The online gaming industry. The relationship between pricing mechanisms used by game developers and the online gaming communities. What is the impact of DLCs (downloadable content) and micro- transactions on the community and what are the factors influencing the player's willingness to pay?
Name: Bogdan Berbece Student ID: 10824421 Date: Final version, 29th June, 2015 Program: MSc in Business Administration Track: Entrepreneurship and Innovation Institution: University of Amsterdam Supervisors: Dr. Roel Van der Voort and Dr. Tsvi Vinig
KEYWORDS: micro-transactions, DLCs, free-to-play, subscription, packaged games, willingness to pay, lock-in, competition, interaction, virtual goods, eSports, flow state, platforms, addiction, business model
1
Statement of originality This document is written by Student Bogdan Berbece who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
2
1. Foreword and acknowledgements This piece of research was written as part of the Business Administration Masters of Science program of the University of Amsterdam, specializing in Entrepreneurship and Innovation at the Faculty of Economics and Business Studies (FEB). The topic of the thesis revolves around the relationship between online gaming platforms and game developers, and online gaming platforms and the gaming communities. The focus lies on the impact that DLCs (downloadable content) and micro-transactions could potentially have on the game developers and the online gaming community. Besides its theoretical relevance, the paper also tries to provide practical information for the game developers, in order to help them make better informed decisions when thinking which approach to follow when choosing the best viable pricing strategy for their products and services.
Since I can remember, computer games have been part of my upbringing and have shaped my development throughout the years. Although the academic field of entrepreneurship and innovation came as a novelty to me during my studies in Amsterdam, being able to link a lifelong passion with my academic aspirations has helped me acquire vast knowledge on a topic that I love and that I believe is of great importance nowadays.
I would like to thank Dr. Roel Van der Voort, the leading supervisor of this piece of research for his constant involvement and guidance throughout the whole process. Furthermore, I would like to express my appreciation for Dr. Tsvi Vinig, the second reader of this research.
In addition, I would like to thank all the interview participants from the online gaming community (professional players, professional casters, team representatives and managers) that have spent their time and consideration throughout the interviews. Furthermore, I would like to express my gratitude to the 290 respondents to the online questionnaire which immensely helped the research.
Lastly, I would like to express my appreciation towards my friends and family, who have been alongside me, throughout the whole process of conceiving this research paper.
The ideas expressed in this thesis are those of the author, and do not automatically reflect the views and beliefs of the business organizations that are part of this phenomenon.
Amsterdam, 29th of June, 2015
Bogdan Berbece.
3
2. Abstract
The gaming industry has seen a fast changing environment during the past decade. This has put a great pressure on gaming developers to shift their business strategies from selling their products in a tangible form through retailers, through offering them in a digital format through their own, or separately developed gaming platforms. This shift has brought changes in the way companies engage with the platform operators and the gaming community as a whole. Nowadays, the community plays a crucial role in the development of the industry. Amateur and professional gamers have become the foremost important customers of game developers, and are shaping the way in which the products are offered to the market and the characteristics of these products. Companies need to adapt to this shifting tide and place a great emphasis on what the market desires, and how their products need to cater to the needs of the end users.
The research utilizes a mixed methods approach. Through semi-structured interviews with game casters, production managers, professional players and professional team managers that aimed to identify the characteristics of the games typology and the benefits and downfalls of free-to-play versus pay-to-play games, a conceptual model was established. Afterwards, the importance of characteristics such as satisfaction and willingness to pay were tested through surveys among several types of participants in the market.
The data collected through the semi-structured interviews gave a holistic approach to the gaming environment, but several limitations need to be considered based on the methodology followed. The surveys also provide an in-depth understanding of what people's expectations are in terms of pricing mechanisms used by game developers, but its scope may be limited and generalization might be hard to established due to the diversity and heterogeneous choice of participants.
We are positive that this piece of research does indeed help build on the existing online gaming literature, which, at this point in time is relatively scarce and divergent, and also provides valuable insight into this emerging and constantly changing field.
4
Contents 1. Foreword and acknowledgements...... 3 2. Abstract...... 4 3. Introduction and Research Questions...... 7 3.1 Theoretical relevance...... 9 3.2 Practical relevance...... 10 3.3 Thesis structure...... 11 4. Literature review...... 12 4.1 Communities...... 12 4.2 Culture...... 13 4.3 Addiction...... 15 4.4 Platforms...... 16 4.5 The business behind the games...... 18 4.6 Lock-in mechanisms...... 19 4.7 Virtual goods...... 21 5. Business models...... 21 5.1 Packaged game sales...... 22 5.2 Subscription based model...... 24 5.3 Free-to-play model...... 26 5.3.1 Virtual goods...... 28 6. Conceptual model...... 29 6.1 Propositions...... 30 7. Methodology...... 32 7.1 A mixed research approach...... 32 7.2 Semi-structured interviews...... 33 7.3 Online questionnaires...... 34 7.3.1 Measures...... 36 8. Results...... 38 8.1 Results of the interviews...... 38 8.1.1 General information...... 38 8.1.2 Business context...... 40 8.1.3 The community...... 42
5
8.1.4 Willingness to pay...... 44 8.2 Results of the survey...... 46 8.2.1 General information...... 46 8.2.2 Correlation analysis...... 49 8.2.3 Regression analysis...... 51 9. Discussion...... 53 9.1 Findings...... 53 9.2 Implications for game developers...... 55 9.3 Limitations...... 59 10. Conclusion...... 59 10.1 Theory versus empirical findings...... 60 10.2 Summary of empirical findings...... 63 10.3 Future directions...... 63 11. List of tables and figures...... 65 12. References...... 66 13. Appendices...... 74
6
3. Introduction and Research Questions
Rapid development in science and technology, intensive global competition, new and advanced methods in organizational structure and many other factors have emphasized the urgent need for organizations, whoever their business targets, to constantly innovate and be more entrepreneurial in order to survive and therefore prosper (Dess, Lumpkin and Mckee, 1999). Although a general trend, it strongly applies to the gaming industry and highlights the need for companies (game developers, platform providers, event organizers) to stay one step ahead and anticipate the trends that are changing this environment at a very fast pace.
As early as the 1990's, the phenomenon of computer gaming started to emerge through the introduction and development of dedicating gaming consoles such as Sony's Playstation, Sega's DreamCast and Nintendo's Super Nintendo. Through the appearance of these platforms, world known characters such as Sonic the Hedgehog or Super Mario Brothers started to emerge and shortly became embedded in the gaming culture worldwide. Despite the vast expansion of this phenomenon, little attention has been given to this phenomenon in the academic research area. Most of the research up to date has been focusing on the demographics of the individuals that decide to spend their leisure times in these fictional environments. Furthermore, most of the research has concentrated around the potential negative impacts that online and offline gaming may have on the upbringing of individuals (Griffiths and Davies, 2003). It has been argued that playing violent games may have a negative effect on the psychological development of youngsters (Griffiths, 1995). According to Griffiths and Davies, 2003, games have developed along two individual branches. Firstly they present an overview of standalone games. These types of games do not immerse the player into the online environment and therefore players do not seek to engage in a teaming behaviour. Secondly, there is the case of Massive Multiplayer Online Role-Playing Games (MMORPG) which offer the players a different experience. The world in which the characters that are brought to life are very sophisticated, detailed, and are constantly evolving, but have no final point. The nature of these types of games offers a three-dimensional environment populated with thousands of characters that interact with each other, and are able to perform an unlimited number of tasks. As an example, as early as 2002, Sony's Everquest game totalled a number of over 400,000 active players on its 44 servers that were running 24/7 (Sony Online, 2002).
As years past and technological and digital advancements have started to be more and more present in our daily lives, the gaming scene has undergone a shift in its offering. According to Electronic Art's (EA)
7
COO, Peter Moore (2014), just like the music industry's transition to the digital, the gaming industry must, before it is too late, embrace the 'creative destruction' as this is what consumer tastes and requirements are at the moment. Games are no longer a product that is being published and then discarded as an area of interest for the company, but are rapidly becoming a 'live operation' (Brightman, 2014). Companies now require highly diversified infrastructure with customer service and global billing. The industry has completely shifted in a way that gamers require global networks running live, and their games have to be available at all times. According to Brightman (2014), the change can also be noted in terms of marketing targets. He believes that gaming companies should focus more on the use of digital channels rather than traditional TV ads that used to work in the past. To further strengthen the argument that we are in the middle of a shift, according to Statt (2015), in 2014, half of EA's revenue came from selling games and add-ons through online platforms. The company's CFO Blake Jorgensen (2015) stated that the company is strongly supporting the idea of selling their products online and continues to shift its business model to more and more live services.
In this piece of research, we attempted to gain a deeper understanding regarding what has pushed gaming developers to adapt to this shift in preferences, looking at the types of offerings that are currently available in the market. Micro-transactions are the core of our analysis and therefore, through interviews conducted with business professionals of the field, we used an inductive approach to devise the conceptual model, and through the questionnaires we deductively tested the main characteristics that we thought were of great importance. The objectives of the thesis were therefore:
- to understand how the preferences in online gaming have shifted during the past years and how the gaming developers have responded in this regard - to analyze the pricing models and the lock-in mechanisms that these models subject their customers to - to recognize the importance of DLCs and micro-transactions and to understand the community's preferences in connection to these concepts
The main research question that we looked to answer was:
- What is the relationship in terms of business and pricing models between online game developers and the communities?
8
We divided the matter in subsequent questions:
- What is the impact of DLCs and micro-transactions on game developers and the community? - What is the community's perception on these types of pricing mechanisms and what are the characteristics that enable their success?
3.1 Theoretical relevance
According to Blackburn et al. (2011), online gaming is a multi-billion industry that is tapped by population on a world-wide level. Boyd (2004) argues that through online interaction, people meet and create linkages that enrich and add diversity to their lives, blow off steam, chat about matters of the world and thus make sense of the environment that impacts them. Interaction also comes from the steps that a player takes in order to further his existence in the game. he purpose is to achieve goals, with the help of operators that provide feedback. As stated by Crawford (1982), problem solving theory offers a framework that guides the players' actions and is based on the following three pillars: goals, operators and feedback. Goals are considered the targets that each individual sets for himself, based on its character's capabilities, the time that he or she can put into the game and the willingness to do it. The operator is simply the means that allows the individual to attain the goals. Finally, feedback is the response that the game provides based on the player's capability to interact with its operators.
Moving to a more macro level, every player is part of a community that will, to some extent, impact the gaming experience, and the way the developers decide to interfere within the game. With more than 304 million users of the internet in early 2002, and an average annual growth of 23%, the internet is considered to be not only the greatest invention of our generation, but its impact changed the direction of the world we live in (Plant, 2004). In 2014, figures showed that 59% of Americans play some type of
9 online games, either mobile, computer or console, and those numbers can only grow in the years to come (ESA, 2014). Development of online communities has been a highly debated topic in the literature. Several researchers (Plant (2004), Jensz and Martens (2005), Steinkuehler (2005), Becker, Chernihov, Shavitt and Zilberman (2012), Holstrom (2001)), have tried to exemplify how do these tight communities impact the livelihood of an individual. Also, their research has focused more on the social and behavioral aspect of being part of such communities and less on the financial incentives.
