pushed into exploring different ways to make money on the platform. PSVR will be somewhat insulated by being tied to a closed, curated platform, but Rift and Vive are PC peripherals and will face the huge dual pressures of piracy on one side,
Really? I mean... Really? Sure, there's a good chance some people will pirate VR experiences to see if they enjoy something they're not sure of (actual legit reasoning for VR piracy). But really? You talk like DRM and Steam don't exist. Piracy will be a thing, sure, but that's no different from the PC market now, and how healthy is it?
and developers undercutting one another on the other side.
So, you know what? All the devs/pubs here, pay attention:

Don't under-cut like the world is ending. Don't bundle. And, unless the money offered is massive, don't go exclusive. Exclusivity only creates resentment in the people who don't have the hardware to buy your game, and cuts off future segments of the market. If you go timed exclusive, make it known ahead of time, because the PR can be very bad (see Rise of The Tomb Raider).

Also, if you think about doing any of these things, go out and hire an economic analyst, or read about basic economics. What gaming goes through in terms of pricing and sales is unusual, but lessons can be learned from the real-world, where many different types of consumer exist. The people who shop at Harrods can be different to the ones who shop at Tescos, but everyone goes to the local grocery store for milk.

As a final point, I feel like this article could've been written any time in the last 10 years, and would sound more convincing in some ways if it were 10 years ago. Scare-mongering about the race-to-the-bottom. Scare-mongering about piracy... All it needed was something about the indiepocalypse. *rolls eyes*

(ohgod, if this is the start of the "VRpocalypse" trend, I'm out of gaming forever)

Edited 3 times. Last edit by Morville O'Driscoll on 9th April 2016 9:09am

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Bob Johnson Studying graphics design, Northern Arizona UniversityA year ago
It's natural for prices to start high. The time is ripe to take advantage of the novelty of the tech. It isn't any different than a console launch. Publishers/developers get away with lesser product for the pricepoint because the early adopters come in wallets wide open.

Edited 1 times. Last edit by Bob Johnson on 9th April 2016 6:18pm

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Klaus Preisinger Freelance Writing A year ago
The Xbox One is a platform. Why? Because I can get off my chair, over to the next electronics store and buy it. Even with something as readily available as the Xbox One, or the WiiU, developers will question whether it is viable to develop software for. Because, you know, there are "only" 10-20 million units sold to users. If I do not fancy standing up, I can buy consoles off Amazon which is an online platform I can trust to honor the laws of the country I reside in; at least when it comes to warranty.

By comparison, VR headsets are something you cannot buy anywhere, but only at some mail order store that cannot even tell you the amount of additional taxes you have to pay on the device after importing it. Ordering some $60 throw away tablet PC from China off aliexpress is one thing, ordering a $700+ device with unclear warranty is quite another. Sure, the tech might be the future, but the current form of distribution is as bad as it can get. And this platform, which seems to have sales in the tens of thousands, is suddenly more hype than consoles which have sold millions of units? Insanity.

This will be one of the advantages of Sony. Not some framerate, refresh rate, or resolution. It will be the simple fact that Sony knows what it means to establish a platform on the market and the steps necessary to do that. This will not just attract customers, it will attract developers who can deliver more than a greenlight proof of concept tech demo at launch.
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Steve Peterson Marketing Consultant A year ago
So far most VR development has been concerned with making games work on the platforms, and then making them fun. Last on the list is making them profitable, because right now the market is still mostly unknown. We need to see a much larger installed base to learn what sorts of things work or don't work in VR, how people tend to play in VR and for how long, all sorts of things. Then it will be easier to figure out how to price VR titles, or even what business models to use. Right now developers just have to take their best guess.

I do think you shouldn't expect people to factor in the cost of the VR hardware into their judgments of whether or not a VR game is a good deal. That may be logical, but it's not the way people think. They'll judge a game on its own terms, and decide for themselves if they got $10 or $50 of value from it.

Ultimately, I think game developers should strive for maximum value in their games, but they have to balance that with how much it costs to build in longer-term play value because of the game's design. If you have to spend a lot to add big 3D levels that only provide ten minutes of play time, that's really not going to be able to capture sufficient revenue from players in the long term to pay for that development. Gamers will respond to good value -- if you get 20 hours of play for $10, that is a good value, but 10 hours for $60 may not be -- unless those are a very intense 10 hours, which might change the equation.

I think the only answer right now is to have deep pockets, keep experimenting with price, and pay close attention to how different VR games are doing -- eventually we'll figure out what business models work for VR, and what price points. But a lot of people are going to lose a lot of money before we get to that point.
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Marty Howe Director, Figurehead StudiosA year ago
I just had an incredible idea, for VR and all games. Give the games away for free, but charge the player for bullets!
thats ridiculous

A game would cost 100,000 dollars
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Greg Wilcox Creator, Destroy All Fanboys! A year ago
@Marty: Not if you're a REALLY good shot. ;D
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