EA trips up on the path from Product to Service

Consumer annoyance over micro-transactions doesn't change the fact that every major publisher is shifting business model wholesale in that direction

Every now and then, a major publisher goes through a bit of a rough patch in PR terms; the hits just seem to keep on coming, with company execs and representatives seemingly incapable of opening their mouths without shoving their feet right inside, and every decision being either poorly communicated or simply wrongheaded to begin with. At present it's EA that can't seem to put a foot right, from Battlefront 2's microtransactions to lingering bad feeling over the closure of Visceral; every major company in the industry, though, has had its fair share of turns in the barrel.

These cycles come around for a couple of reasons. Part of it is just down to narrative; once something goes wrong for a company, they are scrutinised more closely for a while, and statements that might have slipped under the radar usually are blown up by the attention. Another part of it, though, is genuinely down to phases that companies go through; common enough periods in which the balance between the two audiences a major company must serve, its consumers and its investors, is not being managed and maintained expertly enough.

"Every major publisher is undertaking a strategic shift in a direction they know perfectly well is going to annoy many of their core customers"

Most companies encounter this difficulty from time to time, because the demands and desires of shareholders are often damned near diametrically opposed to those of customers. The biggest problems arise, however, when a firm ends up having to take a Janus-faced approach, presenting a different picture in financial calls and investor conferences to the one it tries to convey in its customer-facing PR and marketing efforts.

That's broadly speaking the situation EA has found itself in once again; forced to be conciliatory and diplomatic in talking to customers about everything from loot boxes to its commitment (or lack of same) to single-player experiences, while simultaneously being bullish with investors who want to see clear signs of progress in the shift towards a set of business paradigms core consumers volubly dislike.

CFO Blake Jorgensen's comments at Credit Suisse's conference earlier this week are archetypal of this genre of corporate communication; from a blunt denial that the company's microtransaction strategy on Battlefront 2 is changing overall to a throwaway comment about Visceral's closure being related to declining popularity (by which, being a CFO, he meant revenue) of linear game experiences, Jorgensen spoke to investors in a way that was quite markedly different from how the rest of the company has addressed its actual customers on these issues.

You can argue quite reasonably that this approach is dishonest in spirit if not in substance; even if the words of each statement are chosen carefully so the investor messages don't technically contradict the consumer messages, the intent is so clearly tangential that consumers have every right to feel rather miffed. I think it's worthwhile, however, to look beyond that to the motivation and strategy behind this - not just in terms of EA's month of bad PR, but looking beyond that to the industry as a whole, because pretty much every major publisher is undertaking a similar strategic shift in a direction they know perfectly well is going to annoy many of their core customers, and they're all going to have their own turn in the barrel as a consequence.

"The business model that has sustained the games industry for decades has started to look frustratingly quaint and backwards"

At the heart of this issue lies the fact that for many investors and executives, the business model that has sustained the games industry for decades has started to look frustratingly quaint and backwards. "Games as a Product", whereby a game is made and sold, perhaps followed up by a handful of add-ons that are also made and sold (essentially smaller add-on products in their own right), is a model beloved of core consumers - but business people point out, not entirely unfairly, that it has many glaring flaws.

Some of those flaws are very real - the product model creates a high barrier to entry (you can't attract new customers without convincing them through expensive marketing to spend $50 to $60 on trying out your game), hence limiting audience growth, and has not scaled effectively with the rising costs of AAA development. More controversially, they dislike the fact that the product model creates a relatively low cap on spending - after buying a game, there's only so much money a consumer can spend on DLC packs (each of which has its own associated development costs) before they hit a hard limit on their purchases.

Hence the pressure to move to a "Games as a Service" model, which neatly - if not uncontroversially - solves each of these issues. The service model can be priced as low as zero to create a minimal barrier to entry, though for major titles with a big brand attached publishers still show a preference for having their cake and eating it, charging full AAA pricing for entry to an essentially freemium-style experience. An individual player's spending may be theoretically limitless, as purchases of cosmetic or consumable items could run to many thousands of dollars in some cases - hence also allowing the game's revenue to scale up to match the huge AAA development and marketing budgets that went into its creation.