This research paper looks to fill in the gap concerning the potential impact that business models in the online gaming industry can have on the community's willingness to play and pay. It will closely analyze the contribution that DLCs and micro-transactions offer, and the community's preferences regarding these types of instruments. At the same time, the research focuses on the characteristics that these individuals possess and what traits may be correlated with the willingness to play a pay-to-play game, or purchase an in-game feature that enhances the gaming experience. It must also be noted that the research will be conducted mainly based on the games that are offered through online gaming platforms such as: Valve Corporation's Steam platform (Dota2, 10,861,987 active accounts (Blog.dota2.com, 2015)), Blizzard Entertainment's Battle.net platform (World of Warcraft, more than 10 million active subscribers (Grubb, 2015)) and Riot Games League of Legends game (27 million active users (PC Gamer, 2015)) due to the availability of the participants and their willingness to cooperate.
3.2 Practical relevance
Our work offers a current image of the online gaming market both from the perspective of the game developers and the community. It examines the impact of DLCs and micro-transactions on the customer's experience and on the strategic directions of the organizations. Its main purpose is to offer an understanding of how these instruments impact the gaming experience and what are the types of players that prefer or dislike this particular approach.
Through conducting semi-structured interviews, the broad state of the industry was examined. Participants were people actively engaged with the phenomenon and not amateur players that expect nothing more than just pleasure when engaging in this activity. They assessed the market in terms of its development during previous years, tendencies in people's preferences, lock-in mechanisms, and the impact of using DLCs and micro-transactions as a pricing strategy.
10
The questionnaire was designed to help us understand whether our propositions can be tested, and looked into player's preferences when choosing what games to play, their social status, their willingness to pay in order to reap the benefits of this experience, and overall their satisfaction levels.
The results of this exploratory study can be considered as a starting point for game developers and online gaming platform owners, as to better understand who their market is, what are their customers' preferences, how can they alter their offerings based on the feedback provided, and most importantly, should there be a change in their pricing models and strategies? These findings might also shed light on the levels of satisfaction that people who engage in this sort of activities can deduct, and also try to find plausible correlations between their social and economic status and their willingness to pay in order to continue to reap the benefits of these virtual worlds.
3.3 Thesis structure
To better understand the steps we have taken in this research, the structure is as follows: the third chapter offers a broad picture of the gaming industry: where it all started, how it developed, and what seem to be the trends moving forward. Also in this part of the thesis, the research questions will be introduced. The following chapter delves into analyzing the literature review and it will focus on aspects such as the transition that has taken place in the industry from the traditional way of selling games via retail stores, to offering them in a digital manner (this is the point where instruments such as DLCs and micro-transactions have been developed and have started to play a crucial role in how the organizations market their products). Secondly, it will look at online platforms that have facilitated the fast proliferation of games and will end with looking at what aspects of game related real money transactions have been research in the literature.
Moving forward, the choice of business models and pricing strategies that companies may use (Packaged game sales, Subscription models, Free-to-play models) will be discusses and also a link will try to be established between these models and lock-in mechanisms that are used to keep users engaged. Furthermore, the 7th chapter will present the mixed methodology approach that will help us answer our propositions. The following part is devoted to the results that have emerged from the analysis. The last part will focus on providing a synthesis of the findings in comparison with what the literature provides us, and afterwards, a conclusion will portray the potential implications of our study and show future directions of research on the topic.
11
4. Literature review: 4.1 Communities
A community, as explained by the Oxford dictionary, is a group of individuals that either live in the same area or have a characteristic, or several characteristics in common (Oxforddictionaries.com, 2015). The term has also been used with a technical connotation in academia (Bell and Newby, 1971) to explain social interaction between members, geographic characteristics and common bonding (Willie, 2000).
Online interaction and communities changed the way business is conducted nowadays, the role of any given individual at the workplace, and how the society functions as a whole (Plant. 2004). This was possible thanks to the deregulation of the internet that took place in 1995 (Plant, 2004).
For a traditional goods organization, online interaction required high degrees of adaptability and shifts in business models and strategies. Online interactions impact organizations' relationships both internally and externally. At the internal level, high degrees of computational skills and increased opportunities to network ensure a company can stay focused and adapt to change and at the same time remain competitive and efficient. Externally, these new channels of communication have facilitated a better relationship between businesses and their suppliers, customers, and in general the stakeholders that impact the organization (Plant, 2004).
Moving to the virtual world, Hagel and Armstrong's (1997) model divides the virtual space into four areas. Firstly, there are the communities of interest, which have an informative purpose for their audience. Secondly, communities of relationships that generally consist of forums where people can share and swap ideas. Furthermore, they talk about communities of fantasies, which are online, virtual worlds where people can communicate, interact via virtual characters, compete, evolve, and at the same time gain satisfaction and pleasure through their actions. Finally, the fourth area is tightly connected to transactions, and these mainly involve B2B and B2C communities. Our research identifies itself with the third category mentioned above.
There are several reasons behind what pushes people to engage with these virtual environments. Bekhtina (2002) argues that motivation to join these worlds mainly comes from four characteristics: firstly, curiosity and interest play an important role when deciding a player's course of action. Secondly, cognitive stimulation, and feeling that the virtual world pushes your skills and capabilities further. Thirdly, enjoyment of a different life style, which comes from the online experience, but more recently from the potential of earning a constant revenue through these types of activities (Keng, 2014) and
12 finally, for its recreational aspect. Krotoski (2004) builds on this and argues that online games, especially massively multiplayer online role-playing games (MMORPGs) "encourage group interactions and involvement, flexibility and mastery" (Krotoski, 2004), that result in tight friendship bonds and personal empowerment. Seay et al. (2004) support these findings through their research, where they have found that 77% of the people they surveyed exchanged support and advice while being connected in these games, 77% engage in social exchange and small talk, 53% exchange personal experiences, and 69% of the respondents engage with fellow gamers outside of these virtual environments. Cole and Griffiths (2007), in their paper on social interactions in MMORPGs draw a comparison between the characteristics of the relationships people establish online versus offline. Their findings revealed that 45.6% of the persons questioned believed that their online friends are comparable with their real-life friends, although no gender differences could be established between the two groups. A small portion of the people questioned (4.8%) went further and argued that their online friends can be more trustworthy that their real-life friends, whereas 36.7% reported that online and offline friends can be equally trustworthy.
The proliferation of online communities came as a natural development in the human nature, however it must be noted that these types of communities are dynamic in nature and that research and organizations have the ability to recognize and classify them accordingly. It is an important aspect that facilitates organizations, or even individuals to acknowledge the role a certain type of community plays in the macro environment and at the same time the artifacts that come along with these communities in order to make them effective (Plant, 2004).
4.2 Culture
When talking about culture, the role of the state needs to be considered, and how studies of political economy and communication aided development (McChesney 1998; Mosco 1996). Vast literature on media productions (such as movies, games, music platforms) tackled the issues of the dynamics of the media industry, strictly from a corporate perspective (Caves 2000; Hawkins 2005; Jackel 2003). The corporations, regardless of their size and exposure, shaped the industries that focus on cultural content. According to Peichi (2008), a cultural industry needs to "form agglomerations among media companies" in order to establish thriving industry dynamics. Because there is a scarcity of discussion and analysis on the cultural industries in Asia (Peichi, 2008), the next part of the thesis will focus on this geographical
13 area, and will try to exemplify the mechanisms that the states use to ensure the proliferation of these cultural phenomena.
The South Korean online gaming phenomenon has had a fast growth rate and has become one of the most dynamic marketplace for these types of activities. According to Wi (2006), two policies have played a crucial role in the development of online games and their expansion to the broader audience: the broadband policy of the MIC (Ministry of Information and Communication) and the Special Military Exemption policy of the MCT (Ministry of Culture and Tourism). Due to the effects of these policies, as early as 2006, the Korean gaming industry's revenues were $550 million. The increase continued, and the exports of Korean games totaled $671 million, out of which, 89% of the total games exported were to be enjoyed online (Ministry of Culture and Tourism, 2007).
Turning to Singapore's online gaming market, the government's turn to culture and arts at the beginning of the 1990s, and the scholarships that it offered to individuals wanting to follow a career in this creative industry, has ensured the fast development of companies doing business in this particular sector (Peichi, 2004).However, the success that this phenomenon has had in this particular region should as well be attributed to several socio-cultural and economic factors. Singapore and Korean developers have been able to outperform their western counterparts including Electronic Arts (EA), Nintendo and Sony, due to the fast development in Information Technology infrastructure, subsequent distribution of high internet speed networks and the booming PC bangs (also referred to as internet cafes). The increased popularity of online gaming in this regions has been closely related to the explosion of information and communication technologies that have created the necessary conditions of communication and interaction. This is mainly due to the efforts of the national governments to deploy and adopt state of the art broadband infrastructure to homes in all parts of the countries (Jin and Chee, 2008).
Along the expansion of ICT infrastructure and capabilities, and the growth in numbers of people playing online games, concerns started to emerge to whether this type of activity would end up eclipsing other activities. Gamers from these regions have "repeatedly made the headlines with reports of their perceived level of pathological use of games" (Jin and Chee, 2008). The controversy materialized due to the potential of online games to disrupt the traditional social and cultural activities that people use to include in their daily activities and so, the discussion of addictiveness started to emerge (Jeon, 2004). Lee (2006) argues that it was at that point in time that people realized that gaming is not purely to be treated as a fun and relaxing activity, but has paved the way to new channels of communication, human relations, and has started to become an important part of people's lives.
14
4.3 Addiction With the increase of individuals who engage in Massively Multiplayer Online Role-Playing Games (MMORPGs), literature that focused on how addictive this phenomenon is, started to emerge. Games such as World of Warcraft and Lineage 2 have been at the forefront of this movement and have managed to captivate the attention of millions. More recently, games such as Dota2 or League of Legends, although not in the category of MMORPGs, started to catch ground and are now considered more than ever able to attract the online gaming masses.
It must be noted that most of the research conducted on this area tends to only highlight the negative aspects that may come with spending long hours within these virtual worlds (May, 1994; Griffiths and Hunt, 1998). However, more recently, studies have started to put more emphasis on the benefits that human interaction, the creation of strong bonds and a constant sense of belongingness may bring to players (Griffiths, 2003). Although the purpose of this thesis is not to look into the benefits or drawbacks of playing online games, the idea of "addiction" is strongly linked with the lock-in mechanisms that we will tackle later on in this research.
