Where I See The Video Game Industry Going, and Why It Makes CENTS!

If you’re a gamer and reading this, odds are you have spent a good amount just to purchase games, or you’ve at least done so in the past. Anyone else remembers visits to Rogers for game rentals? Maybe you still make the trips to stores like EB Games, Walmart, and Best buy to get the latest console release. I can relate to the nostalgic visits but I cannot remember the last time I bought a physical game, and probably won’t end up doing so EVER…AGAIN!

Over the past year or so it feels like games that are digital downloads and come at no cost have gained some serious traction, is the death of physical copies already amongst us? I think so; Industry leaders like EA and Take-Two Interactive (Creators of GTA, Red Dead Redemption and 2K Sports) have reported immense growth in their digital channel revenue. Not only has the total amount they have brought in increased but their channel split is around 60/40 at a minimum and in favour of Digital opposed to physical. This split has only been growing over the past couple of years.

The video game behemoth and industry leader in North America reported a 31% growth YoY (New Record) for its recurrent consumer purchases. AKA in-game micro-transactions. What’s next? I personally think we are going to see a major shift in the pricing model for major titles, and it just makes sense….or does it?

Games with no upfront cost

“JUST MAKE THE FUNNEL BIGGER” — Says the Man

*Pretend you’re the CEO of a major video game company like “Activision”*
You have a potential market of 1,000,000 users that are interested in your game; the team decides it makes sense to release the game at an $80 MSRP.

Game is released at $80, do you really think all your potential users that are interested in your game type are going to dish out that money? Do you think that the game’s launch will even reach every single one of that potential user? NOPE. If you launch a game with no associated cost, however, that eliminates one drop off point for potential users. I would also be willing to bet your game gains a lot more organic awareness given anyone that is interested can download it.

So let’s just say for example you manage to clear a 10% penetration of that market selling for $80. That’s 100,000 players or $8,000,000. Sound right?

Okay now let’s say the game is free, My guess is the penetration will lift by at least 3x at a minimum (Complete shot in the dark but I just think it’s fitting ) aka 300,000. This means that you only need each user to spend $26 on average on in-game transactions in order to get to that 8M we gave in the upfront cost example. My hunch is that this can easily be attained when you have certain segments of gamers who spend hundreds and sometimes thousands on games.

What do you think?

To make things even sweeter and feed into this argument some more; just take a second to think about big data and its increasing incorporation into product strategies. It only will get easier to unlock these opportunities to capitalize on micro transactions.

MORE USERS -> MORE INSIGHTS -> IMPROVED STRATEGIES (More $$)

Google What?

I would like to point out the fact that within the next year or so we will see a new addition to the gaming industry; Google Stadia. If you’re not familiar with stadia in its purest form it is the “Netflix of gaming.” Pick up a stadia controller, your laptop or phone and your good to the game as long as you’ve got somewhat of a steady connection.

One thing I’ve learned through conversation with peers and research is that Stadia is actually a play to combat streaming platforms like Twitch. Hence its cool feature that enables you to live stream your game play at the click of a button to YouTube. Stadia has yet to announce its pricing strategy but to last time I checked, they are a data-driven company and strive off of user-ship and the increased ability to draw consumer insights. That is their bread and butter and how they make bank (Ever wonder why it is so easy to get a Google home mini for free).

I guess my point is I think they are going to come to market with the Free.99 model which will open consumers mind up to the idea of free games and just put an extra little push on competitors.

All in all, I would have loved to of grown up with free games and am stoked this childhood dream is coming to fruition because it brings us one step closer to being fully immersed into a lifelike “Ready Player One”

If you made it this far thanks for reading, Feel free to reach out with thoughts or comments!