"The move towards games as a service is inexorable, and 2018 will bring far, far more of the same"

You can "blame" mobile games for this if you wish, but in a sense they were merely the canary in the coalmine; the speed with which the mobile gaming market converged on the F2P model and the aggression with which it was pursued was a clear sign that the rest of the industry would eventually try to move in a similar direction. The reality is that mobile games shone a light on something a few industry types had been saying for years; that there was a massive, largely untapped audience for games out there, who would never climb over the barriers to entry to the traditional market but who could potentially be immensely valuable customers of games with lower barriers to entry.

The correct height for those barriers turned out to be "free games for devices you already own", and yet this market did turn out to be enormously valuable; and now much of the industry is eyeing up the model that works on smartphones, looking at their own rising costs and shrinking slice of the pie, and wondering how to get from over here to over there.

The problem is that making that crossing - from being a successful creator or publisher of core games to being a successful company in a smartphone-style paradigm - is damned tricky to do when the business model you (and your investors!) want to have is anathema to many of the customers you actually have right now. Not all of them, by any means - plenty of core gamers are actually pretty relaxed about these models, for the most part - but enough of them to make a lot of noise and to potentially put a major dent in the bottom line of a company that genuinely manages to drive them away.

Hence, much of the approach we've seen in 2017 (and prior) has really been akin to the parable about putting a frog in cold water and gradually raising the heat; companies have slowly, softly been adding service-style features and approaches to their games, hoping that the slowly warming water won't startle its occupants too much.

When things spill over as they have done for EA in the past month, it tends to indicate that someone got impatient; that investors were too demanding or executives pushed too hard, and the water started to heat up too rapidly. The course will be corrected, but the destination remains the same. Short of a really major pushback and some serious revenue damage across the board from these approaches - which bluntly seems unlikely to materialise - the move towards games as a service is inexorable, and 2018 will bring far, far more of the same. Whether you view that as the industry's salvation or its ruin is really a matter of personal perspective, but it's a new reality for AAA titles that we're all going to have to make some kind of peace with.

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Latest comments (7)

Aleksi Ranta Category Management Project Manager 2 years ago
Im totally fine with the "from product to service" approach, as long as you keep me blissfully unaware of the additional monetisation models, especially if they are blatantly just greedy and not first and foremost based on what is beneficial for my gameplay experience.

If you can do that, you can feed me the service as much as you want. If you cannot, then atleast have the dignity to be upfront about your intention of trying to milk me for all im worth, and not treat me the consumer as an amoeba made of dollar bills.
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Klaus Preisinger Freelance Writing 2 years ago
EA may have a problem when it comes to where they assign the blame. EA hasn't had a smash hit single player game for a while, so obviously the consumers and their interests are to blame. EA removed cosmetics from Battlefront2, even though Battlefront1 had them (!), so Disney is to blame. I wonder what they will say about UFC microtransactions; blame Dana White?

In the long run, this will look as if EA is not in control of its products (or services), when every failure and every outrage is just blamed to be the result of an outside factor. It looks as if EA acts in disregard of predictable outside factors, or fails to predict them altogether.
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Peter Warman CEO & Co Founder, Newzoo2 years ago
Good piece. EA is still on a steap learning curve towards finding a balance that the leaders in PC and Mobile gaming already have found. Free or paid is not the issue. Games as a service is. It is 100% of the future of games and a delicate art.
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Show all comments (7)
Igor Galochkin Game Programmer 2 years ago
Thanks for the great article!
Just a thought: if monetization on PC is now going to mimic the one on mobile (since it's now all mostly casual or midcore players), then we should note that, apart from games monetizing on in-app purchases, there are huge amounts of mobile games which monetize on ads and ads alone. And that model works quite well for some types of games. These aren't top grossing games, and they aren't published by big companies, but still there are thousands of developers making their living off those.