Chappel et al. (2006) found that in accordance with Griffiths et al. (2004) study, players find the social and cooperative nature of such games, coupled with the possibility to create new friendships both within and outside the virtual world is what drives people to continue playing these types of games. The level of addictiveness may also vary according to peoples' personalities and the sensations that they seek when engaging in these virtual worlds (Griffiths and Dancaster, 1995).
Through their research, Kuss, Louws and Wiers (2012) point out that the consequences of playing online games differ in individuals who play MMORPGs and those that choose some other form of online entertainment. Their study is in line with the literature that argues that MMORPG players are more likely to experience problems, due to the characteristics of these games. The feeling that the experience is never-ending, coupled with "variable reinforcement schedules" (Skinner, 1969) may pose a significant threat to players. In terms of addictive behavior, the National Research Council (1999) compares this type of effect to the online gambling experience. Turning back to the idea that different types of psychological profiles influences the effects that online games have on different individuals, Mehroof and Griffiths (2010) found significant relationships between addiction and traits of aggressive behavior, sensation seeking, anxiety and depression and neuroticism. Boredom and the clever designed reward mechanisms that are part of a character's journey in these virtual worlds, are triggers of the types of behaviors mentioned above (Mehroof and Griffiths, 2010). Ko et al. (2009) go further with the research
15 and find that the activities of 6 brain areas are directly correlated with the urge to play online games, when their subjects were shown pictures from their favorite gaming environments.
On the other side of the spectrum, David and Wiemer-Hastings (2005), although agree that MMORPG players do indeed spend more time connected to the games than other types of players, argue that spending time in these virtual worlds may simply be an alternative way of social entertainment. Their research shows that players do not look for self-confidence within the games, and there is no point of labeling them addicted or anti-social, as MMORPG players simply have a different perspective on social life.
4.4 Platforms
As ICT capabilities and the internet have started to be a pregnant part of our everyday livelihoods, the gaming industry had to adapt in this regard. In the past, and still to a very small degree today, game developers offered their products in a physical format through retail stores. Sensing the need to adapt to a changing business environment and to the community's demands, developers are now offering their products in an online downloadable format through these so called online gaming platforms. Valve's Steam platform, E.A's Origin platform or Blizzard's Battle.net platforms are just a few of these types of 'game libraries' that offer their customers an in depth gaming experience. It offers them the possibility to access all their favorite games from these integrated platforms, and at the same time keep up with future offerings or even engage and have a saying in how future products should look like.
For the purpose of the research, based on the game (Dota 2) that is going to be at the forefront of this paper, the paper will focus on Valve's Steam platform. Every player that subscribes to this platform has a personal page that can be accessed publicly, alongside a webpage from which he can access his games library (Becker et al. 2012). As it has become a community in a sense, users tend to connect with each other. Users that have a high number of connections are inclined to connect with other users that share the same characteristic. This feature is called assortativity as depicted in the work of Becker et al.(2012). In 2012, when Becker et al. (2012) conducted their research, the platform was comprised of 1824 active games. The following figure (Figure 2) shows the distribution of players based on the number of games available. The majority of the games have up to 10,000 active players, whereas only 26 games have more than a million users (which at that point in time was equivalent to 12.5% of all active accounts) (Becker et al. 2012).
16
Since 2012, things have only been on an ascending trend for Valve's Steam. In September 2014, the number of steam users has doubled compared to the same period two years before (Peel, 2015). According to Saed (2015), today, there are more than 125 million active Steam users, that engage in more than 4500 games, and generate over 400 million pieces of content for the community (items, groups, events). These impressive figures are also supported by the proliferation of the eSports phenomenon. eSports are computer games sporting events, where professional teams play against eachother, either at a LAN event or online from the comfort of their homes. As an example, the biggest LAN event in the history of eSports is Dota2's The International that started in 2011. The prize pool for that year totalled $1 million . Since then it has constantly grown. In 2012, the total prize pool was $1,6 million. One year afterwards, it almost doubled to $2.9 million. Until 2013, all the prize pools were from partner sponsorships and from Valve itself. In 2014, the community was involved through a croudfunding campaign that managed to raise $10 million (Peel, 2015). This year, through the same strategy, four months before the start of the tournament in August, $7.2 million have been raised (Dota2.prizetrac.kr, 2015). Although it may not be impressive when comparing eSports with traditional
17 sports, these figures heavily support the idea that online gaming has been increasing at great pace during the previous years.
4.5 The business behind the games
Now that we have seen the massive investments that are made in the online gaming industry, our focus will turn to the developer's business models and strategies that facilitate these kind of investments. Vast research has been done in this area and several researchers have focused on understanding the different types of revenue models that have been used to ensure the constant growth of this phenomenon.
Jackson (2007) argues that a couple of years back, creating a virtual world meant starting from scratch, which involved massive costs. Those days have however passed, and companies such as BigWorld Technologies, World Forge and Multiverse offer 'tool kits' that allow developers to craft their own virtual realities. This phenomenon emerged at the same time as the transition was made from retail sales of packaged products to offering them in a digital format. In his article, published by Forrester Research, Jackson (2007) points out that this transition has paved the way to hybrid business models such as subscription based models, micro-transactions, advertising and marketing and media franchises. However, his research also cautions that potential risks may arise when engaging in these types of revenue models. Firstly, high costs that result from constant maintenance of the platforms, addition of new content and keeping the community engaged may pose serious threats. Secondly, the levels of risk are considerably high. In this regard, retaining critical mass is essential. Also, when giving the players the opportunity to engage in real-money transactions, hacking may pose a real threat to the well-being of these worlds. Finally, there is the possibility of high churn rates. Players may retain their subscriptions for a limited number of years, but may decide to switch to newer and improved experiences, before the developers have had the chance to recoup their investments.
With this constant changing environment, just as Jackson (2007) pointed out, new and innovative revenue streams need to be thought of. Lee (2013), through his research, comes up with his own version and adds to previous literature by tapping into the free-to-play model. His research focuses on aspects such as virtual goods, freemium services and advertisement to advocate in favor of this model as becoming more and more prominent in the online gaming scene. His research also turns to electronic sports (eSports) which he believes heavily help the expansion of the gaming phenomenon through the
18 creation of new jobs (professional casters, professional players, statisticians) and also engaging the broader community through streaming and the promotion of events.
Chang (2009) advocates that the gaming scene has undergone a shift from gaming 1.0 to gaming 2.0. With this shift, hybrid revenue models have emerged, which can potentially revive traditional media industries. Gaming 1.0 refers to the traditional method of getting the games o the audience. Packaged products offered through retail stores, which implied high costs from developers and carried high levels of risk in terms of covering these costs. Gaming 2.0 on the other hand, brought frictionless, ubiquitous, social and service oriented games. Through platforms such as Facebook, Android and iOS, we have now entered the "Renaissance Era of Indie Gaming" (Chang, 2009). Frictionless distribution channels are of great importance as they facilitate the accessibility of content and the opportunity to try out new games without investing large amounts of money. Chang (2009) argues that in today's market, the 85/15/2 model applies. 85% of the people engaging in online gaming are only social gamers and prefer playing without engaging in micro-transactions. 10% to 15% only spend modest amounts of money to drive their gaming experience further, and only 1% to 3% spend large sums of money for premium content. Through these new business models, when talking about online gaming, researchers refer to them as 'Games-as-a-service'. This means that game developers need not only to come up with captivating content, but at the same time create an ongoing relationship with their audience (Chang, 2009). Furthermore, based on similar research, many aspects that we see nowadays coming to life in online gaming can be thought of as paving the way for other industries to transition to. Music, broadcasting, television, or even journalism have started shifting their focus from offering products to services, what has gotten to be known as 'Media-as-a-service' (Chang, 2009).
4.6 Lock-in mechanisms
Choi and Kim (2004) argue that people constantly engage with the same game over a long period of time due to their loyalty to a certain brand. In marketing research, loyalty is described as the repeated tendency of the customers to use a specific product or service, without having the urge to switch to substitute products or services (Kotler and Armstrong, 1989). Therefore, the higher the loyalty towards a certain brand, the more time an individual is willing to play that specific game. The research of Choi and Kim (2004), focused on the aspect of customer experience as the primary lock-in mechanism that developers use to keep the people engaged. Csikszentmihalyi and Csikszentmihalyi (1988) argue that during the playing time, individuals enter into a state of flow. This state means that the player is
19 interested in engaging with the game, curious about what it could offer him, and also maintains a state of focus without letting distractions come between him or her and the virtual world. According to flow theory, participants seek ways in which they can constantly maintain the state (Csikszentmihalyi, 1990).
As earlier discussed, interaction plays a crucial role when managing these environments. Game developers are constantly trying to come up with new ways to increase players' interaction (Leqinsky, 2000 and Gillespie, 1997). Interaction can be divided into two aspects: player to the system interaction and player-to-player interaction, and both need to be maintained at a high level to ensure a positive customer experience (Cummins, 2002). In order for player-to-player interaction to take place, developers need to provide communication channels and tools. Based on these characteristics and the traits depicted in Figure 2 , Choi and Kim (2004) use the following model to highlight the features that lead to customer loyalty and to the effect of lock-in.
Source: Choi and Kim (2004)
As stated by Pontzen (2008), the knowledge that an individual acquires during the play time of an online game (especially MMORPGs) and the system-related skills are incompatible with other games, which open the way to creating lock-in. Also, the existence of items and values that a character acquires while playing a certain game, and their un-transferable characteristics further increase the lock-in effect. Castranova (2005) argues that migrating to a different game also imposes high switching costs for an individual, loss of social status, reputation, and the progress in terms of knowledge gained which has to be re-acquired in the new world. Turning back to the interaction that these virtual worlds offer, lock-in also appears when 'fighting' for bind on pick-up items that require high degrees of collaboration between participants (Pontzen, 2008).
20
4.7 Virtual goods Virtual goods are features that can be purchased in-game by a player in order to further increase his or her satisfaction with the virtual world. Nojima's (2007) research focuses on virtual goods sales as revenue models for MMORPGs, in contrast to traditional means of offering games (subscription or packaged sales). Through conducting surveys, the research tries to understand what is the player's motivation to engage in such transactions, and what drives them to want to grasp more from a game than the standard offering. The framework used builds on Yee's (2005) research on motivation to play MMORPGs who found characteristics such as advancement in the game, competition, socializing, relationship building, teamwork, discovery and customization to be some of the key factors that drive people to play these types of games. Lehdonvirta (2005) goes a step forward and builds on Nojima's findings to try and understand what prompts people to purchase virtual goods with real money. The motivators that come from the research are hierarchical advancement, competitive advancement, keeping up with fellow players, the opportunity to explore new content that is not available to everyone, customization and finally self-expression. Oh and Ryu (2007) take a different approach in their research and look into the aspects that game developers need to consider when deciding whether or not to use virtual goods as their primary revenue model. Based on their findings, developers should try to strike a balance between the types of items that can be purchased with real money and the items that can be earned through game-play. They argue that there needs to be a constant synergy between the two, so players will not be swayed away from a game that they believe has unreasonable expectations. Furthermore, the goods that can be bought should be given permanently to users only if they do not offer an in-game advantage over other players that do not engaged in real money transactions. To conclude, a balance should always be in place in order to ensure that the economy of a virtual world is not destabilized by the purchases of virtual goods. Oh and Ryu (2007) ask for caution when devising a business strategy that focuses solely on real money transactions. They point out that cosmetic items that can be purchase have no negative effect on the economy of the virtual environment, but functional items that have the capability to alter player's experiences in the online world, may in the long run be damaging to the game creator if not properly implemented.
