Monday, September 28, 2009

Mochi + Flash Portals, Part 1

Over on the Flash Games Blog, bobjoe6641 posted some interesting comments about Mochi's leaderboards and coins services.  He's a not a fan, to put it simply (and maybe lightly).  The comments were also interesting, with a couple developers weighing in to offer another perspective.  I commented too, and if you read all the comments, then you know some of what I think on that subject.  But because it's such an important issue, I wanted to restate my thoughts here with some extra discussion.

The author identified 3 parties in the flash game industry: developers, portals, and players.  He complained that MochiCoins is "good for developers but horrible for players and publishers."  The unstated premise of that argument is that the 3 parties have incompatible or competing interests.  If what was good for one were good for all, then something that is good for me (a developer) would be good for him (a publisher).  To start, I disagree with that premise, but the balance of power is shifting from portals to developers.

Healthy Developers

If you consider a dairy farmer as an analogy, it's clear that what's best for the cow will ultimately be best for the farmer and the customers.  Cows want food, water, space, and some salt.  If they have enough of all of those, they are very hardy and stay healthy.  Healthy cows produce more and better milk and do so over a longer period of time and with fewer veterinary costs.  If the farmer thinks that his own interests can be served without serving the interests of the cow, then he places himself in opposition to the cow.  He sees the cow's desire for food as being competition with his own desires.  His myopic view of his business will result in resentment and, if he starves the cow, failure.

There are, of course, many differences between dairies and flash games, but the fundamental principle remains:  portals and customers are better off in the long run if developers are healthy.

Short Form Games


In his blog, Danc explained the difference between short form and long form games in his Flash Love Letter Part 2.  Understanding the difference is necessary to understand how the market is changing.

Short form games are games with very little content that occupy players for only a short time.  Players aren't going to pay for a few minutes of fun, especially not when it can be had all over the internet for free.  In order for players to spend more than a few minutes playing these games, he has to play many of them, and in order to play many of them, they need to be aggregated into collections for his immediate perusal.

Portals create value for players by aggregating many short form games.  When a player is playing game after game in a single sitting, it's the portal keeping the player engaged.  When the player bookmarks the site and comes back later to play some more (and different) games, it's the portal bringing him back.  By collecting the games and keeping players engaged for longer periods of time, portals are able to monetize their efforts by selling ad space.

Even though they take real time to develop, neither players nor portals value any single short form game very much, because short form games create little value for players by themselves.  That's why there's never been any reason for portals to share their ad revenue: they can do without any single short form game.  Short form games need to be aggregated to create value for players.  The developers that have made the most money from ads have been the ones who (like Nitrome) have created their own portal.

Most portals understand that they would have nothing to aggregate if developers didn't keep making these games, so they do share some revenue in the form of sponsorships, site licenses, and rev sharing.  That money is usually little more than a bonus, and most developers don't get more than a negligible amount, if any.  The recent decline in ad money has reduced portal income and, therefore, developer income from this source.

Short form games need portals to aggregate them, and so portals are the ones creating most of the value for the players, and so it's natural for the portals to collect most of the money.

There will always be students, hobbyists, and even businesses that make and giveaway their short form games.  Those games will need to be aggregated.  There will always be players who want to play them.  While ad revenue is declining in the current economy, I'm sure the number of games and players will continue to increase.  The short form game industry isn't going to disappear, and it won't be affected by MochiCoins or any other microtransaction or payment model.

Long Form Games

Long form games engage the player for a much longer period of time.  When a player bookmarks a site to go back and play a specific game, then it's the game that is engaging the player, not the portal.  The developer is creating more value in this situation.

Players are used to spending money on games they want to spend real time with, and they do buy Flash games if they think the value for their money is high enough.  We're paying our bills by selling our first long form Flash game, Now Boarding (but not by much of a margin....if portals wanted any more from us, we'd be in trouble).

Microtransactions

Portals have been making a lot of money aggregating content produced by other people.  That business model has worked because developers haven't been making games that create much value for players.  Short form games are cheap and fun to make, and will always be made.  However, long form games cannot be supported by the traditional, portal-dominated ad model.  They cost a lot more to produce, and developers need to make more money from them just to survive.

MochiCoins and other services are providing a way for developers to collect money from willing players directly.  The original poster on Flash Games Blog and other portal managers in the comments weren't happy about the cut they were being offered.  They even cited other industries where the distributor gets a bigger cut, as if that matters at all in this case (the primary reason in the other industries is because the free market has supported it due to higher distribution costs....which don't exist online, so competition is going to bring the online cut down).

In the case of long form games, the developer is creating more value for the player than the portal is, so it's fair for the developer to get a greater percentage of revenue than the portal.  What percentage is fair for everyone will eventually settle out from competition, but whatever the portal's cut ends up being, it will likely be much less than their cut of ad revenue in the short form market.

Payment models that collect money from players will support long form Flash games.  Developers need to get most of that money in order to keep making more long form games.  New players that weren't interested in short form games will go to portals looking for long form games.

It'll be a new, bigger pie that developers and portals will share, and there will be better games for players.  Everybody wins!

In part 2, I'll address the other part of their concerns about stealing traffic.