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By Thomas Baekdal - August 2012

Optimizing Your Industry to the Point of Suicide

A trend is starting to form. A trend of revolt by the audience, who are annoyed that they are being reduced to an exploitable asset.

What if I gave you a choice between doing the right thing, and doing the wrong thing. Which one would you choose?

You would probably tell me that it is a silly question and that you would obviously choose to do the right thing. Who wouldn't?

Okay, fine. But what if I then told you that by doing the wrong thing, your revenue would go up by 25% and your costs would drop by 50% (doubling the profit), now what would you do? Would you choose to do the wrong thing and go for the money, despite the fact that it is still the wrong thing to do?

This is actually the exact dilemma we are faced with in the media industry today. The right solution requires you to focus on creating value and creating a product that mixes carefully selected and relevant advertising with other income streams like subscriptions.

But there is a much simpler way to earn money. Just dump down your editorial standards, fire your talented journalists (who are also the most expensive ones), and spend all your time monitoring the web for popular topics and then copy/pasting them to your site. Buzzfeed, for instance, is a perfect example of that model.

It's not limited to newspapers, it's even worse in the gaming industry.

Last night, I wanted to just relax with a game for a few moments, so I downloaded Asphalt 7 for my Nexus. But, upon starting the game, it immediately became apparent that this game was yet another one of those "we will annoy you until you pay us more money" kind of things. Every single event involved something that you had to pay for to be the best. At the beginning of the game, you can play with the free options, but later, you simply cannot compete unless you pay up.


We all remember what John Riccitiello, the CEO of Electronic Arts, said at a stockholder's meeting last year:

[...] The second thing and this is a point that I think might be lost on many, is a big and substantial portion of digital revenues are microtransactions. When you are 6 hours into playing Battlefield, and you run out of ammo in your clip, and we ask you for a dollar to reload, you're really not very price sensitive at that point in time. And for what it's worth the COGS on the clip are really low, and so, essentially what ends up happening and the reason the play first pay later model works so nicely, is a consumer gets engaged in a property they might spend 10, 20, 30, 50 hours on the game, and then when they're deep into the game they're well invested in it, we're not gouging, but we're charging, and at that point in time the commitment can be pretty high. As a personal anecdote I spent about $5000 calendar year to date on doing just this thing, this type of thing, on our products and others, I can readily attest to how well it works. But it is, it's a great model and I think it represents a substantially better future for the industry.

This is like a heroin dealer giving you a free weeks supply, and just when you are hooked that's when he will force you to pay. And John is apparently an addict himself, having spent $5,000 in microtransactions in games himself.

The problem is that, in order to optimize the bottom-line, they are completely decimating the relationship they have with their customers. This is exploitation 101 ...something that used to be in the realm of criminals and scammers, but has today become 'normal business practice'.

This is not the right thing to do. It is the wrong thing to optimize revenue at the expense of a positive relationship with your customer

Just look at the iOS App store or the Google Play store. Almost every single game is engaged in this behavior.

They are even doing it with games for kids, like Garfield. You can play for an hour, but then the levels will become so hard that it is impossible to continue without buying 'coins' to level up faster.

They are exploiting the very thing that turns normal people into ludomanians ...

We could blame the connected world for this. In the past, gaming developers had no way to do in-app purchases or micro-transactions, so they had to give people a game with everything in it. But today, because of the connected world, the developers can stay in control of the entire experience on a micro-managing level.

Of course, this is just a silly excuse. These people have taken the marvelous experience of the connected world, and used it to exploit people instead of enhancing the experience.

The problem started with mobile games, and it has now come to a point where it's literally impossible to buy a decent game anymore. It's now looking to spread to desktop and console platforms. So soon we will no longer be able to buy a game unless we also want to turn ourselves into compulsive gamblers.

