My name is Tera Nguyen. I am a Producer, passionate in using spatial computing technologies to enable new forms of entertainment, education, productivity, and social interaction. In Jan 2019, I started writing this blog series that aimed at helping indie developers price and market their VR games as well as setting the right expectations for consumers on upcoming VR content.
How to price a VR game
Pricing a VR game relies on 2 important factors:
- The potential market size.
- The maximum price players are willing to pay.
Let’s discuss our first factor, the potential market size.
Because the potential market size for a VR game is dependent upon the number of people who own and are interested in purchasing a VR headset, I used the “Technology Adoption Life Cycle” model for high-tech products by Geoffrey A. Moore as a reference to understand the adoption life cycle for Virtual Reality.
According to Geoffrey, the divisions of the bell curve above demonstrate 5 groups of audience with unique psychographic profile when adopting technological innovations. Understanding each profile and its relationship to its neighbors provides a critical foundation for high-tech marketing overall.
Using this bell curve for the audience of Virtual Reality, we have:
- Innovators are the technology enthusiasts who live and breath technology, and often pursuing it before it is launched. We can think of video game and VR veterans as the innovators.
- Early Adopters are the optimists (in this case, hardcore gamers) who are driven by the vision and promises of VR games, and want to be ahead of the competition by experiencing the games early on and/or receiving lower product costs. These are the ones who own at least one PCVR headset and are willing to pay premium price for a well-designed VR experience.
- Early Majority are the pragmatists (can include both hardcore & casual gamers), who are interested in VR but hesitate to spend more than $1,000 on a headset and a compatible gaming computer. These are the ones who are more practical with their money, and their purchases largely depend on reasonable pricing.
- Late Majority are the conservatives who have the same concerns with the Early Majority but wait until VR becomes mainstream. However, unlike the Early Majority, they are not comfortable with handling new technology and high barriers-to-entry.
- Laggards are the skeptics who have no interest in VR and will only experience it when the headset is packaged with another product.
The bell curve above shows us that two-thirds of the whole adoption’s life cycle belong to the “Early Majority” and “Late Majority” segments. Winning these 2 groups will be crucial to the game’s growth and profit.
Above, you can see that I’ve left a big gap between the Early Adopters and the Early Majority. This big gap shows 2 core barriers for the Early Majority crowd to adopt VR: price sensitivity and setup restrictions (whether that is a powerful computer or a large enough space).
However, we are at an exciting time for the history of VR! Facebook is releasing the standalone headset Oculus Quest with a unit price of $399 (a $200 drop from the Rift’s launch price). The Quest will have a greater chance of winning over the Early Majority crowd than the Rift and other PCVR headsets. This is not to say that the Quest is a direct competitor with the Rift or future PCVR headsets. There will be a market for extremely high-end graphics with PC-powered VR experiences, whereas the Quest will be positioned as an additional gaming device for hardcore gamers. This is similar to how the Nintendo Switch is positioned as an additional console rather than a competitor of the Xbox or PlayStation. Furthermore, if the Quest is simple to set up, it can make a smooth transition into the Late Majority group, who is not as competent with technology as the Early Majority. As a result of the Quest’s release, the market size for VR games will grow significantly.
That leads us to our second factor, the maximum price players are willing to pay for a VR game.
When the VR market size grows large, it typically enables a potentially large total unit sales for VR games, which allows developers and publishers to lower their game’s price. However, low pricing isn’t necessarily going to sell it better (as we have learned from part 2 of this study). The current market is filled with over 3,000 VR titles on Steam, the Oculus store, and the PSVR store, but less than 3% of the games are considered as “must-play” for VR. As price has been one of the indicators of high-quality games, I believe the Early Majority are those who are willing to spend money on a novel VR game/experience, similar to the Early Adopters.
There are multiple pricing strategies that can be used for a VR game.
Strategy 1: Price premium, and have sales often throughout the game’s lifecycle.
(a) Maximizes revenue at launch from early adopters.
(b) Sends a premium “quality signal” that sets player expectations high.
(a) Damages the game’s value and early adopters’ trust because they could have waited to get the game for less.
(b) Expectations regarding game-length-per-dollar may lead to negative reviews, which lowers the aggregate score.
Note: Keep in mind that Steam has discount sales throughout the year, with the biggest sales happen in winter and summer. In fact, 27 top-selling games on Steam had at least a 50% discount during the Lunar New Year sale. Therefore, price your title wisely because it can only decrease after launch.
Strategy 2: Price fair, and have little to no discounts.