5. Business Models Micro-transactions are the core of this piece of research. Based on the description of the business models, and the literature review, the next stage of the paper will focus on better understanding the concept of micro-transactions in relation to the types of offerings that game
21 developers decide to employ. As Kromand (2015) argued, although the model of micro-transactions has been introduced both for single-player and multi-player games, their success has emerged in the latter type of offering. Peterson (2014) stated that in 2012, 75% of the people that were playing Activisions's Call of Duty never engaged in the single-player missions. He argues that multiplayer has really damaged the single-player experience. According to Christofer Sundberg, the creative director of Avalanche Studios, "Microtransactions, subscriptions and other biz models will be the next generation of games" (Davison, 2013). But what are micro-transactions? These type of revenue model has come into existence once the gaming industry shifted from offering their products through retail stores to offering them online. Through this change, game developers understood that their consumers no longer desire a single product, but an experience. They desire an environment that is not bounded by the finality of a game, but can offer them a constant experience, an opportunity to grow and to further develop their skills, online relationships, and feel that their game understanding is on an ascending path. The existence of this model was only possible with the introduction of subscription based and free-to-play gaming. Also, the proliferation of these types of tools started when online gaming, rather than offline gaming started to emerge. As developers are trying to offer an experience and keep their customers engaged, micro- transactions can come in different forms and shapes. They can be purely cosmetic, they can offer an edge in the game, open up new opportunities, increase one's impact and notoriety in the community and also give the player a sense of accomplishment. The views towards weather micro-transactions benefit the online gaming world or are slowly destroying it are very disperse, but their introduction has definitely changed the way we gamers see the business behind it.
5.1 Packaged game sales: As the gaming industry evolved, game developers have broadened their opportunities to extract revenues from their customers. At the moment, there are three business models that hold a monopoly in these virtual worlds: packaged game sales, subscription based and micro-transaction based games (National Research Council, 2010). Van Dreunen (2011) went further in his study of the US market and added the arcade as the starting point when discussing revenue models. The model behind arcade games was charging people a coin in order to play for a finite (relatively short) period of time. Although not large sums of money were invested by players in these types of games, the incumbent game developers benefited from high barriers to entry and large economies of scale (Van Dreunen, 2011). According to Play Meter (2011), the gross margins that these types of games managed to get in the past
22 have shrunk dramatically during the era of digitization and the internet. The average gross revenue over a period of one week for a single machine has gone down from $129 in 2005 to $69 in 2009.
Packaged game sales started as early as the 1980s when the Game Boy was introduced. It then evolved into games being sold on CD's that were compatible with a multitude of platforms such as Microsoft's Xbox, Sony's Play-station and personal computers. Out of the three models introduced above, it is the most traditional one, and the one that has been around for the longest period of time (Lee, 2013). The idea behind this type of offering is simple; the players pay the initial fee upfront and afterwards own the right of the content and obtain the service in perpetuity (Lee, 2013). In terms of what are the venues that distribute these products, retailers like Metro, Asda, Amazon, Cex are examples of outlets that besides other products sell video games as well. Normally, a retail demands around 20% of the price that an item is to be put up for sale. The following table summarized by Pachter (2009) depicts the margins of different types of software that are sold through retail shops.
Table 1: Sample Gross Margin Calculation Source: Pachter, 2009
23
In the packaged games model, the retailer has full control over its value chain as they are the ones interacting directly with the end user. This allows them to have vast influence on the overall allocation of revenues. A retailer may choose not to market products that are rated with violent, or mature content, if it decides it is not in line with the existent offering. Pachter (2009) argues that in the US, because of the high level of concentration in this part of the value chain - where companies such as GameStop, Wal-Mart, Target and Best Buy hold over 75% of the retail market share - game developers feel clustered by these giant organizations through which they need to sell their products. Another problem that arises is that retailers guide their businesses around organized inventory cycles, which may pose serious problems to developers who often have to commit to specific deadlines. This is strongly related with the retailer's strict rules in terms of in-store placement and the time allowed for a product to have a premium placement within the shop. Finally, retailers such as Cex or GameStop, also sell second-hand products. By doing this, they allow their customers to sell, trade or swap their games for a significantly lower price. The benefits for the retailer are obvious, as customers increase their loyalty towards a certain brand, increase their visits to those specific locations, or sway entirely from purchasing new products. On the other hand, game developers have nothing to gain from these transactions, or may even be at a loss if one of their products satisfies more than one user as was initially intended. According to Orland (2011), in 2010, 73% of the games produced were sold through retailers, but the number has constantly declined from the peak period in 2006 when it was 81%. Furthermore, the overall revenue for the industry in 2011 has dropped 5% for the same period, one year before (Orland, 2011). This helps to show that there is a high possibility that this particular model may become obsolete in the foreseeable future or at least not be in the position to compete with alternative business models.
5.2 Subscription based model
Since the buying habits of consumers are constantly shifting to more simple and hassle-free experiences, a large number of companies have shifted their focus to subscription based models (Longanecker, 2015). This transition has emerged alongside the idea of software-as-a-service (SaaS). When people decide to purchase a piece of software, irrespective of its purpose, they desire constant support, a worthwhile experience, and need to feel that in the eventuality that a problem occurs, there is always somebody they can turn to in order to seek help. Alongside the increasing proliferation of subscription based models, caution needs to be exerted. As an example, Blockbuster, the giant US based company, failed
24 to notice that a change was bound to happen, and that its consumers were in search of a different type of offering and therefore fell into the trap of inertia.
When deciding to follow this pricing mechanism, companies need to understand their price metrics. Price metrics measure the willingness of the customers to pay for a service, and the associated value that they perceive as fair for the amount of money invested. These types of metrics are a very powerful lever for products that are offered through a subscription because there are many metrics possible for a single kind of subscription business (Yamamoto and Sharma, 2015).
Charging consumers a monthly fee has become a viable monetization model for a variety of industries that are customer centric. The video game industry makes no exception, and in its desire to keep their customers engaged over long periods of time, the subscription based model was introduced. This phenomenon can be mostly observed in massive multiplayer online role-playing games (MMORPGs).
The first MMO, was launched in 1984 and was called Islands of Kesami. It required players to pay $12 per hour of game-play. In that same year, two students from the University of Essex released a commercial version of their multi-user dungeon game and Mark Jacobs founded a company that would later on be known as Mythic Entertainment, and released Aradath, the MMO that cost players $40 a month to play (Van Dreunen, 2011). Due to the success of this model, other companies started to follow which put pressure on existing prices. Quantum Link, the precursor of AOL began to charge $10 per hour for the graphic-based online platform that it owned. Shortly after, GE's Information Services division released a service called GEnie that cost $6 per hour. As the internet started to catch ground in the 1990s, these companies started to change their subscription models from charging their customers on an hourly basis to asking for monthly subscriptions. This has set a new standard for MMORPGs and the way their developers monetized their services (Van Dreunen, 2011). In 1997, Origin System's Ultima Online managed to total over 100,000 subscribers, charging each of them $10 a month. Shortly after, giants such as Sony and Microsoft released successful names such as EverQuest (1999) and Asheron's Call (1999) (Van Dreunen, 2011). In 2004, Blizzard Activision released their soon to be market leader World of Warcraft game which reached 500,000 active subscribers by the end of the year. By 2010, still as the market leader, the game totalled up more than 3 million active accounts in the US and brought a constant annual revenue of $500,000 (Van Dreunen, 2011). Seeing that there was a high potential for this model to disrupt the traditional packaged model, casual game companies started to play with the idea of introducing products that would require their customers to pay monthly fees. Companies such as Big Fish or PlayFirst began offering subscriptions to their clients in order to lock them in. With expenses
25 around $6 a month for their users, Big Fish managed to generate more than $120 million in revenues in 2010 (Chang, 2010).
For a time being, subscription based models were very popular due to them creating the constant and steady income for game developers to continue to produce new content. Slowly, tides have turned with the introduction of new gaming platforms and devices, which shifted people's gaming preferences. Platforms such as Valve's Steam, EA's Origin, or devices such as Apple's Iphone or the phones running on Android software and the lack of time that we all feel, have made people more conscientious about the time they can spend playing games. This has led developers to come up with new products that would only require a fraction of the time MMORPG's require, but offer the same level of satisfaction. With the release of these new products, new pricing models needed to be implemented as people would not have paid monthly subscriptions just to casually play a game during a lunch break. This is when the free- to-play model emerged.
5.3 Free-to-play model:
Due to the fierce competition in the gaming scene, most of the game developers and publishers have adopted or switched their focus to a free-to-play model in order to attract bigger masses of players. In addition, the constant increase in social-media games that are offered through social-media platforms has boosted the popularity of this type of offering as the developers look to increase their user pools and thus be able to charge incremental amounts of money for additional services. The popularity also stems from the fact that casual gamers are less willing to commit to paying monthly fees in order to play a game or even pay upfront for a service that they may or may not use in the foreseeable future.
The introduction of the free-to-play model has also been linked to the game designs that have recently emerged. For most of the games that are played online, the game design is highly dependent on the existence of other individuals with whom to play. Without having a competitive environment, players lose their interests for these virtual worlds. In MMORPGs for example, players can enjoy the benefits of the game when playing alone, but only in the initial stages of their character's evolution. In the later parts of the game, the activities can only be completed with groups of players that range between 5 to 100 (Debeauvals, 2012). As a consequence, developers need to be constantly looking to retain the players.
In free-to-play games, the revenue is generated through real-money transactions. This means that players buy in-game features with real money in order to further their gaming experience (Lee, 2013).
