Varying Value Design In Videogames
What happens if Atari's Pong meets Tokenisation, Smart Contracts, and Play-To-Earn?
As I've already discussed in my previous articles, the Business Model a videogame uses to transfer value from its players to its creators is entirely the result of Value Rules implemented by the game's creators. In other words, Value Design is an inseparable part of Game Design, regardless of whether it is implemented deliberately or instinctively.
In order to illustrate this further, I'm going to use this article to explore the effect that varying the Value Design of Atari's Pong might have on its commercial performance. To do this I intend to describe some simple thought experiments that explore the implications of replacing its original Value Proposition of "Play a game of Pong for $0.25c" with alternative Value Propositions, to see what the effects may be.
The intention here is to hold all elements of Pong's Play, Game, Product, and Experience Rules constant and only vary its Value Rules. In this way I intend to highlight the significance that deliberate or instinctive Value Design choices can have on the commercial potential of a videogame.
I’ve learned during my own career that it is possible to achieve dramatically different commercial outcomes using exactly the same game, simply by varying its Value Design. Hopefully this article will show that it’s worth considering Value Design a critical part of videogame creation, and encourage more designers to give it more conscious attention throughout the development process. In this way, I will also touch on some of the latest innovations in videogame business models, such as Play-To-Earn.
Here are a few of the most common types of Business Model used by videogames today:
Arcade (Pay-Per-Play)
Store Purchase (Pay-To-Own)
Demo Purchase (Try-Before-You-Buy)
Freeware (Free-To-Use)
Shareware (Pay-What-You-Want)
Online Purchase/Subscription (Pay-To-Access)
Free-To-Play (Pay-As-You-Go)
For now, let’s consider just one of these in more detail. Specifically, the Business Model most applicable to Pong as it originally existed in 1972:
Arcade (Pay-Per-Play) Business Model
This is the Business Model Atari decided to use for Pong. In this way Atari invested in the design of the game (although, Magnavox would disagree on this point), the design of the hardware required to run the game, and the manufacture of the arcade cabinet that would serve as the game platform and user interface.
From a property rights perspective Atari owned 100% of the property rights to Pong, again, providing we gloss quickly over the Magnavox issue for the purposes of the thought experiment. They then put agreements in place with a distribution company who would place the Pong cabinets in various locations around the United States, where people could pay 25 cents to rent their digital tennis court for the length of one full Pong game.
My research wasn't able to unearth the specific terms of the deals that Atari struck with Pong's distributors, so if anyone knows where that information can be found, please get in touch and I will update this article with it. However, the most likely models would be:
a) a one off 'purchase' agreement where the property rights (but, importantly, not the intellectual property rights) of the Pong cabinets would be transferred from Atari to the distributor, allowing Atari to recover its manufacturing cost and make all of its profit from the sale of machines;
b) a revenue based 'rental' agreement where Atari retained all property rights to the machines, maintained them in a working order, and agreed to share revenue from each machine with the distributor in exchange for their services; or
c) some hybrid of the two.
My (educated) guess, based on what I could find and my own experience of such arrangements within the games industry, is the deals would probably have changed as the business grew. The early prototypes used a Rental Agreement, while later commercial production seems to have moved to a Purchase Agreement, and it would be reasonable to assume they may have implemented a Hybrid Agreement with distributors once the initial capital costs of their manufacturing had been met.
A Hybrid Agreement would allow Atari to retain all the property rights for their cabinets along with a percentage of the revenue collected from each cabinet, while also receiving an initial upfront payment from the distributor for each cabinet supplied. That would be sufficient for Atari to recover (or at least lower) their upfront manufacturing costs so as to provide short term cash flow for further manufacturing, but also provide increased profit if the games proved more popular than expected.
Depending on the strength of Atari's bargaining position with the distributors, the upfront payment could have been made as an advance against future player revenues, allowing the distributor to keep 100% of the revenue from the machine until they had recovered the initial payment made to Atari. Alternatively, it could simply have been an additional payment on top of the initial one, with no provision for recovering that cost from revenues. Similarly the split of revenue between Atari and their distributor could have been anything from 99% - 1% in either party's favour, depending on market conditions and relative bargaining position. Again, I would certainly be interested in learning the details of what was agreed in practice, so if anyone reading this knows Nolan Bushnell, please ask him for me and let me know what he says.
What should be clear from the above, even to those with no interest in, or patience for the business side of videogames, is that there were many factors outside of what would traditionally be thought of as Game Design that played directly into Pong’s eventual success.
Regardless of the nature of the agreement in place between Atari and their distributor though, what might the impact of Minmaxing the 'price-per-game' variable within an Arcade Business Model be?
Let's imagine a hypothetical, but typical situation that Pong would often be found in back when it was first released in 1972 - a bar. The set of everyone in the bar would be the total set of potential Pong players, and the set of actual Pong players would be a subset of that total set. The relative size of these sets could be anything, but for the purposes of the thought experiment let's simply assume that the actual Pong players set was 25% of the potential Pong players set.
