Guys, today we have a guest post from Jaspor, formerly of Darth Hater. He does math way better than I could, so y’all should pay attention to his really in-depth analysis of the economics and pricing of the cartel market.
Since Star Wars: The Old Republic launched it’s Free To Play model back in November, the Cartel Market has been a popular subject not just within the SWTOR community, but across the entire MMO landscape. Inspired by the incredibly well done article about $80 jeans and how that approach relates to the Cartel Market, I thought I’d take a similar look to the pricing we’ve seen to this point, what’s wrong with it, how it can be fixed, and the chances we’ll see some changes.
The $80 Jeans… but made out of thin air
If you haven’t yet read Njessi’s piece on the $80 jeans, go read it now. I’ll wait. She makes several excellent points that I completely agree with. Taking the analogy a bit further only continues to demonstrate the mistake BioWare and EA are making by pricing these Cartel Market items too high. Material goods we buy in the real world – like jeans – are made out of, well, materials. Concrete tangible materials that cost money to buy or produce. Those jeans are made out of denim, thread, and even some metal for buttons and zippers. (And maybe even some sequins if you’re into that sort of thing.) Those materials cost a certain amount of money per pair of jeans. If the jean company were to sell those jeans below the cost of the raw materials to make them, they’d be losing money. Which would be bad. Of course, that’s not even including other factors that go into the cost of manufacturing the jeans, such as factory equipment, assembly line workers, warehouse storage, packaging, and shipment and delivery costs. Add all those things together and it’s not hard to calculate how much it truly costs for a company to make a pair of jeans. Therefore, there’s a very measurable price threshold that the jeans MUST be sold above in order to make a profit. Now, the final sales price of (and therefore the determination of how much profit can be made on) those jeans is up to the company selling them. And no doubt there are teams of people who consider any number of factors when determining the final price. But the bottom line is that they cannot go below a certain price because the raw materials and manufacturing expenses cost more than that.
Digital goods, such as those purchased on the Cartel Market, are different. They are not made up of raw materials. They’re made of bits. Bits don’t cost anybody anything, you just have to know how to manipulate them. They exist in cyberspace. There are no suppliers of materials. There is no limited inventory. There is no need for storage or shelf space. There is no packaging or delivery. The only cost associated with creating digital items is the time involved from the designers and developers. Let’s not underestimate this though. Some of these items can take quite a bit of time to design and implement, especially when they are doing things that haven’t been done in the game before. I’m sure a BioWare Project Manager has a spreadsheet somewhere that shows exactly how many hours were spent creating the Carbonite Chamber , Life Day Robes, Outlaw Armor Set, and everything else that’s shown up on the Cartel Market. Which means they know how much those items cost to develop and how much they need to earn in order to cover the development costs. Here’s the thing though: Once they are done, they’re done. The designers and developers move on to the next items, and the items can be created in infinite quantities with zero production cost from that point forward.
So here’s the million dollar question: What should be the price point on these virtual items to maximize profit? The answer isn’t a simple one and it’s surely one that BioWare and EA continue to try and figure out. It’s a delicate balancing act. Price items high and you have to sell fewer to turn a profit, which is a good thing. The downside of pricing items high is the $80 jeans dilemma – the majority of people might decide that the item is not worth the cost. Price items low and you have to sell more of them to turn a profit, which is a bad thing. The upside of this approach is that a lower price could make the item enticing to a much larger group of people, meaning that the amount sold could be magnitudes greater than what would have sold at the higher price. The ideal situation for the seller is to find the “sweet spot” for pricing. What that means is finding a price point that is as high as possible while making people still think it’s worth that price.
Crunching Some Numbers
Who’s ready for some math? I know I am. Let’s take two different items available on the Cartel Market and do some numerical analysis – some theoretical and some real. Obviously since some of these numbers are made up, the overall numbers won’t be a completely accurate representation of what these things cost to make and how much it takes for BioWare to turn a profit, but I think the examples will give people a good idea of how important these price points are to the overall success and long term health of the Cartel Market.
Let’s take a look at one of the items that launched with the Cartel Market and is fairly unique: The Carbonite Chamber. This item has an original animation that shows the player surrounded by the freezing device, blasted with smoke, frozen in carbonite, thawed out, and falling to the ground. The item also acts the same as the player’s “rest” ability restoring health and energy/heat/force resources. This item appears to be a fairly resource intensive creation. The designers will need time to figure out exactly how this thing will work and what the steps of the animation will be. They will draw concept art which will morph into actual design art. From there it goes into the hands of the developers, in this case they will need some graphical artists (to model the actual artwork of the item), animation engineers (to animate it and make it come to life), and some gameplay developers (to tie it in with the “on use” functionality and also give it the “resting state” ability). Let’s pull some numbers out of our asses, shall we? Let’s say 40 hours to design, and 120 hours to draw, animate, and develop. Oh, and QA, let’s not forget the testing phase. Let’s throw in another 24 hours for QA testing and bug fixes. That brings us to a grand total of 184 hours from start to finish to create the Carbonite Chamber.