26
These items are called virtual goods, and can be of different sorts: functional items, access granting items, temporary abilities, or vanity items (Van Dreunen, 2011). The beauty behind this model lies on the fact that once such an item is created, it can be replicated 'ad infinitum' at virtually no additional cost. The production process of these virtual goods allows regular updates, changes in inventory and even special items during peak season. Another key benefit of this model is that the purchasing patterns are a lot less seasonal (Van Dreunen, 2010). In the packaged game model, a holiday season implies that computer games companies have to spend a lot of money on marketing campaigns and strategies in order to persuade their audience to spend money on their games. Having a relatively low average cost in comparison to packaged games, virtual items alleviate this dependence on the cyclicity of the season. As mentioned in the literature review, this model requires game developers and publishers to be more active in their engagement with the customers. Many of the developers that used to build packaged products find themselves with more work than they used to (up to sixty percent of the necessary resources) after the launch of the product (Van Dreunen, 2010). More time involved after the creation of the games means that companies need to reorganize their production schedules and the way they allocate their resources. Also, as the retailer has been taken out of the equation, the game producers need to play this role, thus having to deal with payment method preferences, distribution and also customer service (Van Dreunen, 2011). Opinions are dispersed when it comes to whether free-to-play models will make traditional subscription and packaged games models obsolete. According to Nintendo's US CEO Satoru Iwata, there is no either-or situation between free-to-play games and packaged games. There are specific games that are designed to be sold as packaged bundles, and certain games that would not work if offered in any different form than free-to-play. He also argues that due to consumers who still highly appreciate packaged games, there will be no complete transition to free-to- play games (Holt, 2015). On the other hand, Peterson (2014) suggests that free-to-play models should 'go away'. He argues that game developers that employ such a model need to have their products supported by advertisements and should follow Pandora's model. He also advocates that developers are 'just stupid' when offering their products for free, as they accept something less than what they deserve, and they should come up with better pricing strategies to offer their products.
Even if there is no black and white in terms of which model is better, free-to-play models that encapsulate micro-transactions and DLCs present several important benefits compared to traditional retail channels. Firstly, they decrease the traditional dependence on seasonality. Sales of virtual goods, are better distributed throughout the period of a year than retail sales. Secondly, they take out the dependency that developers have on the retailer's production schedules and distribution channels. This
27 in turn improves the margins of existing market leader publishers, and creates opportunities for small studios to work independently (Van Dreunen , 2009). Finally, as pointed out by Hamari (2009), having these flexible pricing mechanisms allows for "approaching perfect price discrimination" (Hamari, 2009).
5.3.1 Virtual goods
Up to this point, the research focused on explaining what micro-transactions and DLC's are, in order to better understand the concepts that are core to the purpose of this study. Micro-transactions can be described as portions of a game's content that are sold (in a low-cost form) in order to increase the attractiveness of a game, or the world in which the game is set (Statt, 2013). On the other hand, DLCs, also known as expansion packs, are features that are sold to players as bundles, that add new characteristics to a game: new worlds to explore, new opportunities and overall offer the player the chance to discover parts of the game that would be inaccessible without engaging in such transactions. This sub-chapter will look into what does an individual actually get when he purchases such new features, and the types of virtual goods that can be acquired through micro-transactions.
Although these types of pricing mechanisms have existed since the beginning of the internet, their proliferation started with the emergence of social and mobile app games. Virtual goods can be defined as the properties that the virtual worlds possess (Lee, 2013). Examples range from virtual currencies, tokens, items, or even characters (Lenhdonvirta, 2009). It must be noted that there are two types of channels when discussing virtual goods. Firstly, there is the channel that connects players within the game. An individual may decide to share an item with another player without engaging in any financial transaction. These types of trades are constantly monitored by game developers and admins, as some of these items may be protected by certain patent laws or trademark agreements. Due to these problems, developers believe that through free-to-play games these types of obstacles can be overcome. Offering the game for free, but allowing the players to decide whether or not a feature is worth paying for helps alleviate the problem of 'black market trading' which can, in extreme cases destabilize a game's environment. Secondly, there are virtual goods that are transacted between a game company and a player, which is only a one way channel from the developer to the customer. Although very prominent in free-to-play games, virtual goods have also been used to complement traditional subscription based games (Lee, 2013). Nojima (2007) argues that item-based pricing mechanisms is similar to price discrimination, where each player pays to their value experience as opposed to paying a fixed rate, or a subscription. This therefore boosts the developer's revenues by enabling the company to reap what
28 would otherwise be consumer surplus. According to Smith (2011), the market for virtual goods totaled $2.2 billion in 2012 and was mainly due to the growth of social network applications, mobile applications and MMORPGs. Virtual goods come in many forms and shapes. Firstly, time reduction goods refer to the products that allow the user to shorten the time of an action that would have otherwise taken longer to come to fruition. This is especially used in games that are offered through social media platforms, where players would have to wait for a certain period of time until an action is completed. Without purchasing such goods, the individual's gaming experience would have to halt until the timer on that particular action expires. Secondly, there are goods that offer a functional enhancement to a character in a virtual world. These are mainly found in MMORPGs and offer players a slight edge over their opponents. They are sold through shops that are established within these virtual worlds and are designed to increase a character's "performance in terms of attire, weapons or potions" (Lee, 2013). In order to not destabilize the economy of the game, a two currency system has to be employed. Items that are less stronger and basic items can be purchased with real money, whereas stronger items can only be acquired by players with the currencies gained from game play (Lenhdonvirta, 2009). Finally, aesthetic goods have no impact on the game play, but simply satisfy a player's aesthetic tastes. Players want to distinguish themselves from other players, and therefore would engage in these types of transactions if they perceive the changes that they bring to their avatars, characters are worth the investment. Competition is one of the most important characteristics of online communities. Individuals want to feel special and are constantly looking for ways to get acceptance and credit within these virtual worlds. Aesthetic goods help them configure their avatars in ways which normal game play would not allow.
6. Conceptual model
Micro-transactions and DLCs are highly important transaction mechanisms in free-to-play models. As depicted in the literature review, these types of pricing strategies complement games that are offered in a free manner to the consumers, and therefore their usability needs to be strongly linked to several aspects that would make people engage in these sorts of transactions. Lock-in mechanisms ensure that the players remain faithful to a certain game or bundle of games. In order to obtain a high degree of lock-in, our analysis is trying to look into potential factors that may ensure an individual is willing to trade real currency for the benefits that this investment may bring to him in the virtual world. As there are two parties that are directly affected by this phenomenon, the developers and the community, our model looks into the determinants of the success of micro-transactions and DLCs from both
29 perspectives. The propositions that follow and that will be tested serve as potential reasons why people would consider purchasing virtual goods, and what prompts them to invest in such items.
6.1 Propositions As this piece of research is mainly qualitative in nature, a number of propositions have been derived from the conceptual model depicted above.
With the proliferation of online games, developers have constantly looked for ways to diversify their offerings and the ways in which their products get to the market. As depicted in our research, several models have been considered, and discussed. Every model has its advantages and disadvantages, but as the focal point of our research is closely aligned with micro-transactions and DLCs, free-to-play has been the chosen model which will guide the development of our propositions.
Proposition 1: The higher the customer loyalty towards a game, the higher the probability that its users will engage in micro-transactions.
30
It is important to point out that many individuals who play online games (irrespective of platforms) have become acquainted with certain franchises from an early age and therefore seek to be engaged with new products that those developers bring to the market. Being able to inspire a high degree of loyalty towards a certain brand or type of game, may ensure that the users remain constant in their game choices and will therefore seek to prolong their experience within a certain virtual world. For the purpose of our research, it is crucial to understand what are the factors that keep players loyal, and the actions of the developers that are targeted to maintain this state.
Proposition 2: A high level of customer engagement and constant development of new content will prompt players to invest in a certain franchise.
Free-to-play models evolve around the creation of new content and features that offer the players constant interaction. New cosmetic items or new areas to explore within a game mean that the player is constantly facing a dilemma. Should he or she continue playing the game as it is, doing the same repetitive actions over and over again, or decide to invest little sums of money to be able to grasp more of what the game has to offer. If priced in a manner that the perceived value of the investment is worth the cost, players will most surely be inclined to spend some money on an activity they deem worthy. Customer engagement can also come from events that are organized by the game developers (such as Dota2's The International competition). Putting these events in place, and offering full coverage of them through designated online channels (Twitch.tv) makes the players feel that their gaming experience can go further than simply playing behind a computer in the comfort of their own room. They feel that they are part of something bigger, they get to cheer for their favorite players or teams, and in the end purchase perks that make them feel they can be one step further to achieving the same level of skill and knowledge as the people they admire.
Proposition 3: Ensuring a player enters into a state of flow during play time makes the individual more engaged with the game and increases the willingness to purchase perks.
The state of flow means that a player is in a constant state of curiosity towards a certain game, wishes to constantly engage with the virtual environment, without letting any external distractions come between him and the virtual reality of which he is part of. According to Csikszentmihalyi (1990), when a player
31 reaches this state, he constantly thrives to maintain it through different actions: purchasing in-game perks, interacting with other player and increasing his prominence in the community.
Proposition 4: Willingness to purchase in-game perks can be derived from constant interaction with the environment and other players, feedback from the community and overall recognition gained from the player's actions.
Proposition 5: Offering alternative channels (eSports, trading platforms) for players to engage in the online gaming phenomenon increases their willingness to pay for content or features.
7. Methodology
7.1 A mixed research approach
DLCs and micro-transactions have only become viable revenue models since the proliferation of free to play games at the end of the 2000s. With this regard, in our paper we employed a mixed research method to try and answer the research questions (Saunders, Lewis and Thornhill, 2009). The research design uses both qualitative (through expert interviews) and quantitative (questionnaires distributed online) methods to try and build theory and test the propositions that were derived from our conceptual model. By using triangulation, we aimed to increase the credibility of the results through conducting multiple interviews with people heavily involved in the gaming industry and also by using secondary data sources (Tracy, 2010).
Qualitative methods were used in order to inductively build the conceptual model based on the information gathered during the literature review and the findings of the interviews, whilst quantitative analysis was conducted to deductively test if the model can be justified by empirical data. Our research aims to serve as an exploratory study of a field that has not been given vast attention in the literature. On this regard, the method used (semi-structured interviews) suited the function of the research. Qualitative analysis was used in order to better understand what are the factors that prompt people to engage in the purchase of virtual goods, and what influences their decisions, both from the developer's and the community's point of view.
Quantitative research looked to establish causal relations between these factors and people's willingness to pay for a product or service they desire. An online survey was created to measure the
32 player's knowledge about these types of pricing mechanisms, and their opinions towards the benefits and drawbacks of micro-transactions and DLCs. The purpose of the questionnaire was also to strengthen the findings from the interviews by comparing the results of the interview with a larger sample that may lead to generalization of the final results. The aim of the questionnaire was also to test the propositions that were generated by the qualitative study and also to explain the relationships between the dependent and independent variables that were chosen. As stated by Tracy (2010), crystallization, as a method of using multiple methods and sources of data was used in order to increase the credibility of our findings.
For both the qualitative and quantitative data collection stages, ethical standards were employed. Participants were informed beforehand about the purpose of the research and how the data generated is going to be analyzed and used. Furthermore, anonymity was maintained at all times during the whole research period.
7.2 Semi-structured interviews
Qualitative interviews were considered the best instruments to complement the type of research this paper is trying to conduct by gathering detailed information of the whole gaming environment. The interview method augments our research which tries to integrate multiple ideas and perspectives through gathering rich empirical data (Eisenhardt and Graebner, 2007).