As the price per game tends from 25 cents towards infinity, the subset of actual Pong players would shrink very quickly until it contained none of the people in the bar. The actual Pong players set would decline from 25% to 0%, since fewer and fewer people would value the experience Pong provided at each increasing price point. This is an assumption of course, as there are goods whose demand increases with their price, called Veblen Goods or Giffen Goods, but these are exceptions in economics and I've yet to see any evidence to suggest that videogames exhibit such properties.
On the other hand, as the price per game tends towards zero the subset of actual Pong players would grow substantially from 25% to (again for sake of the thought experiment), say, 75% as more and more people value the experience Pong provided at each decreasing price point.
Here then we see the effect of switching Pong from a Pay-Per-Game to a Free-Play Business Model, and it would be expected that some sort of geometric relationship would exist, with the increase in players increasing slowly to begin with and then jumping suddenly in the step between 1 cent per game and free, as discussed in Chris Anderson's 2009 book, "Free: The Future Of A Radical Price".
What's most significant here however, is that setting the price to zero still wouldn't increase the set of actual Pong players to include everyone in the bar.
That's because of an effect known as Opportunity Cost. Lowering the price to zero would definitely increase the number of people wanting to play, and it may increase it substantially. All the people who already valued the experience at 25c or more would still want to play if the price was lowered to zero, and the pool of actual Pong players would increase to include all those who valued the experience at zero or more as well.
In theory it would be reasonable to predict that the set of actual Pong players should increase to include everyone in the bar, because surely everyone values the price at zero or more, but the Opportunity Cost effect means this is not true in practice.
Even lowering the price to zero wouldn't be sufficient to entice everyone in the bar to play, because we each have an inherent, personal sense of what our own time is worth, and that is never zero. Therefore even when the price of Pong itself is set to zero cents the actual economic calculation each person makes is not the same.
The actual calculation has two variables.
The first variable is the individual's own desire to play Pong. As mentioned above, this can be negative as well as positive, so let's assign that a value of +100 to -100. Positive values meaning the player actively wants to play Pong, and negative values meaning the player actively avoids playing Pong, with a value of zero representing no desire or aversion to the game. For any random sample of the population it would be reasonable to assume this attribute would fall, approximately, in line with a bell curve distribution.
The second variable is the price, which acts as a barrier preventing anyone whose own desire to play Pong falls below it from making a purchase. This can be visualised as a vertical line on the bell curve distribution of Player Desire, and moving it from its original value of 25 cents provides an approximate visual representation of how many people would be likely to play Pong at different price points.
We know from real world data at the time that 25 cents was an effective price for them to charge, and the Player Desire curve shows what the potential impact of different prices would be on audience size.
As can be seen, Increasing the price beyond 25 cents would quickly diminish the audience to the point where the machines would have been idle for much of the time. Crowds and lines are great promotion for any shows, and as a digital "show" Pong would have been no different; so even though it may have been possible to generate the same revenue from fewer plays it wouldn't have created the same 'buzz' around the game that contemporary accounts talk about, with people sometimes lining up outside a venue before it opened to be first on the Pong machine. This is a good example of why not all value that is created is best captured monetarily.
Similarly, decreasing the price below 25 cents would quickly augment the audience to the point where it would have been difficult for players to get a turn. Lines would have increased as players who were able to play simply stayed on for as long as they wanted, with less of an economic cost to prevent them doing so.
Even at zero cost though, there would still be people in the bar who valued using their time in alternative ways more than the value they'd gain from the experience of playing Pong. For example, there would be those who prefer to spend their time drinking, or speaking with friends rather than playing Pong
.So the effect of turning Pong into Freeware still wouldn't turn all the potential Pong Players in the bar into actual Pong players because these potential players fall below the zero point on the Player Desire graph.
Are there any Value Design strategies that would increase the subset of actual players beyond what could be achieved by making Pong free? To reach that large, still untapped audience on the right-hand side of the Player Desire graph?
I believe this is exactly what the Play-To-Earn business model aims to do, because one possibility would be to add additional extrinsic motivators to Pong's existing intrinsic motivators in order to move the payment barrier further right along the Player Desire graph to capture a significantly bigger audience.
For example, Atari could have added a receipt mechanism to their Pong cabinets that provided a paper token in exchange for each 25 cents payment for a game. This would have allowed Atari to implement some sort of extrinsic motivator, such as "redeem 10 tokens for a free beer", "redeem 25 tokens for a half price round of drinks", etc. etc. When cryptocurrency enthusiasts speak about the promise of NFTs and cryptocurrencies to usher in the 'tokenisation' of property, this is basically an analogue version of what they're describing.