I have a feeling that indie games on PC would easily end up in that segment, especially after the flood gates on Steam were opened in 2017 and prices are in free-fall. The only thing stopping indies from switching from paid games (in heavily discounted bundles) to free ad-supported games on PC is lack of ad networks and ad SDKs to properly show ads on Windows or Mac.

When are we going to see working ad networks on PC?
Any people from advertizing reading this? I think you have a huge opportunity coming your way. AdMob? UnityAds on Windows?

Btw as a hardcore player myself (and I almost exclusively play indie games, not AAA) I'd still prefer indie games on PC to be free and have ad banners and insterstitials and maybe even rewarded videos. This may sound weird now, but in a few years it could just become the norm.

With ads, an average indie on Steam would even get comparable revenue. Say, from ads a game would earn as little as $0.02 per download. And currently if you sell an indie PC game on a Steam sale in a discounted bundle you earn maybe around $1. So, to earn the same from ads you'd need to have 50 free downloads of the game for 1 current sale. That's a pretty realistic number. That is, making a game completely free would make it available to 50 players who would otherwise skip it. That would also automatically solve the issues with pirating (how many PC players today actually pirate games? 50%? 75%). Even if people from all over the world (like, Africa, or Kyrgyzstan) get your game from some local 3rd party website (similar to alternative Chinese stores for Android), you still benefit from that since all those copies of your game show the ads. Torrents could become the way to distribute your game hassle-free. Feels like a win-win for everyone actually.

Edited 2 times. Last edit by Igor Galochkin on 1st December 2017 5:46pm

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Bjorn Larsson CEO/EP/CD, Legendo Entertainment2 years ago
Many interesting thoughts and angles in the above article. Popular games series keep running on the sheer faith that players and developers can trust each other to meet their respective obligations. If that trust crumbles, the money flow vanishes, and companies go out of business. In the grand scheme of things, unless somebody puts a cap on spending in those lovely SW/BF/COD cultural phenomenas, the big boys may just be playing a game of “Capture the Flag” on the deck of the Titanic, with Nintendo quietly sailing by with little or no idea that loot-crates exist. Question is, if Nintendo's ship is then behind the current or ahead of it? I don't know, but I do know that Titanic ended up at the bottom.

Also, it strikes me as odd that EA and other publishers seem to have forgotten that one reason "home gaming" outstripped arcades was because we could now play games without constant micro-transactions. On a long enough time-line, it could be that the (seemingly) status quo business models of many Asian games and their culture will not have endless staying power. Speaking of which (and most eSports-affairs aside) Overwatch has shifted north of five million units in mainland China at some sort of acceptable full-price, and it is not F2P as far as I know (yes, it has loot crates).
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Gaming companies have to be careful of this whole money extraction mindset so rampant in so many other industries. First off unlike other industries gamers dont need your product to live or get through the day like many others, its totally just an entertainment option. Often the first to go when things get tight. Second you need a happy customer, not simply because a happy customer is also a reoccurring customer, but in gaming a happy customer is also your best marketing asset.

If gaming companies make the fundamental blunder of only looking short term, and basically alienate the customer base, and thus alienate their best marketing asset, they are simply screwing themselves in the long run. But there is the rub. Long term, companies/corps dont think long term because the people running it dont care about long term. They care about extracting and squeezing as much money from the customers as possible as to pump that end year number so the stock gets pumped and they get their bonus and their stock options become incredibly valuable. They also dont plan on sticking around for more than half dozen years or so, so, so what if they alienate the customers base slowly over the next few years, by the time the shtf they'll have left and cashed in their options.

That in a nutshell is the issue, and as we see in other industries, short term greed will likely win out and screw the end user yet again.

Edited 2 times. Last edit by Todd Weidner on 1st December 2017 5:58pm

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When you have a favourite food haunt, you return because exactly the ambience, quality , chef, style and price is the way it is.

Even a subtle change of chef, is enough to change ones palate...

Make a drastic enough change, and customers will rebuke

Same with games
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