Semi-structured interviews however vary and can be misleading if not chosen properly. The questions asked can be very simple in nature and structured in a very straightforward manner. On the other hand, the questions can be very open and the conversation with the interviewee may take many directions before getting to the points that need to be covered (Miles and Gilbert, 2005). With this thought in mind, it must be noted that although interviews are used in a variety of research fields, they are subjected to several biases. Implicit assumptions, interests, world views, prejudices and one-sightedness of the researcher might alter the results of the interviews (Collins, 1992). These biases might however be overcome if suitable data collection methods are employed. "A key approach is using numerous and highly knowledgeable informants who view the focal phenomena from diverse perspectives" (Eisenhardt and Graebner, 2007), p.28). One main advantage of semi-structured interviews is that fact that they allow the researcher to grasp not only elicit foreseeable information, but also gain interesting insights into unexpected types of information (Seaman, 1999). In order to prepare the interviewees with the
33 topic of the interviews, an interview guide was prepared and sent beforehand to ensure that they get familiarized with the focal point of the research and what aspects needed to be touched on. I conducted 4 interviews in two different countries, Romania and Germany. In Romania, the main basis of the interviews were individuals engaged with the gaming community, mainly professional casters, former professional players and team managers. In Germany, the interviewee was a professional caster working for a video game streaming and content development company. The interviewees had various degrees of experiences, but as a core characteristic, they were all individuals that were involved with online gaming from a very early age, in one form or another. The diversity in the experiences and educational and organizational backgrounds of the interviewees ensured that the views were at the same time broad and specific on certain matters.
The average duration of the interviews was approximately 50 minutes, but variations existed from 30 minutes to 2 hours. In terms of the locations chosen, the interviewees proposed several locations based on a singular requirement: the possibility to engage in open discussions. The interviews took place in Bucharest and in Berlin. Each participant was only interviewed once, and the language used for all interviews was English. They were recorded with the permission of the participants and afterwards transcribed in order to be able to make comparisons and draw conclusions. The length of all the transcripts is about 20 pages from which we conducted the analysis.
7.3 Online questionnaires
In order to measure the potential relationships between the variables that were part of the conceptual model, a self-administrated questionnaire was designed and sent out (Saunders, Lewis and Thornhill, 2009). The survey was designed to be very short and concise, taking 4-6 minutes to complete. The goal was to test whether the components of the conceptual model could be justified on a broader sample of participants. In this regard, a regression analysis was conducted to test whether connections between the chosen independent and dependent variables existed.
Data collection
Self-selection sampling was the method used to find individuals willing to participate in the questionnaire. By using this method, people could decide whether their interests fit with the purpose of the research (Saunders, Lewis and Thornhill, 2009). Strong affinity with the online gaming environment has prompted me to use several channels that I was familiar with such as online gaming forums, gaming platforms and game streaming chats. Besides the practical nature of this approach, due to the large
34 number of individuals that are subscribed to these platforms, we managed to get very useful feedback about the design of the questions and potential changes that could increase the quality of the survey. As the feedback was very accurate and offered great insight, we decided to keep the initial survey for pre- testing purposes. After the pre-testing was over, the official survey was sent out via the same channels, as participants in the initial survey seemed willing to cooperate and help in this regard. Furthermore, we asked the participants from the semi-structured interviews to fill in the questionnaire and further it to members of their organizations that they believe would be interested in the topic. Around 15% of our total answers came from professionals that work on a daily basis on developing content, casting professional games, managing professional teams or working for companies that sell games online.
Sample
As a sample, the worldwide population that engaged in online gaming was considered, irrespective of the type of game they are currently playing. The location distribution of the participants can be observed in the following figure:
The aim was to have a fair distribution among several games that are of high interest at the time when the research was conducted. As can be seen from the following figure, participants come from diverse scenes of the online gaming world, engaging in different types of games (MMORPGs, strategies, casual), but having a common characteristic: all the games are played on PCs.
35
The response rate was 98%, even if self-selection was the chosen method of distributing the surveys. Six out of the total of 296 respondents started the survey without completing it, which makes our findings reliable and easy to analyze. In 7 cases where only 4 questions were omitted, the Hot Deck Imputation method of Myers (2011) was used to complete the values that were missing. Several participants showed interest in the research and asked to be forwarded the results of the analysis once completed.
7.3.1 Measures Loyalty
Literature on loyalty towards a certain brand distinguishes two main approaches when analyzing this matter. Firstly, the behavioral one argues that the repeated purchase of goods that belong to a certain brand is enough evidence to suggest loyalty towards that particular brand. Secondly, the attitudinal perspective assumes that consistent purchases of products of a brand is a necessary condition to brand loyalty, but in order to become sufficient it must be coupled with a positive attitude towards that brand (Amine, 2011). For all the questions in this category, the respondents were required to choose on a five- point Likert scale (1=Strongly disagree, 3=Neutral, 5=Strongly agree) to show to what extent they agree or disagree with a particular statement. Afterwards, the arithmetic average of the eight values was calculated to have a single value for measuring loyalty.
Service improvement and new content Firstly, this section of the questionnaire covered a question related to the participant's views towards the endeavors that the developers take in order to offer constant customer support and come up with new content. Secondly, the questions that followed looked into people's perceptions on DLCs and micro- transactions, and whether they are willing to pay for virtual goods in order to gain an advantage or if
36 they prefer to put more effort in the game to gain that advantage in a cost-free manner. The final part looked into people's preferences towards free-to-play games in comparison to packaged games or subscription based games, and the types of virtual goods that they usually prefer to buy (purely cosmetic or items that offer considerable advantage). The participants were asked to choose based on a five-point Likert scale (1=Strongly disagree, 3=Neutral, 5=Strongly agree) to show to what extent they agreed to the statements presented. Afterwards, we calculated the arithmetic average of the six values in order to get one value for measuring the participant's beliefs on how service improvement and new content development might influence their willingness to pay. State of flow
According to Chen, Wigan and Nilan (1999), reaching a state of flow means doing an activity out of pleasure while devoting full involvement, concentration and a sense of time distortion.
The questions in this part of the survey focused on the idea that online games cause addiction, and the potential of this addiction to lead to an increase in the player's willingness to pay for in-game perks. The final part of this sub-section looked into whether engagement with a particular game that required real money transactions to pursue at one point in time would encourage or discourage people to engage in purchasing virtual goods. The respondents were required to choose based on a five-point Likert scale (1=Strongly disagree, 3=Neutral, 5=Strongly agree) in order to express their agreement with the statements. The final part was to calculate the arithmetic average of the six values in order to get a single value for measuring addictiveness in relation to their willingness to pay. Interaction, Feedback and Recognition
This part of the survey was based on Crawford's (1982) idea that a virtual world which offers its players the opportunity for constant interaction, feedback from the game as well as other players and recognition for their actions, are more likely to keep the individuals engaged with that particular virtual world. The questions focused on the importance that players put on these three characteristics when choosing which game to play, and how they perceived reputation in a virtual community might prompt them to invest in future products. The participants were again required to choose based on a five-point Likert scale (1=Strongly disagree, 3=Neutral, 5=Strongly agree) in order to express their views on these three matters. Again, the arithmetic average was calculated for the six values in order to get one value that summarizes the findings.
37
Trading platforms and eSports
With the increase proliferation of competitive online games, trading platforms that allow players to trade their items, place bets on their favorite teams or simply purchase virtual goods have started to emerge. This final part of the questionnaire started by asking people whether they are familiar with these sorts of platforms and electronic sports. Furthermore, the participants were asked whether they believed that these sorts of extra features are beneficial to the community and also if they perceived them as fair or not. The final two questions looked into the willingness of the participants to pay for virtual goods if their gaming experience would also evolve around supporting a certain eSport team or simply following the whole phenomenon via streaming platforms. The respondents were asked to fill in this part of the survey based on a five-point Likert scale (1=Strongly disagree, 3=Neutral, 5=Strongly agree). At the end, the arithmetic average was calculated to summarize the findings of these statements in one relevant value.
8. Results 8.1 Results of the interviews
The purpose of the interviews was to try and better understand what is the impact of the introduction of DLCs and micro-transactions in the business models of online games. The questions focused on both scenes that were directly involved in the phenomenon: the game developers and the community. Through discussing with individuals that have made a career from engaging with online games, we tried to extract as much information as possible, starting from a very macro level (how they perceive this phenomenon has started and how it influenced their lives) and getting to very specific details (business models, taxation, ecosystems and potential damaging aspects of the online environment). After the interviews were conducted and the transcripts were completed, a large number of codes were thought of being relevant to the purpose of our research. As the focal point of our study is to un understand what increases people's willingness to engage in purchasing virtual goods, we categorized our codes in order to be able to understand how do these result in an increased willingness to pay, or deter users from purchasing these virtual goods (Appendix 1).
8.1.1 General information The first set of questions aimed to introduce the interviewees to the topic of our discussion and to find more about their connection to the gaming world. All of the interviewees started playing computer games from a very early age when they first got into contact with a personal computer. Later on, they
38 engaged in competitive sports that started to make their appearance in the early 2000s. They argue that the phenomenon at that point in time was very small and did not have any international exposure. They agree that the focus that was put on games at that period of time was close to nonexistent. Only small, local tournaments, with very small prize pools were happening. To summarize their current involvement in the online gaming scene, the interviewees have shifted their focus from playing competitive game, to organizing, streaming, casting, coaching, or even participating in the more technical aspects of the phenomenon: video production, content update, operations, and broadcasting.
In terms of how they perceive that working in this field has shaped their characters and development, there is agreement that it opened a lot of doors, offered the opportunities to travel, meet people that share the same ideals, and more importantly, be part of something that is just in its infancy, but has the unlimited potential to grow. The term "full-time job" has been used by all the participants when describing how they feel about what they are doing, followed by "pleasure" , "excitement" or "passion". The final questions of the first part of the interview focused on the proliferation of eSports, and the potential to disrupt the traditional sports. Three out of the four participants were positive that in some regards, electronic sports have already managed to supersede traditional sports that are less known to the broad public. The advantage of eSports relies on the great mass of viewership that it can bring together, as it is not clustered by geographical barriers or television rights. One of the participants was more reluctant in giving an answer, as he believed that although the potential of eSports to become a serious contender of traditional sports exists, the phenomenon still needs time to develop and requires a shift in people's mentalities towards this activity that is still perceived by many as a waste of time, with no potential positive outcome.
The potential of eSports to constitute a disruption to traditional sports also comes from its limitless capabilities. Unlike other sports, electronic sports have just emerged and are starting to become mainstream, and therefore the possibilities to shape and develop this phenomenon can take multiple forms and shapes. One interviewee argues that in football for example, what one individual can do with the ball is limited by the human capabilities whereas in electronic sports, technology can be modeled in limitless ways in order to augment the viewer's experience. As an argument to this, there has been a constant increase in eSports tournaments prize pools, the capacities of venues where the events take place, and overall a sharp increase in the number of viewers that are constantly checking on their favorite teams and the big events that are taking place.