You might say I'm just exaggerating and it's not as bad as I make it out to be. But here are the 45 top grossing apps in the App Store:

The ones marked with yellow are all free. So how can a free game also be the ones that make the most amount of money? The answer is simple. They all use this model of getting you hooked, and then slowly taking away your abilities until you start to buy coins, credits or stars or whatever system they have put in place. They use the very same model John Riccitiello describes above.

Or in other words. The wrong way, that exploits your customers by deliberately cheating them into becoming addicts, is far more profitable than just creating a great game and selling that for a one-time fee.

And the tactics are deliberately designed to get in your way. Here, for example, is Asphalt 7:

It starts out nice and simple, you can play the game, it's fun and you earn a ton of rewards.. including enough rewards for you to use in the game to level up.

But after a while, the rewards you earn are no longer high enough to pay for what you need to continue. After playing for about an hour I only had 16 stars, but I needed 30 to unlock the next car.

Cue the "get more stars" screen. Here you can buy bundles of stars using real money ...and since I need exactly 14 stars, I just have to pay 30 DKK (or about $5) or you can buy a whole pack of them for 599 DKK ($99).

But this is not all, because you are also quickly going to need to buy in-game credits for other things.

If you decide not to do this, they start to tweak the reward system. Up until this point the rewards were based on how well you played (your skill as a gamer), but now it's about how much money you spend with "buy an upgrade".

How much does an upgrade cost you ask? Well ...100 stars. You probably thought those 420 stars you bought for $99 would last a while didn't you? In fact, just to unlock all the cars you need to buy 7,685 stars, at the total price of $1,811.

Note: Just to put that into perspective, that's more money than a 10 year subscription to Baekdal Plus, spent on cars in one game on their mobile device.

On top of this, every round is interrupted by the reward screen. Here you can see how much you earned during that round, and while you can earn both stars and credits, they are nowhere near what you need to progress in the game.

Remember, you earned one star, but you need 7,685 stars just for the cars. In fact, if you want to unlock all upgrades as well, you need to get an additional 6,864 stars. Try getting that by only earning one or two stars per round. Instead we are back are the payment screen where 6,864 stars will set you back $1,671.

Unlocking everything in the game will cost you almost $3,500. Granted you can also earn stars in very slow increments by leveling up, but there is simply no way to earn enough stars to unlock what you need.

And this is where the real deception kicks in. You can now share your results with your friends and earn more rewards. Essentially they are using your addiction to annoy your friends with gaming updates.

And the reward? Nope's not a star, you just earn 5,000 more credits (which will get you nowhere). So essentially, you are giving Asphalt free and highly profitable advertising exposure to all your friends, at no cost to them, all in return for a useless reward.

And games like these are now dominating the top grossing chart in the app store. Not surprising considering how often you need to pay and how much money you end up paying.

And another thing. Notice the share screen above. The left 'green' button on most other screens will move you forward to the next screen, but on this screen it forces you to share. Meaning that if you just click-click-click to get on with the next race, you end up automatically sharing your progress because they are deliberately reordering the placement of the buttons.

This is simply one big scam ...and the worst part of it is that it's far more profitable than doing the right thing.

In comparison, the popular game "Need for Speed: Most Wanted" only cost $59 ...and that's the full game. No wonder EA's CEO wants to replace it with the model used in Asphalt 7.

Finally, because the first few levels are free to play, the journalists who are reviewing this app all see a great app, with beautiful graphics and tons of content. But they never play long enough to experience the full effect of the 'pay later model'. As a result, this game has great reviews across the board, with journalist saying it's one of the best racing games out there. So, the journalists are being fooled into writing a positive review!

Advertising instead of money

Another example is the concept we see with the creators of the very popular Hitman series. They are thinking about creating advertising-based games in which you can play for 10-20 minutes for every one minute of advertising that you see.

It's not as bad as the 'buy credits/stars' model above, in one might say it's the same model as what we experience on TV every day.

The difference though is that games can be designed with addiction in mind. So they can design the experience to interrupt you at certain times when you are physiologically weak minded.

Overall though, it's the same concept. Reduce your audience to an exploitable asset.