(a) Earns trust from early adopters and maintains a consistent game value.
(b) High reviews thanks to a match between price and player perceived value.
(a) Miss out on additional revenue from early adopters.
(b) Small customer base throughout the game’s life cycle.
Strategy 3: Bargain price with downloadable content/ microtransactions.
(a) Positive reviews on player perceived value.
(b) Potentially long-term relationships with players.
(a) Sends “low-quality” signal for a VR title.
(b) Misses out on additional revenue from early adopters.
Strategy 4: Early Access
(a) Get reviews from the market early before developing the full game.
(b) Large invested community early in development that can help promote the game at launch.
(c) Incentivizes early purchases, as players know waiting means paying more.(d) Get money during development process.
(a) Cannibalizes full price launch sales.
(b) Lowers long-term review scores if final version does not deliver its promises during early access.
(c ) Lowers long-term review scores if the game stays in Early Access for too long.
Let’s first take a look at how video games are priced over time on different distribution channels. As we move toward the end of a game’s life cycle, its price tends to decrease in order to be more appealing to the Laggards. I used Broken Age’s price chart on SteamDB as an example to show the price trend’s downward slope. Since Steam often has short periods of sales, we can focus on the big picture and disregard the multiple price drops on the chart.
After successfully raising $3M on Kickstarter to develop an adventure game “Broken Age” in 2012, Double Fine Productions launched the full game on Steam for $24.99 in 2015. The game has gone through a steady drop of price over the years and can now be purchased on both Steam and Humble Bundle for $14.99.
Now let’s adopt that price trend to the life cycle of Virtual Reality games.
Depending on where the game is in its life cycle, coupled with the transition from tethered headsets to standalone headsets, you can choose a suitable distribution channel to maximize your total revenue.
Distribution Channel 1: Headset stores with original unit price.
Pro: Maximizes revenue at launch from early adopters.
Con: Smaller customer base unless goes on sales.
When to use: at the beginning of a game’s life cycle.
Distribution Channel 2: “Games-as-a-service” subscription model.
Pro: Larger customer base because of its low barrier of entry (works best when the Late Majority crowd owns a VR headset).
Con: Miss out on additional revenue from early adopters.
When to use:
a. online multiplayer games, or
b. when the game makes the most revenue from downloadable content, or
c. the game is not as profitable as its beginning stage.
Note: Viveport, a Netflix-for-games store, is recently launched through which players can have access to a library of VR games with a subscription fee of $9 a month. Many top-selling indie and AAA-quality titles are not (yet) on Viveport. I believe the reason is because these games can still earn more revenue with the Early Majority crowd who might soon be purchasing the standalone headsets such as the Quest.
Distribution Channel 3: Humble Bundle.
a. Maximize the last revenue stream from the skeptics’ hands.
b. Positive perception of the studio since Humble Bundle is a service that supports charities.
c. Receive last spike of support for game devs working on the sequels or DLC
Con: The game isn’t getting much revenue at this stage.
When to use: at the end of its life cycle.
What are developers and publishers of top-selling titles on Steam currently doing?
Among 94 top-selling titles based on gross revenue on Steam, 50% of titles launched with regular pricing, with an average unit price of $26.37.
We see that half of the market is using regular pricing strategies and the other half is using early-access strategy. This means one of two things:
- The choice is very title-specific, and there’s no general wisdom on whether early access or regular pricing is the better option, or
- We need to look more closely at the sales data over time in order to figure out if one of these two methods is growing faster than the other.
- The adoption life cycle of Virtual Reality technology can be divided into 5 groups of audience with unique psychographics profiles: The Innovators, the Early Adopters, the Early Majority, the Late Majority, and the Laggards.
- Winning the Early Majority and Late Majority groups will be crucial to the game’s growth and profit. That win depends on the number of people who will be owning a VR headset in the near future.
- The total addressable market for VR games will grow significantly when the Oculus Quest and other standalone headsets are released in Spring 2019. Genre interests will also expand as an easier entry to VR.
- Oculus Quest will introduce non-gamers into the market, who are interested in VR and will be willing to spend premium price on “must-play” VR experiences.
- Depending on where the game is at during its life cycle, developers can choose a suitable pricing strategy and distribution channel(s) to maximize their total revenue.
- Subscription models are suitable for games that need a large customer base early one (e.g: online multiplayer games), games that make money from downloadable content, small and experimental projects, or when the game is not as profitable as its beginning stage.
- Many top-selling indie or AAA-quality games on Steam are not yet on Viveport because they can capitalize more revenue with future VR standalone headset owners.