39
8.1.2 Business context From retail to online distribution
There were no interviewees that believed that the old-fashioned way of selling games through retail channels had more advantages than promoting and selling products via integrated online platforms such as Valve's Steam or EA's Origin.
Agreement was struck that it was a natural step in the development of the distribution of online games, as people constantly look for new alternatives to ease their access and facilitate a more rapid and hassle free experience. The factors that resulted from the discussion and that are considered to be positive to the expansion of games through these platforms are: increasing the exposure of less known franchises, lower prices, constant support and timely updates, ease of access and a better interaction with the community. Two of the interviewees argued that due to the ease to access online content, and the vast amount of information that a product comes with in an online shop, could potentially increase the player's willingness to purchase that product. Cutting out the trip to the shop and offering endless possibilities in terms of the palette of games available could also contribute to this increase.
One the more negative side, one of the interviewees emphasized the fact that Valve's Steam platform could already be holding a monopoly and therefore increase the barriers of entry for other platform owners. However, due to Steam's fairness of pricing and offerings, he continues by saying that this will only be a positive aspects as it will force competitors to maintain the same level of service offering.
Free-to-play and hybrid models
Free-to-play is considered to be the gaming model that is most suited for the needs that the players current have. The interviewees agree that it is a natural tendency for people to prefer to try a game out before deciding whether it is worth investing money. By playing a game that is offered for free, the choice of weather to invest in virtual goods is solely left to the players, and thus they will decide if it is worth it. Irrespective of the model, engaging the players and constantly developing new content will ensure that loyalty will be established and therefore increase the willingness of the individuals to engage in purchasing virtual goods. One of the interviewees pointed out that subscription based models create addictiveness and also force the individual to think beforehand if he has the necessary time to engage with the game that he already purchased a one month in advance access to. Furthermore, the idea of hybrid gaming models emerged. One of the interviewees gave as an example NCSOFT's Wildstar game which allows people to purchase a subscription beforehand, or simply spend more time in game in order to be able to purchase the subscription with in-game currency. This combination of free-to-play with
40 the subscription model caters for both groups of people: those who enjoy the game but don't have the physical time to extract full pleasure from long hours of game-play, and those that are willing to invest all the time needed.
Introduction of DLCs and micro-transactions
By discussing the concepts of DLCs and micro-transactions, the concept of 'ecosystem' started to emerge. All the interviewees agreed that online games are no longer just an activity that links one individual to a virtual world, but should created an ecosystem that offers more opportunities to interact, and become part of an environment that makes the individual feel comfortable and gives him a sense of belongingness. Although DLCs and micro-transactions are a way of monetizing the developer's offerings, there is agreement that they are positive in nature as it helps the phenomenon grow. Players now have the chance to invest in the activities they like, and by making these investments they can help create new events, increase prize pools and ultimately raise awareness towards online games as a sustainable and worthwhile activity. One of the interviewees distinguished between DLC's and micro-transactions. He emphasized that that introduction of DLC's are a double edged sword. If properly introduced, they add value to the players and the virtual worlds, but at the same time can be damaging if developers chose to release their games without being properly finished, just so they can add DLC's afterwards. For micro-transactions, the idea of pay-to-win started to come into discussion. Every participant agreed that having to pay in order to gain an advantage within the game can be destabilizing to the virtual environment, and can therefore decrease the number of players willing to try the game.
Taxation and regulation
One of the interviewees believed that real money transactions on virtual goods impacts the community in a negative way, as it discriminates between people of different backgrounds. However, if they are still to exist, all the participants agreed that regulation and taxation needs to be in place, like any other good, being virtual or physical. Another interviewee pointed out that regulating these trading environments would be more beneficial to the game developers rather than the communities because individuals have no power over the prices.
Damaging aspects
Just to sum up the findings from these categories, there are several key points that could be detrimental to the positive development of online games. Firstly, pay-to-win is considered a big 'no-no' as it skews the potential of all the players involved to extract the maximum amount of satisfaction from a game.
41
Purchasing an item that offers an in-game advantage is detrimental to the economy and the social aspects that are involved in an online game. Secondly, releasing unfinished products just to further 'milk' players that do decide to try the game could lead to the developers losing credibility within the communities, portraying them as simply profit-maximizing entities, with no interest in the evolution of the game. Finally, when talking about subscription models, one interviewee believed that World of Warcraft's success is unlikely to ever repeat again. This comes from the fact that people's mentalities have shifted in regard to online gaming. They want products that they can try before deciding whether the product is worth investing in. Setting this entry barrier would dissuade a lot of players from trying the game.
8.1.3 The Community Ecosystem development
Throughout the interview, the concept of 'ecosystem' appeared frequently when describing how do eSports events, trading platforms, betting platforms, and all other venues that impact online gaming contribute to the phenomenon. Creating a vast ecosystem will increase exposure of online games and therefore will unite the communities as it offers individuals something to strive for. It creates models worth following. Exposure is needed in order for the current generations to stop stereotyping people that are playing online games. People need to understand that it can be a way of life, and an activity that requires as much interest, practice, funding and acceptance as other leisure or professional activities. Just as with every other sport, electronic sports require high degrees of dedication and practice. Platforms that augment this phenomenon need to exist in order to keep individuals that follow eSports engaged, and give them a sense of belongingness. People that cheer for a team, or an individual, will constantly look for ways to support their favorites. Through investing in virtual items, or even merchandise from the teams they support, the pleasure and satisfaction levels of each individuals will grow, and at the same time the phenomenon will be able to increase its coverage in the long run. 'Value addition' has been one of the most stressed points by our interviewees. By giving people more than just the virtual reality that they are already familiar with, game developers should, irrespective of the type of game or pricing mechanisms that they use, constantly look for ways to keep their audience engaged and focused.
42
Lock-in mechanisms
As discussed earlier in the paper, game developers resort to several lock-in mechanisms to keep their memberships flourishing. As a core category in our interviews, the respondents all felt that except for subscription based models, pricing mechanisms did not ensure lock-in. They argue that aspects such as a united community, competition, interaction, new content development, continuity, feedback, a good reward system, personal gratification and encouragement could potentially be what keeps the people loyal to a certain brand. Some of the factors that emerged from the discussion: feedback and interaction have been the core of Crawford's (1982) problem solving theory research. He argues that alongside goals (which appear in our interviews as continuity and competition) these are the characteristics that motivate people to continue engaging with an activity that brings them pleasure. Without any of these three aspects, the chain would break and the individual would look somewhere else for pleasure.
Lock-in has also been discussed from the perspective of social and economic status of the players. All the participants agreed that lock-in manifests differently for people with a higher income than their counterparts. People that have a lower income would rather save money to purchase a full game rather than engage in acquiring virtual goods of another nature. They consider cosmetic items, or other items that are purely design oriented, luxury, and therefore would rather save the money to buy something of greater value. Therefore, lock-in cannot have the same impact on this category of players, as they do not seek to reap the same benefits from a game as the players that constantly purchase non-game changing virtual goods. Improvements
The last topic in our interviews focused on the next steps that could be taken, both from the developer's and the community's side in order to further the growth of online games. Accessibility alongside a constant generation of new and interesting content seem to be at the forefront of future development. The interviewees agreed on the fact that there is a need for expansion of interaction between all the platforms that are meant to augment the gaming experience. Also, empowerment of the community can be a positive way of paving the future success of this phenomenon. People need to feel that they belong to a community and that their output is helping build something bigger. They want to feel that they matter and that their actions are not left unnoticed. Developers can do this through integrating feedback channels in their games that shape the behavior of the community. Counterstrike GO has already a system in place (Overwatch) where experienced players, that have proved their strong affiliation with the game can 'judge' weather the actions of others are within the accepted boundaries of
43 the game. 'Giving power to the people' is considered to be paramount for a healthy community that strives to better itself at every step.
8.1.4 Willingness to pay
The purpose of the interviews was to gather information on a broad level about what people that have made online gaming part of their lives believe about the phenomenon. On a more micro level, we wanted to understand what are the factors that they perceive would prompt or discourage people to engage in the purchase of virtual goods. We coined this as their willingness to pay. This part of our research will describe the aspects that are considered to increase the investment in virtual goods or discourage people from investing in online games, and will act as a conclusion to the semi-structured interviews.
On the positive side, there was agreement in terms of what the benefits of the transition from selling the products in a physical format through retail stores to selling them online through integrated platforms. All the factors described point to an increase in the customer's willingness to pay. The ease to reach the audience, reduced costs for the customers, result in better service support and customer service, faster updates and release of products, and overall a more viable way to interact with other individuals that share the same passions. All these characteristics impact the community. An individual would be more willing to spend his money if he can make an informed decision and therefore feel that the investment is worth it. Caution needs to be considered when looking ahead. Although their services are of high quality, Valve's Steam platform seems to be getting a monopoly position in the market, which could result in increased entry barriers for potential platform and game developers. When talking about the gaming models that are currently on the market (with an exception being World of Warcraft which still employs a subscription model) free-to-play is considered to be the best model that caters for people's tastes. Offering the product initially for free and then offering the individual the choice to purchase extra content is likely to gain more and more acceptance. With the introduction of free-to-play models, the market for virtual goods started to emerge. There is agreement that because this type of model does not force people to purchase any goods upfront, people are more inclined to engage in micro-transactions as their gaming experience evolves. Pay for convenience is another possibility that the market seems to accept. Offering the option to obtain an item or unlock new features in a game through both in-game play and purchase is considered fair and understandable from the community's side. Even though DLC's and micro-transactions do attract people to purchase them,
44 engagement is a core characteristic that needs to be constantly nourished. Game developers need to put an effort into maintaining a fair and stable virtual environment so that the players feel like they are part of something bigger, they can relate with other individuals and more importantly believe that their investment is to some extent returned to these worlds that they love. Another important aspect that emerged is the fact that all the interviewees agreed that competitive online games would not be possible with any other model than free-to-play. As competitive eSports are a core part of the ecosystem that has been discussed previously, we can infer that without free-to-play games, the world of gaming would turn to a point prior to the expansion of online capabilities.
