TESO and the Subscription Fee --- An Unbiased Lesson in Econonmics

I've been a longtime fan of the Elder Scrolls series, so I've been following the chatter about the new MMO soon to be released in the Elder Scrolls universe.  It seems the majority of the talk is around cost of the game's subscription model, and the value provided for that price.  It's clear that there are very few people who are thinking about this in a rational way, so here is how this works, from an economist's unbiased perspective.

With a fixed price product, there is really only one relevant variable to consider with regard to willingness to pay: Perceived Value.  Everyone has different perceived value they place on this game, and a different willingness to pay for that value.  For any given person at a point in time, if the perceived value the game is greater than the price, that individual will buy the game.  If the perceived value is less than the price, they won't buy it.  It's that simple.

There is no universal measure of value.  The perceived value of an item is different for every single person, and depends on many different factors. In this case, these include how big of a gaming fan a person is, how much they like Elder Scrolls, how much they like MMOs, how excited a person is about the game based on what they've seen so far, how much time they are planning to put into it, whether their friends are playing it, etc.

The game was set at a $60 fixed price plus $15/month.  All negative comments by individuals thinking or discussing purchasing this game fall into one simple category of non-purchasers. Example comments I've seen over and over include:

"For what you get, it's not worth $15/month"   
"There are better [or equally good] games that cost less than $15/month"
"I can't afford a $15/month subscription fee"
"Skyrim had better graphics/gameplay and had no subscription fee"

It doesn't matter how it's justified.  Comparisons to other MMOs, single-player Elder Scrolls games, etc. are irrelevant.  However an individual frames it, they are all saying the same thing: The perceived value to him/her is less than the price.  Due to a unique mix of personal factors, they believe alternative uses of their money (and time) provide greater value than this game.  The opportunity cost is too high.  These people will not purchase until either the price or the perceived benefits of the game change.  End of story. On the other hand, all those individuals whose perceived value of the game is greater than the price will buy.

I keep hearing people say "This game will be free to play within a year."  The bottom line is this: The game company has set their pricing based on their one and only objective: return on investment.  They have priced the game with the goal of maximizing total profit over the entire life of the game.  The market will dictate what decisions the company makes with regard to pricing.

People will vote with their dollars, over time, whether or not the price as set is profit-maximizing for the publisher.  To keep with this singular goal, they may keep the price the same, or they may decrease the price over time to incent those individuals with lower willingness to pay (ie. lower perceived value) to buy and play the game.  Note that a decrease in price also may alienate/upset those loyal individuals who had been paying the higher price, which could counteract the influx of new players to some extent.  Increased number of players also increases costs to some extent due to servers/support/administrative, which is also important to keep in mind.

So, the game might be $15/month forever.  It may end up as $5/month.  It might go free to play.  The publisher will decide based on what they feel maximizes total future profits.  If you feel you understand economics and this industry so well that you can predict what this will be, you are free to conjecture.  I can assure you that the publisher understands these forces at least as well as you do, and has plans to act accordingly (or no plans to change at all) based on their own market research and projections.

To give a more extreme example of this entire topic, take Ferrari exotic cars.  I like Ferraris. They're fast, fun, make me look/feel good, etc.  These are the benefits they provide.  Assuming I have or can acquire the money to buy one, should I?  To the vast majority of us, the $250,000+ could be better spend elsewhere, despite the fact that most of us would love to have one for free (or for the price of a regular car).  To us, the perceived value is less than the price.  However, there are some individuals out there such that the perceived value is greater than any alternative use of that $250,000.  These are the individuals who buy Ferraris.  Are they wealthier than most people on average?  Absolutely.  But there are extraordinarily wealthy people who never buy expensive cars, and some ordinary-income people who do.  I won't take sides about what's "right" or "wrong" because it's irrelevant.  It's all about perceived value, which dictates someone's willingness to pay for a product.

Whether you see TESO as a Ferrari of video games or just a Hyundai with a Ferrari price tag, it's your opinion based on your own perceptions.  You're free to keep discussing your thoughts, but know that those of us who understand economics better think your comments are lacking in perspective.  Whether you buy the game or not is your own business based on the value you place on the game.  Whether you eventually buy/play it in the future, given a change in price or value proposition, is also your business.  You are unique, and the entire landscape of both those with similar opinions and vastly different ones will dictate the success of the game and the publisher's attempt to improve upon that success (or lack thereof) via changes in price or features.  I don't see people storming Ferrari forums complaining the price is too high, that what you get for $250,000 isn't worth the price, or that they'd buy it if it had X/Y/Z.  We all have our own financial situations and willingness to pay for a product/service, and we all place different value on a given product/service.

