How will developers make money from VR?

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.