Property tokenisation, like everything else in this world, isn't new. As far back as 1896 Thomas Sperry and Shelly Byron Hutchison were tokenising property and using them to influence the economic choices of shoppers. Had computers and the means to secure digital property rights existed back then it's a safe bet they would have used that approach rather than incur the cost of printing and shipping tons of stamps and savings books all around the country.
Introducing a similar system, by tying the benefits of playing Pong to something other than Pong itself, would have enabled Atari to extend the game's appeal beyond its core users and into adjacent audiences, such as those that valued whatever Atari was offering in exchange for the tokens. Once the token system was in place, Atari would then be free to adjust its offers to target whichever audience was its priority at any given point. In this regard the additional costs incurred by adding tokenisation can be considered part of the marketing and promotion budget of goods, rather than their development and manufacture. From a game development perspective it's then justifiable to increase the development and manufacturing budget at the expense of the marketing and promotion budget, since the addition of tokenisation to a videogame is essentially 'baked in marketing and promotion'.
Here then I believe we find the true roots of a Pay-To-Earn business model for videogames, and like any general model there are multiple different ways to implement it; however, the ultimate aim remains the same - spend additional money during development and manufacture to create features that will pay dividends for marketing and promotion in the long-term. The implication being that tokenisation is not the only way to implement a Play-To-Earn business model. This is precisely where Value Thinking and Value Design matters most.
For example, instead of charging 25 cents for a 2 player game, Atari could have added a second coin slot to their Pong machine that required both players to deposit 25 cents and then returned one of the 25 cent deposits to whichever player was the winner of the match. While the net effect would remain the same, i.e. Atari receives 25 cents of income per game, the psychological effect from players' perspectives would be altered quite significantly, resulting in a game that might appeal to an entirely different audience. In effect, the decision about who pays for the game would be transferred from a conversation before the game starts, to an automatic outcome determined by the result of the game itself. Again, to consider this through a more modern lens, at that point the game would literally be a Smart Contract that executed based on an outcome agreed in advance by the parties. When cryptocurrency enthusiasts describe the disruptive potential of bringing Smart Contracts to videogames, that’s essentially a simple example of the sort of impact they’re imagining.
That's one simple, yet very tangible example of how Value Design can directly manifest within Game Design. Adding such a system would introduce a sense of economic jeopardy to the game, skilled players would be able to play 'for free' by continuing to win matches, funded by less skilled players who would pay for the hire of the court, while the revenue per game received by Atari would remain exactly as before at 25 cents. This is how Value Design behaves as a subset of Game Design and how changing it can directly affect the overall player experience.
As mentioned above, adding such a system is not without its complications and costs. It would require the addition of a second coin slot, plus a switch mechanism to return a coin based on the outcome of a game. Both of these would add complication and therefore manufacturing costs, and it would also require two people to decide to pay for a game of Pong rather than one, which would complicate the social process of deciding to play, and potentially slow down the rate players played. In this instance the overall effect would likely be to reduce the rate at which quarters were deposited in the machine; a rate that is the key metric determining Atari's commercial success.
So rather than jumping immediately to a Play-To-Earn model, a better Value Design solution would look for ways to increase the rate of coin deposits, increase the value per play above 25 cents, or increase the total number of Pong players to be effective, without raising manufacturing or maintenance costs. None of which the above Pay-To-Earn example actually delivers.
Increasing the value above 25 cents would have been difficult, because Pong was already more expensive than the pinball machines it was competing against at the time. Increasing the total number of Pong players would also have been difficult because (as discussed above) that would mostly require the cost per game to be reduced, which is hard to justify unless that loss of revenue can be captured elsewhere. This is possible, but more complicated and beyond the scope of this article, so I'll look to cover that later as I explore other Business Models such as Free-To-Play.
Therefore, from a purely Value Design perspective the simplest change that could have been made to increase Pong's revenues for Atari would have been to reduce the number of points needed to win a match, since each point requires time to win. Reducing the winning score from 15 points to 10 or 12 points would have increased the maximum throughput of players depositing 25 cents during busy periods, while being likely to have little or no effect on players' perceptions of value per game.
Hopefully that provides a clear, practical example of how it is possible to use Value Design to generate an array of game design options for consideration. Being aware of all the various Business Models a game can use, their relative strengths, weaknesses, and added complications is particularly important when it comes to determining which would be most suitable for any specific game in a given commercial situation.
By evaluating these options through the various lenses of the Game Design Prism, it is then possible to narrow them down and optimise them to create the ideal balance between player value and business revenues.
Over the years I’ve come to view Business Model innovations, such as Free-To-Play, Subscription, Play-To-Earn, etc., as additional tools within the Value Designer’s toolkit, there to be deployed whenever necessary to achieve the commercial outcomes required by the business.
As with all professional craftspeople, knowing what tools exist, understanding how to use them, and appreciating exactly when they might be the best tool for the job is what matters most. That is why I make it my priority to understand each new business model that comes along as deeply as possible.
The way I see it, understanding Business Models and how they apply to videogames is simply another part of being a professional game designer.