“How much is that in dollars and cents?,” you ask? Well, without going out and doing a search for the average salaries of all the design, development, and QA people involved in the Austin area, let’s just use an easy round number of $50 per hour. (Probably a little high. If someone wants to figure out a more realistic number and redo the math, by all means, have at it.) 184 hours times $50 per hour equals a grand total development cost of $9,200. That might seem like a lot for a single item. But is it really? More math will tell us!
The Carbonite Chamber is currently sold on the Cartel Market for 720 Cartel Coins. Converted to real money, that falls within the range between $5.26 and $7.92, depending on the size of the Cartel Coins package that was purchased. Let’s round it to $6.50 in the middle. At a total development cost of $9,200 and a selling price of $6.50 per item, BioWare/EA would have to sell 1,415 Carbonite Chambers in order to earn back their development costs. Anything sold beyond that is profit.
Next let’s take a look at a recent addition to the Cartel Market: The Clandestine Officer Armor Set.
This item is basically a recoloring of an existing armor model and shouldn’t be very resource intensive. The designers will need time to figure out which parts of the armor to change to what colors. They will likely take existing design art and simply make a copy of it with the new color changes. There is a stripe down one of the legs which may be new, so they might have to draw that in on the artwork. From there it goes into the hands of the developers, in this case they will need some graphical artists (to recolor the models and maybe make some minor tweaks like the leg stripe) and… well, that’s pretty much it for this one. There’s no new animations involved, no new gameplay or ability development. Let’s make up some more numbers for this item. Let’s say 16 hours to design (it shouldn’t really take two days to recolor an armor model, but let’s give them some room for discussing and debating which colors make it look good), and another 24 hours to create the item, recolor it, and make some minor visual tweaks. We don’t really need much QA here for simply making sure a new armor set doesn’t look broken, so we’ll throw in a single 8 hour day. That brings us to a grand total of 48 hours from start to finish to create the Clandestine Officer Armor Set.
Sticking with the $50 per hour rate for our Austin team, that brings the total development cost to $2,400. The Clandestine Officer Armor Set is currently sold on the Cartel Market for 1,440 Cartel Coins. Converted to real money, that falls within the range between $10.51 and $15.84, depending on the size of the Cartel Coins package that was purchased. Let’s round it to $13.00 in the middle. At a total development cost of $2,400 and a selling price of $13.00 per item, BioWare/EA would have to sell 185 Clandestine Officer Armor Sets in order to earn back their development costs. Anything sold beyond that is profit. And I think it’s also worth mentioning that there are several different armor sets available on the Cartel Market, most of which fall into this category of being a minor re-coloring of an existing armor model.
So, is $6.50 a good price for the Carbonite Chamber? Is $13.00 a good price for the Clandestine Officer Armor? That really depends on whether or not players believe the price is fair. Are most players who have some interest in obtaining a Carbonite Chamber willing to pay $6.50 for it? Are most players who want a cool new armor set willing to pay $13.00 for it? That decision will vary from player to player. If so, then great! But then the question becomes, “Damn, could we have gotten even more for this?” Price it too low, and the sellers are leaving money on the table. If most players think to themselves, “I like it, but J is too expensive, I won’t pay that much for it,” then the sellers risk pricing the item out of their target market and not making nearly as much money as they could. BioWare and EA are most certainly collecting the data and analyzing it closely. More on this later.
One thing that’s probably obvious by now is that the development effort for a particular item doesn’t necessarily dictate its specific individual price. I think it is safe to say that something like the Carbonite Chamber or a new mount will take more resources to create than a recolored armor set. Yet the armor sets are generally sold for a higher price. So it does appear as if BioWare and EA are treating the market as a whole and considering player buying tendencies rather than simply pricing items based upon development cost. Interesting…
Would More People Really Buy This Stuff For Less?
When the Cartel Market was first announced, players were concerned that it might introduce a “pay to win” aspect to SWTOR. What that phrase refers to is the situation where players who spend real money to buy particular items have an unfair advantage over players who choose not to spend real money. For the most part, SWTOR has avoided that pitfall to this point. That means there really aren’t any “must have” items available for purchase – the vast majority of products available for purchase are simply cosmetic or convenience items.
How interested are most players in cosmetic and convenience items that typically don’t have a real impact on gameplay? Good question. Clearly the interest in this varies from player to player. At one end of the spectrum you have the players who don’t care at all about how their character looks, what they’re driving, what emotes they can perform, or what types of pets follow them around. At the other extreme are the completionist collectors – if it’s something new, they must have it! Most players fall somewhere in the middle. So just where in the middle do most players fall? Let’s find out.