Not just games

But it doesn't stop here. In the ebook industry, several publishers are now starting to experiment with the same thing. They may soon write a book where key elements are missing unless people pay a dollar for each section. And we will see the same thing within the newspaper and magazine industry.

Basically the content industry has turned into the tobacco industry. A business that is causing harm to their customers, but it works because they are engaged in a pay-for-addiction strategy that forces people to stick with them.

There is nothing wrong with micro payments or in-app purchases if it is used to enhance the experience, but that's not what these CEOs are doing. They are using gamification to cheat you into becoming addicted to their product, then gradually lowering the experience to a point where you just cannot stand it anymore. But hey, you can get it back if you just buy "420 stars for $99.99"

The good thing about this, of course, is that you can now differentiate yourself by *not* engaging with these tactics. And I think Derek Sivers put it brilliantly with "I miss the mob" (who had better business ethics than today's CEOs)


Now, you won't get as rich as the other guys because, quite frankly, if you can cheat people into buying credit and stars for $3,500 from an Android game ...well ...

But you will be able to achieve a good level of income from happy and satisfied customers who see you as a friend (instead of a cheating bastard). And you will also be able to look yourself in the mirror each morning, knowing that you are focusing your life on creating something of value, while everyone else has turned into greedy shareholder-friendly crooks.

And, in time, when people have become so fed up with those other guys and their exploitation tactics, guess who they will turn to ...Yes, they will come to you!

Just like people in the social world are now turning to, because they are fed up with being constantly manipulated by the deceptive money scheming tactics of other social channels.

People are beginning to say, "I would rather pay up front and get a great experience that lasts, than to get something for free and open myself up to exploitation."

The right thing to do

The dilemma we have today is that it's clearly better to do the wrong thing in order to gain competitive advantage. It's better for newspapers to dump their level of quality in exchange for cheap pageview tactics. It's better to create small incremental payments tied into some kind of content addiction. And it's far more profitable to screw your audience than it is to create something of lasting value.

If all you care about is money, in the short term, the choice is not a hard one. In fact, it's easy to do these kinds of things. The Asphalt 7 game is only 6 game modes, 15 simple maps, and a number of cars ...but by cleverly combining them again and again, you have a limitless gaming experience for a low cost.

But a trend is also starting to form. A trend of revolt by the audience, who are annoyed that they are being reduced to an exploitable asset.

We see it on the social channels, where the whole privacy debate has nothing to do with people's actual privacy, but is more about people revolting against being exploited without getting anything of value in return.

We see it with content sites where, while there is a huge increase in page views, customer satisfaction and customer loyalty is dropping.

We see it with TV and music, where more and more people talk about paying rather than being constantly interrupted.

But more to the point, we see it with the Trend of Abundance and the Trend of Convenience. The Trend of Abundance being that there is now so much of everything that we seek guidance to identify objects of real value. And the Trend of Convenience dictates, because people have more of everything to consume in less time than ever, and we seek that path of least resistance.

So, the trend that is forming is that the path of least resistance is to pay for what you need, in exchange for something that actually works.

Jason Fried, from 37Signals put it nicely the other day:

All you have to do is read TechCrunch. Look at what the top stories are, and they're all about raising money, how many employees they have, and these are metrics that don't matter. What matters is: Are you profitable? Are you building something great? Are you taking care of your people? Are you treating your customers well? In the coverage of our industry as a whole, you'll rarely see stories about treating customers well, about people building a sustainable business. TechCrunch to me is the great place to look to see the sickness in our industry right now.

The addiction-for-money business model is not going to go away anytime soon, it's simply too profitable for that. Selling out on your long term relationship with your customers doesn't seem that bad when money is all you care about.

But a movement is forming. A movement where building your business model around respecting people's time, anticipating and basing your product on something that people really need, and providing something of real value will win the day. It's not going to be one or the other. In the future we will have both.

So let me ask you again: What if I gave you a choice between doing the right thing, and doing the wrong thing. Which one would you choose?


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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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