Here we are again with another one of my “let’s put down some important industry notes” columns, and this time we’re talking about whaling. Specifically, we’re talking about whaling as a business term and what it means in terms of video games because there’s a bad tendency to equivocate when a company goes in on whaling. So this one is going to be a useful notes columns and an industry column. If that stuff makes your eyes roll back in your head, well, get out now. Fairly warned be ye.
So, now that we’re past that, let’s put down the basic thesis: Whaling is a death spiral in MMOs and basically video games in general.
That might sound like some hot nonsense, especially if you’re used to the idea that whaling is the business model of every single mobile game and just a natural thing. So we’re actually going to need to take a step back not just to define whales but also to define whaling as a business model, and we’re also probably going to need to define what “business models” are to boot.
Let’s start with the basics. When we talk about “business models” in this context, what we’re really talking about is closer to business strategy. Rather than being concerned with what a given company is selling to whom, what we’re considering is the general market targeting. To make this clearer with examples, we’ll use a product that is not video games and is also not emotionally charged by picking on potato chips.
Let’s say that both Justin and I are in the potato chip business and we run relatively small local brands. Justin’s Everybody Chips cost $2 a bag, and he has about 100,000 customers within the region. Meanwhile, I sell Eliot’s Luxury Chips, which have a dedicated audience of 100 customers and cost $2,000 per bag. Basic math is going to tell you that we’re both making the same gross amount from our chips, so theoretically our approaches are both equally successful, right?
Well… no. Let’s say both of us have to make a change to our recipe to keep our prices from going up, and that change is going to piss off a certain number of customers. If we both lose 100 customers over it, well… Justin’s life is a bit worse, but he’s not really going to notice it. But I’ve just been ruined. I no longer have any customers. In fact, as a general rule, it’s a better strategy to sell something cheap to a lot of people instead of selling something very expensive to a small group of people unless you can absolutely ensure that the expensive thing remains highly desirable.
In video game terms, let’s call these approaches whaling and trawl fishing. Whaling is all about hunting whales, with “whale” being the accepted general term for a single person who spends a massive amount on a given game. Trawl fishing, meanwhile, is about catching as many things as you can with big nets that suck everything up.
Those of you old enough to remember when the US started adding “dolphin-safe” labels to tuna cans will probably have some inkling of what’s going on here, but let’s not leave it merely implied. The thing about trawl fishing is that while you might be trying to catch a lot of little fish, you will in the process catch some bigger fish. That’s not a drawback. And that’s also, as a rule, what game companies want to do.
Video game publishers exist to make money. No duh. They make money by selling video games. But there’s a reason why most of them do not sell a single luxury video game for thousands of dollars; there are industry accepted prices for video games, and it’s a big deal when games go up $10 over the accepted price – because the whole strategy is basically to get as many people in and on board as possible.
This is true for cheaper and ongoing games, too; it’s the whole reason free-to-play can result in revenue spikes and sustain itself. Your goal is to make your target audience into everyone on the basis that it’s a lot easier to convince a thousand people to part with a dollar than it is to convince one person to part with a thousand dollars.
Now, that doesn’t mean publishers in general don’t also want to get more money out of players. The ideal situation for every publisher is to sell a game to millions of people and then have those people pay infinity money for that one game. But as a rule, splitting the difference… well, they’d rather take the millions of people. That’s just smart business. No publisher is sitting out there initially planning to get more money from fewer players if they think more players are attainable.
But there’s the rub: For a lot of studios running games, the decision has been made that getting more players isn’t possible. And that’s when the whaling begins.
Make no mistake, whaling in this context is functionally a death spiral. You are now increasingly cannibalizing your existing audience and deciding that new players are either not cost-effective or just not coming. It doesn’t matter why in the larger sense; what matters is that you have now decided that your options are to make the same amount of money from fewer players or make more money from fewer players.
The result, of course, is that you have no new players coming in and have existing players slowly leaking out for various reasons, but so long as you can keep selling newer and bigger things to the existing audience, you can subsist for quite a while. Your profits aren’t going down because the remaining people are paying more. And it’s definitely a lot easier; if your playerbase has shrunk down to the level where any new item has an 80% conversion rate, you can more or less print money just by introducing a new item to spend money on.
But make no mistake, this is a bad place to be in. It means that your game and your business model increasingly relies on the same group of people, and any changes that upset this group of people runs the risk of collapsing your entire business model in an instant. And you can tell that just from the premise. Video game companies do not want to be here, nor does anyone else, because it’s a sudden pivot from making something that’s trying to have mass appeal into what is functionally a luxury good.
So no, this is not what every studio is going for. Lots of publishers are trying to make more money from existing players, yes, because if a publisher thinks that’ll work, it’s just a smart move. If you can sell a game for ten bucks more and sell the same number of copies or at least not sell 10% fewer, you’re making more money. But you don’t want to be selling a luxury good if you can sell a general good, and video games have never been a luxury product.
…all right, maybe you could argue the case with things like the 3DO and CD-i, but that’s a different discussion and also shows off the whole dang problem, you know?
Sometimes you know exactly what’s going on with the MMO genre, and sometimes all you have are Vague Patch Notes informing you that something, somewhere, has probably been changed. Senior Reporter Eliot Lefebvre enjoys analyzing these sorts of notes and also vague elements of the genre as a whole. The potency of this analysis may be adjusted under certain circumstances.