Darth Hater recently conducted a survey asking players about their Cartel Market experience. According to the numbers, 80% of players have purchased at least one Cartel Pack. Most of the items inside these random packs can be considered of the “cosmetic” variety. However, this number doesn’t tell us the intent of the players buying the packs. If they get some of the highly sought after rare items, will they keep them for themselves or attempt to sell them? Let’s look at the numbers from a different angle. 33% of players have said they’ve purchased armor from the Cartel Market. 46% of players have said they’ve purchased Cartel Market armor via the GTN with in-game currency. Looking at other cosmetic items, 7% have purchased mounts directly from the Cartel Market and 4% have purchased weapons from the Market. 36% have said they’ve purchased vehicles from the GTN while 34% have said they’ve purchased weapons from the GTN.
The Cartel Packs throw a bit of a monkey wrench into analyzing these numbers, as many of the armor pieces, weapons, and mounts are not available via the Cartel Market directly. They can only be found in the random packs or on the GTN, which will not doubt skew the numbers towards more people buying those items directly from the GTN.
Here’s the bottom line: Almost half the players who took the survey admitted to buying some of the new Cartel Market armor via the GTN. These people have at least some interest in how their characters look. These people are potential targets for future cosmetic products. There could be two reasons why more people buy armor from the GTN rather than directly from the Cartel Market. The first reason is that they are looking for armor found only in Cartel Packs. That armor is not available for direct purchase from the Cartel Market. So these players would rather spend credits to get something they know they’re definitely going to get rather than spending real money on a chance to get it. The second reason is that players would rather buy armor with in-game currency rather than real life currency. This reason again goes back to the main question here: Do people think the Cartel Market prices are fair? If the prices were lowered, would more people be buying armor sets directly from the Cartel Market rather than from the GTN? I think so.
Personally speaking, there are two armor sets I like and have seriously considered buying for my Imperial Agent: The Outlaw Armor Set…
and the Clandestine Officer Armor Set.
I’ve wavered back and forth between pulling the trigger on the purchase and kept an eye on the GTN prices for these items. I haven’t bought either one yet. The $13.00 price tag seems steep for a new outfit. So far we’ve been talking about Cartel Coins in terms of real cash, but let’s take a look at them from the point of view of a subscriber. I receive 600 Cartel Coins per month for staying subscribed to the game. I just have a hard time spending over two months worth of my subscriber’s complimentary Cartel Coins on a single set of armor. I would have liked to believe that my subscription payments were worth enough to BioWare that they would at least allow me to buy a single new outfit each month. Nope. My complimentary coins give me just enough to buy exactly five sets of armor in a single year. If the armor sets were cheaper, I would have bought several by now.
The Cartel Market is still very young. BioWare and EA are surely collecting and analyzing all the data that goes with it. This isn’t just limited to how many of each item they’re selling. Buying patterns among players, frequency of purchases by individuals, and dozens of other metrics can be looked at by analysts to figure out what is working well and what isn’t. The GTN data for Cartel Market items is also important. Cartel Pack items that are top sellers on the GTN make likely candidates for future products. Revan’s Mask is one of the most popular Cartel Pack items. How much would people pay for it on the Cartel Market if they could buy it directly? $10? $20? $30?!
The special event items (such as the Life Day items) and limited time sales (such as the 30% discount on the Gamorrean Axe that just ended) are additional ways that BioWare collects data. How many Axes did they sell at full price? How many did they sell at the discounted price? Which made more money? How many people bought Life Day items? (Only 8% according to the Darth Hater survey.) While they were limited time and will become rare now that they’re no longer available, the general consensus seems to be that they were not worth the cost. It will be interesting to see how the Life Day sales results influence the pricing on future items related to limited time special events.
It’s also possible that we’ll see a more drastic shift in prices in the near future. The release of the Rise of the Hutt Cartel expansion seems like a logical time for the Cartel Market to be rebooted with a ton of new items and adjusted prices. Even if the new items retain the existing prices, it makes sense to permanently discount the older items.
Overall, the Cartel Market and the Free to Play model appears to be a success for BioWare. People are buying items. People are paying real money for additional Cartel Coins. Early reports from BioWare indicate that it has exceeded all expectations. Hopefully that success will help the game grow and prosper and it can eventually become the MMO that many of us envisioned when we first heard about the project.
The bottom line is that BioWare and EA have all the numbers they need to make important business decisions regarding the future of the Cartel Market. Their goal remains the same as it always has been – make as much money as possible. As players, hopefully that means the cost of many items will be lowered so they can try to sell more of them. Because, damn, as much as I like those $80 jeans, I’m not paying $80 for them. The same jeans for $40? I’ll take four!