Times are Changing

Making money with digital goods is a tricky and complex proposition. The thing that separates digital goods from pretty much anything else we consume is that each additional "copy" of the good costs essentially ZERO.

This makes the notion of "piracy" a difficult one to tackle. The large corporations out there have been increasingly hostile towards piracy, and they make great efforts to paint it as a morally reprehensible thing to do. All of the "entertainment" industries are struggling with this, from Movies to music to Video games. Watching the "old money" big wigs trying to fight piracy by throwing their weight around politicians and lawmakers, all the while using the court system to effectively blackmail people into paying to not get sued, well.. it's just a giant /facepalm. It has done next to ZERO to increase their bottom lines, and instead has caused incredible backlash as people actively deciding to not purchase products that are laden with crippling DRM or that install Rootkits.

I think they are slowly (as is the case with any monolithic organization) coming around to the fact that their anti-piracy schemes are flat out NOT WORKING and are often increasing piracy instead.

Ars has a pretty good write up about it: http://arstechnica.com/tech-policy/news/2011/03/report-piracy-a-global-pricing-problem-with-only-one-solution.ars, where the short of is that researchers state that the problem is simply that the prices are too high.

WELL DUH.

Actually, I'd argue that the problem is three fold.

1) Price

2) Punish the people who pay (DRM)

3) Ability to access content

As someone who intends to try to make money in this industry (literally going all-in), it's important that I understand the how's and why's that people pirate, or don't.

Thankfully, this is not newly treaded territory. Believe it or not, Apple is a remarkable case study (ok, those that know me, know that I'm not a huge fan of Apple, but that's another story). They've effectively nailed ALL 3 points for the content they deliver.

1) They forced the music industry's hand to drive down the cost of music. (Despite the idiot ranting of Jon Bon Jovi: http://news.cnet.com/8301-17852_3-20043351-71.html)

2) They removed DRM from music purchases

3) They make it INCREDIBLY, stupidly easy to purchase and acquire the content.

iTunes music tracks weren't always DRM free. And it is a perfect example of the fact that people are willing to part with their money if they value the product, if you don't screw them over, and if you make it really easy to get.

Mind you, I'm not saying that one must remove DRM completely, but if you ARE going to implement DRM, it must be absolutely and completely invisible to the people who ARE paying for your product. Apple certainly still does have a lot of DRM, but to the average Apple user, they are completely oblivious to it because every use case they have for the content, is satisfied.

The cost of Apps, music are far lower than they were in the past.

And getting what you want is as simple as searching iTunes and downloading. Instant gratification. No need to walk to the nearest store.

So how does one make money in gaming? To be honest, there are a LOT of viable options.

Going retail is only for the big publishers, and I believe that this is a shrinking segment of the industry (in terms of market share of $'s spent on gaming). To be honest, I was surprised that the 3DS sold so well (in Japan) but it remains to be seen how well software will fare. (And how well it will do in the States) Kinect is having similar problems. It sold over 10 million units, but the software isn't moving. Rather, I should say, the full retail software isn't moving.

But, as is normal for the retail model, there will be a few players that pull in the majority of the money in the segment.

There is the give-for-free but use Ads method. This is employed to great effect in the mobile space. I don't care for ads myself, and will always pay to remove them, when given the option, but a lot of people are completely and utterly against paying for apps in online stores. Ask everyone you know who has an android or iphone how many apps they've bought. Unless they are in the industry, most will be zero.

But developers spent countless hours, and, quite frankly deserve to be paid for their work, especially if you're enjoying it. If you want to use something for free, expect Ads.

Rovio (Angry Birds) has shown that it is entirely possible to make a KILLING with Ads. $1Million a month from the android version of Angry Birds from Ads. That frankly blows my mind. I'm curious to see how they price the amazon-app-store exclusive version of their next game.

There is the pay-by-month subscription model, which, for all intents and purposes, has only worked for one game: World of Warcraft. (Ok, there are a few other successful MMOs, but... seriously.. c'mon now) Good luck with that model. It can work, but I don't see many small players being too successful. EVE, I loved thee.

Finally, the one that I personally find the most exciting. The micro-transaction model. I think one of the premier examples is League of Legends. (Though I think they should start slapping Ads in the faces of everyone that isn't willing to pay a cent toward it, there are just too many freeloaders) Glu Games is doing some really interesting stuff in the mobile space with this as well. There are a lot of examples, and once Android fully supports micro transactions, this space is ripe for an explosion. We're really late to the party here, and I'm surprised that Korean companies aren't leading the way since they've been doing micro-transactions for easily the last 8 years.

The exciting parts about these is that the prices for entry are far lower (read:free) for users to get hooked.

How do you pirate free?

The funny thing is, that all of the piracy "problems" are very soon going to not be limited to the software industry. With all of these 3D printers appearing, and driving the cost of making goods down... even small trinkets and plastic figurines will suffer from this same "problem." And one can easily extrapolate this into the future with future nano-tech advances.

I find it exciting and refreshing, but the people who run large companies will HATE the loss of control.