I wont' tell people not to comment on this topic, but I do hope you'll keep this in mind as you do.

How not to treat your customers (Dell, I'm talking about you)

I tend to buy more stuff online than at brick-and-mortar retailers, but either way I rarely complain about the experience--and certainly never publicly. Well, this week I was pushed completely over-the-edge in what I'd say is undoubtedly the grossest example of customer neglect I've ever had the misfortune of experiencing.

I've been waiting for a good laptop deal to come up for several weeks now, and this week, Dell had a Inspiron 14z bundle that caught my eye for a very good price. Sleek design, Core i5-2430M processor, and it comes with a camera or gift card too to sweeten the deal. I've been a loyal Dell customer for more than ten years, so it seemed like a no-brainier. To make the deal even sweeter, I bought a $400 Dell gift card just before buying, receiving a promotional $75 Dell gift card along with it, and applied them to my laptop order. Over 100 people on the SlickDeals forums seem to have done the exact same thing without a hitch.

I made the order via phone on Monday at 1:00PM. I normally buy over the web, but applying the gift cards necessitated chatting. After the very cordial Dell representative could not complete the order via chat, I was called by the phone salesperson and completed the order that way.

Over the phone, I was able to select my exact system, apply the gift cards, apply a coupon code, and confirmed the configuration in my cart (which they remotely updated). I confirmed the specs (i5-2430M processor, $125 Amex gift card for the bundle, etc). Everything looked perfect. It took about one hour start-to-finish, but it wasn't so terrible. I was told I would get an e-mail with the configuration, which I had 2 hours to approve over the web to finalize the order.

I hung up the phone at 2:00, satisfied that I'd finally be getting my new laptop. Five minutes later, I get an e-mail. It is not the "approval" email I was told I'd get, but just a receipt with what I had ordered. The configuration was completely wrong. It had a cheaper Core i3 processor, different software, and the gift card was not included in the order. Overall, it was a much cheaper and slower system, and I would not receive the bonus gift card that was a part of the deal.

I called Dell immediately. I was passed around to five different foreign customer care representatives, most of which I couldn't understand what they were saying. I was disconnected 3 times, placed on hold for more than a half hour total, and was told several times to hang up and redial the same number I had been calling the entire time in order to reach the "right department."

After more than 90 minutes of this absurdity (it's 3:30 now), the sixth customer care rep told me "It appears your order has just shipped. All we can do at this point is have the package intercepted, re-routed back to Dell, and charge for a restocking fee. Your money will be refunded in 10-15 business days once we receive it, less the fee, if the package gets safely back to us."

Wait, what? I placed the under two hours ago. I've been on the phone the entire time with Dell reps since the order. I never even had a chance to approve what I was getting in writing. Dell mixed up my order, and is basically going to tie up my money, stick me with gift cards I don't want, and charge me for their incompetence. I can't re-order because the balance of the gift cards are tied up with them, so this same deal will be long gone by the time they are restored. Even worse, by that time the Holiday season will be all-but-over, which precludes me from buying any new Dell.

It took Dell a mere two hours to take my order, screw it up, and ship me the wrong machine without giving me anyone to talk to who could change it...but it will take them 15 business days (3 weeks) to get my money back? And I'll incur fees for this?

I spoke with several managers, and some actually understood my situatuion, but said that they have to follow system protocol even if it seems unfair. I've never had Dell ship an order to me in less than 2 weeks after 10 years of being a customer.

I honestly couldn't believe what had just transpired. You'd think they'd want to help correct this, especially since it was their error. This is when a company is supposed to realize they made a mistake, and work with the customer to find a palatable solution.

I've lost all faith in Dell. I'll be stuck with $475 in Dell gift cards, but honestly, I don't ever want another Dell computer after this experience. Perhaps I'll gift the cards to someone I dislike for the holidays, and let them suffer through this.

New Posts Coming Soon

I have resolved to begin posting here again, after nearly two long years of silence. If anyone still has my blog in their RSS feeds, I apologize for this contentless post.

Barack Obama: A Vote for Hope

The American people have spoken. They have spoken for change—and change is exactly what they’ll get—for better or for worse.

The funny thing about change, is that everyone seems to always emphatically seek it. Our lives are not perfect. In fact, we seem to be unhappy far more than we would like. The idea of the ‘American Dream,’ whereby our greatest desires are fulfilled through the sweat of our brows, is all too distant from the average American. We seek change, because along with change comes the hope that our lives can be better tomorrow than they are today; hope that our dreams may eventually be realized.

It is for this reason alone that we cannot be surprised about the outcome of tonight’s election. It should also come as no surprise, then, that in four years—or perhaps eight if all goes well—there will be another republican in the White House.

And so I lay here in bed this evening, unable to sleep, as the college students of Cornell University parade in the streets of Collegetown, chanting for the change they have so passionately sought. Cars continually drive by, beeping their horns over and over, as exuberant college students repeat the name they believe will be the catalyst toward a brighter future. Despite my annoyance with the noise, I find the cheerful air satisfying and heart-warming.

But as I lay here, at 1:30AM, I can’t help but wonder whether their exuberance is borne of the impending policy changes, or merely of hope. I would venture to guess that such celebrations are not unique to Cornell’s College Avenue, and that they are occurring the world over. If the prospect of change indeed brings hope, and hope leads people to believe in a brighter tomorrow, then the self-fulfilling prophecy will be served. Obama may not have to change a single policy or pass a single statute to restore the economic and social welfare of our nation. His very presence in the White House, as a symbol of change, will in fact lead our country to a better future. Perhaps this cycle of change isn’t so bad after all.

Some Insight into Human Risk-Aversion

“We organics are driven by emotion instead of logic. It is our fatal flaw.” –Saren Arterius, Mass Effect

Why is it that so few young people are willing to assume the risk of starting their own business? There are several factors I believe contribute to this, which I plan to discuss in a later post. First, I’d like to explore a single over-arching theory that strikes at the heart of human risk-aversion.

Humans are unique among organic beings because we have the ability to plan for the distant future. Many mammals can plan for cyclical events, such as the way squirrels gather food for winter. However, there is no evidence that any non-human species, including primates, can use cognitive reasoning (rather than instinct) to make meaningful long-term plans. Humans can imagine themselves in 5, 10, or even 30 years into the future, and these long-term goals influence our decisions in the present.

It would seem reasonable that our ability to understand how our decisions affect our long-term goals would lead to better decision-making. However, it seems to be quite the opposite. The reason for this, I believe, is that human decision-making is more often ruled by emotion rather than logic. Furthermore, the fear of pain weighs more heavily on us than the prospect of happiness.

To illustrate, lets delve into a few examples. Are college students motivated to study hard for tests by the prospect of satisfaction for receiving a high score? Or do they study to prevent a bad grade that could jeopardize their chances of getting a job or getting into graduate school? Do most adults go to work every day for self-satisfaction and financial independence? Or do they do so because if they don’t, they can’t pay their rent, feed their kids, or live a life they’ve become accustomed to? Why do we try to eat healthfully? Brush our teeth every morning? Dress the way we do? The point here, is that there are two ways of looking at the same scenario—in the proverbial glass empty, glass full sort of way. One side cannot exist without the other. But which side drives our actions? Pain is a far more powerful emotion than happiness, and thus rules our decision-making most of the time.

But why does this lead to bad decision-making? Our ability to plan and imagine the future leads us to imagine painful scenarios we wish to avoid. This in turn, shapes our decisions to avoid these scenarios, even at the cost of potentially greater future benefit. This also leads us to usually take the safer route instead of the path less-travelled, as appealing as the latter may seem, because the unknown holds the possibility of pain. We will take the steady job, even if it’s more mundane and offers virtually no upside. We will not ask that girl/boy we like out on a date because the fear or rejection outweighs the benefits of success.

I am not advocating that people stop studying, working, and brushing their teeth, by any means. However, we must be aware that our tendency to avoid pain forces us to miss out on some great opportunities. We go through life avoiding miserable scenarios in hopes that our ultimate goals will somehow achieve themselves. Sometimes, we have to assume the risk of pain in order to reap greater benefits later on.

Facebook Joins The DataPortability Workgroup?

I haven't posted in quite some time. Despite my distaste for beacon and Facebook's current direction, I've remained silent. However, amongst the plethora of tech news pouring out of CES, one small snippet piqued my interest in particular.

According to TechCrunch, Facebook has agreed to join the DataPortability Workgroup, along with Plaxo and Google. What? Data Portability? Facebook wants to play nice with everyone all of a sudden? Is this the same Facebook that chastised Plaxo and vaporized Scobleizer?

The extent to which this news is significant is not yet clear. However, this announcement represents a huge leap in the direction toward openness; a direction Facebook has been only inching towards until recently.

Facebook understands that openness is the future. In the long-term, applications that fail to integrate with the constantly evolving and growing social landscape will ultimately fail themselves. Furthermore, any new application will be fighting a steep uphill battle, should its founders choose a proprietary route, as Facebook did.

But does this mean that Facebook's desire for interoperability is good for its longevity? Absolutely not.

You see, Facebook was able to create an immense user-base, despite its proprietary nature. They got through the hard part. Now that they have all these users on their proprietary platform, they're going to open up their borders and allow them to trickle out? If Facebook makes it easy to migrate data to other platforms, switching costs will be so negligible that a mass-exodus would be possible.

I understand where Facebook is coming from. They want to grow and expand. But I'm of the opinion that Facebook is slowly dying anyway, and that allowing data migration only expedites the inevitable.

When you blow air into a balloon, you have to to close off the end to keep the air inside. Facebook is planning to open up the end of their balloon, in hopes that more air will flow in. Is this making any sense to anyone else?

If Facebook continues along this path, its doom will come earlier than I had anticipated. Can Facebook beat Google at its own game? Will it be able to fend off the host of quickly innovating startups biting at specific demographics within its user-base? Time will tell.

Facebook: Why Applications Suck

When Facebook opened its API to developers in May, programmers scrambled to grab a piece of the Facebook glory. Now, nearly six months later, more than 6,500 applications adorn users' profiles. They span every conceivable interest and personality type, and yet, they have one striking thing in common: They all suck.

One might wonder why this is the case. Surely, at least a handful of developers would create truly innovative and useful applications, right? Nope. In fact, the way the system is set up discourages intelligent and talented developers. The reasoning for this can be summed up with a simple table:

		Create Popular App	Create Unpopular App
	Innovative Idea	You gain a ton of users, and enjoy the glory for a while; that is, until facebook replicates your idea exactly and pushes for it. Now you have to deal with the granddaddy of applications on their turf. Good luck.	Great idea that just isn’t catching on? Don’t worry. The facebook team, or popular facebook developers, will gladly dumb down your great ideas and incorporate them into their silly existing applications.
	Truly Idiotic Idea	This is where the majority of popular facebook apps exist; virtual object tossing, drink passing, and vampirism. If this is your cup of tea, facebook development is for you.	If you’re idea is so ridiculous that even the 14-year old high-schoolers can’t enjoy it, you might want to consider another profession; like flipping burgers. Maybe virtual burgers.

In sum, the only applications that survive are the ones in the lower left quadrant. This reasoning developers go through ensures that useful applications never really make it onto facebook, and explains why the present applications are so ridiculous. If you have a great idea, you're better off trying to swing it on your own. Sure, users won't flock to your application the day you release it, but at least it won't get stolen or swallowed up by others in a position to do so. After all, what's stopping them?

Furthermore, the proprietary code you're forced to use makes it impossible to develop the application for other platforms. So much for every social network following in Facebook's footsteps; you'll still have to write your applications over and over again. Perhaps Google will change all of that soon enough.

Effects of Ridiculous Applications

The poor quality of the applications leads to decreased usefulness of the service, due primarily to excessive decentralization. But, decentralization and customization are good things, right? To an extent, yes. But why, then, do people often prefer Facebook to MySpace? Consider this example that illustrates a drawback of decentralization.

A while ago, Facebook removed the ability to list one's classes on his/her profile. I suppose the Facebook team had no choice, since expanding the user-base to high schoolers and graduates makes such a thing impossible to maintain. Well, no big deal - you can just add one of a dozen or so applications that lists your classes, right? Not quite. Adding one of these applications only links you with other students in your classes who use the same application you use; essentially, nobody. The result? A previously useful feature that will never again function the way it used to. Good luck finding study partners or searching for peers based on what classes they take!

Furthermore, the applications alienate Facebook's core (and most valuable) users. The heaviest application users are the high-school students, whose fickle hearts and fleeting desires change at the slightest whim. Is this the basket you want to put your eggs in, Facebook team? As soon as they find something more fun, they'll jump ship and forget Facebook ever existed.

The valuable, more mature users are more often than not annoyed by the applications. They remember the days of universality; where everyone's page looked the same. Every profile was neat and clean. They knew where to find things on one's page, and everything was useful and universally connected.

Now, they have to scroll for ten seconds just to see a friend's wall posts. Certain core aspects of the service, like contact information, are either minimized or hidden altogether. They also get bombarded with requests for application additions, as if event and group requests weren't annoying enough! Now, my little (14-year old) sister's high-school friends not only ask to be my friend, but ask me to join in on their stupid little application games. Sure, a simple greasemonkey hack can fix this, but most people think greasemonkey refers to a place where you take your car to get an oil change! The vast majority of users are left to bear the annoying reminders (and sometimes e-mails).

Perhaps things will improve with time, though I wouldn't be surprised to see more news regarding traffic drops in the coming months.