The concepts of 'ecosystem' and 'lock-in' will be discussed together as they are strongly interdependent. A key aspect that emerged from the interviews was that online gaming is no longer an activity that is done by an individual in the comfort of his own house, but has grown to become an ecosystem that offers the participants limitless possibilities. The introduction of online gaming platforms, trading and betting platforms, streaming of content, events and merchandise have created a strong community and has given players a sense of belongingness and something to strive for. Through all these facilities that augment the gaming experience, a player becomes part of the phenomenon and therefore his or her willingness to pay for certain products in order to feel as part of something bigger increases. Casual players that are following the phenomenon have the opportunity to cheer for their favorite game, or the teams that play that game in a competitive manner. Just as with traditional sports, fans from all over the globe look to support their favorites in every way possible. This increases the exposure of online games, and creates a beneficial environment that helps new teams come to life, the organization of new events and ultimately the proliferation of the phenomenon. It is a win-win situation. The more the community is willing to invest, the more it is able to grasp from this activity. The interviewees agreed that lock-in may appear when people are given so many opportunities to interact with their favorite games. Money is not considered to be a factor that locks people in, but a strong and united community, competition, constant interaction at all levels, the development of new content and features, continuity, feedback, a well structured reward system, personal gratification and constant engagement may be the characteristics that keep people loyal towards a gaming franchise. Loyalty has been found to be one of the most important characteristics that prompt people to engage in purchasing virtual goods, as they want to see that what they believe in is constantly growing. With this regard, it was also argued that rivalry between certain games plays an important role. Players are willing to support their favorite game (both time and money) if it means that it will supersede the investments made for a similar competing game.
45
As part of our interviews, a great deal of importance was also given to potential actions and outcomes that could impact the proliferation of online games in a negative way and decrease people's willingness to invest.
Pay-to-win was considered to be destabilizing to the environment. Giving a player the opportunity to have an advantage over other competitors through the purchase of virtual goods can potentially result in a high number of players dropping the game as they perceive it unfair. A game developer needs to make sure that a balance can be struck between what can be bought and what cannot. A hybrid model could be the answer to this situation. Giving the players that are unwilling to pay for in-game perks the opportunity to gain the same items through extensive game-play.
Subscription models, alongside the use of DLC's as a way of 'milking' customers have also been considered factors that negatively impact the growth of online gaming. Subscription models create a type of lock-in mechanism that for many people seems to addictive. Having to pay a monthly fee, but not having the time to enjoy the game and extract its benefits for the amount paid, discourages individuals to engage in games that have such pricing models. Also, releasing unfinished games with the idea that future updates through DLCs will compensate for the limitations that the game has in the release phase decreases people's willingness to pay if they are able to observe this technique in the incipient stages of game-play.
As far as the future is concerned, there is a need for patience. Limitless in its possibilities, but only in its infancy at the moment, the phenomenon needs time to get on the right path. People needs to understand what are the benefits of online games, and how they can shape people's behaviors, and stop labeling and judging without proper knowledge. Unlike traditional sports, eSports do not have a history or a legacy and therefore generations need to change in order for eSports to get accepted and to potentially disrupt traditional sports.
8.2 Results of the survey 8.2.1 General information
The surveys started with a 'general information' section where we introduced the participants to the topic of our analysis. Through these questions we wanted to get a general understanding of the type of people that agreed to fill in the questionnaire. The first question focused on the participant's age as can be seen from the following table:
46
Table 2 : Participant's age (n=290)
Out of the 290 participants, 52 were part of the first category (Under 18). The majority of the respondents had ages between 18-25 (194) whereas only 41 said that they belong to the 26-35 group. The smallest part of our participants (3) had ages over 35. In terms of the type of the participants, the next table shows that males were in higher proportion compared to females. 95.5% of the participants were males, whereas only 4.5% were females.
Table 3: Participant's gender (n=290)
47
The next question looked at the participant's level of education. As can be observed from the following table, 32 of the participants had minimum studies (secondary school diploma). The next category depicts individuals that have average studies (high school diploma). What is interesting is the fact that
Table 4: Highest degree of education (n=290) the number of high school graduates that have not pursued further education and the number of participants that have gotten a bachelor's degree is very similar (120 versus 121). Finally, the fourth category depicts people that have gone forward and followed postgraduate study (5.8%).
The following question looked at the period of time that the participants have been involved, either casually or professionally in computer gaming (offline or online).
Table 5: Involvement with computer games (n=290)
48
It can be observed, that most of the people (66.2%) involved in the questionnaire fit within the first category which shows their involvement is longer than 10 years. 26.2% of the respondents have played computer games for more than 5 years but less than 10, whereas 6.8% have only had gaming experience for less than 5 years. The final category, which is also the smallest shows that only 0.7% of the respondents have had a contact with computer games for less than 2 years. The result of this questions supports the purpose of our analysis. Most of the participants have been involved with the phenomenon for a long period of time and have seen the changes that have occurred (transition from retail to online and pricing mechanisms).
8.2.2 Correlation analysis
Although the correlations that we found do not necessarily account for causation, they clearly show weather two variables vary in the same direction or not. Firstly, the correlations between our dependent (LLTY, SIMP, IFR, FLOW, TRP) and independent variables (WTP_orig) were checked in pairs. The results were as follows:
Table 6: Correlation between loyalty and willingness to pay Table 7: Correlation between service improvement and new content and willingness to pay
Loyalty was the first variable to be analyzed. The Pearson's correlation coefficient was 0.077 which shows there is a very weak relationship between the loyalty that people show towards the games that they play and their willingness to engage in purchasing in-game perks. This means that changes in the level of loyalty displayed is not correlated with the changes in their willingness to pay. Because the Sig. (2-tailed) is .193, which is above .05 we can conclude that there is no significant correlation between the two variables. These results refute the first propositions that we put forward in our research and at the same time the results that were obtained through the interviews. All the participants in the interviews showed high levels of agreement in relation to loyalty creating lock-in that increases the player's willingness to pay for virtual goods, or for entire games.
Table 7 looks at potential correlations between service improvement and the introduction of new content and the participant's willingness to pay. The Sig. (2-tailed) level is .000 which shows that there is a significance between the player's perceptions on how developers can improve the online environments and their willingness to purchase virtual goods. The relationship is positive, and is given by the Pearson's correlation coefficient which is .328. This shows that the more developers engage in providing their customers with constant improvements, new content, constant service support and
49 overall support customer engagement, the higher the player's willingness to pay will be. This result supports the second proposition that was made in our research.
Table 8: Correlation between interaction, feedback, recognition Table 9: Correlation between the state of flow and and willingness to pay willingness to pay
Based on Crawford's (1982) theory, interaction, feedback and recognition are the key characteristics to keep individuals engaged with an activity. As can be observed from Table 8, a positive Pearson's correlation coefficient coupled with a Sig. (2-tailed) of .000 supports the third proposition of our research. Constructing an active world where individuals have the opportunity to constantly interact both with other players and the environment, exchange ideas and also be rewarded for their actions, increases the willingness of the participants to pay for extra features.
Based on Csikszentmihalyi's (1990) idea that successful communities are those that lead their participants to enter a state of flow, proposition three was developed. It states that an individual that enters a state of flow, cannot be easily distracted from the activity that captured his or her attention in the first place. Translating this for the purpose of our research, Table 9 shows the following results: with a Sig. (2-tailed) lower than .05 we can conclude that there is a statistically significant correlation between entering a state a flow and an increase in the willingness to pay. This is also supported by a positive Pearson's correlation coefficient. The coefficient however is relatively small compared to other variables which means that the relationship between the two may be perceived as weak.
Table 10: Correlation between the introduction of trading platforms and eSports and willingness to pay
50
The final variable that has been analyzed was the introduction of trading platforms and the proliferation of eSports. The Sig. (2-tailed) was .000 which means that there is statistically significant correlation between the introduction of these types of activities that augment the gaming ecosystem and the willingness to pay. This result is supported by a moderate Pearson correlation coefficient (35.9%). Therefore, our final proposition was confirmed. The introduction of such activities help to further engage the players with online gaming, and increase their involvement with the phenomenon. Giving people something to strive for than merely playing the games they love will result in an increase in their willingness to engage in micro-transactions and purchases of DLCs.
8.2.3 Regression analysis
After the general descriptive analysis and the correlation analysis, regression analysis was used in order to test the propositions and to see to what extent they affect the player's willingness to pay. The analysis was formed of several independent variables (LLTY, SIMP, FLOW, IFR, TRP), one control variable (INV (which is the monthly average spent by an individual on game content)) and their influence on the dependent variable is measured (WTP). The idea behind linear regression is to try and find the best fitting straight line, through the points that are created by the perceived relationship between the variables that have been considered independent and the dependent one. We used the following equation to set up our model:
Y = β0 + β1x1 + β2x2 + …. ei
And the equation of regression is as follows:
WTP = β0 + β1*LLTY + β2*SIMP + β3*FLOW + β4*IFR + β5*TRP + β6*INV + ei
(β) is the slope of the equation and can be described as the amount increase in the dependent variable, if there is an increase in the independent variable by one unit. 'e' is the error that explains the difference between the result that emerged and the estimated result. By doing the regression analysis, the coefficient for R2 emerged. It is the coefficient of determination that shows to what extent the independent variables explain the behavior of the dependent variable, and also gives a good indicator of the relationships between the variables.
Table 11 shows the results of the regression analysis that has been done on each independent variable. Although the results were to some extent similar to the results of the correlation analysis, several aspects need to be mentioned. Firstly, for the loyalty characteristic (LLTY), a very low R2 shows that a
51 relationship between LLTY and the willingness to pay cannot be deducted from the analysis. This result is in line with the result obtained from the correlation analysis, but again contradicts the opinions of the interviewees and again refutes the first proposition that was previously made. Furthermore, all the other variables are in line with the results of the correlation analysis, and support the propositions made earlier on in our research. However, only 12.3% in the variability of service improvement and new content, 9.4% in the variability of the state of flow, 8.2% in the variability of interaction, feedback and recognition and 13.4% in the variability of the introduction of trading platforms of eSports can be accounted for explaining the willingness of players to engage in the purchasing of virtual goods.
Table 11: Linear regression model
When all five variables were included in our model, the R2 was 0.191, which means that these variables explain only 19.1% of the variance in the dependent variables. We can conclude that this is a statistically weak relationship, because the model that emerged only explains a small percentage of the changes in the independent variable (Table 12).
52
Table 12: Linear regression with all the independent variables
Several factors could have led to this outcome. Firstly, the sample size of 290 respondents might be too small in comparison to the large number of individuals that play online games, in order to assess the actual relationships among the variables. Secondly, the investment variable that was used to compile the model may not ideally reflect the real willingness of the participants to engage in purchasing virtual goods. To conclude, we can say that the five factors analyzed do ensure that correlation with the willingness to pay exists, but don't show a strong connection. Due to the size of the sample, we can also infer that the results cannot be projected to the whole population and therefore generalizations cannot be made.
9. Discussion
This section focuses on making a link between what has been put forward through the literature review and the findings of our analysis, followed by the implications for the game developers and the communities. Furthermore, the potential limitations of the research will be discusses.
9.1 Findings
Earlier on in our research we developed a conceptual model in order to try and find the potential factors that may increase the players' willingness to engage in micro-transactions and the purchase of DLCs. The propositions were also based on these factors in order to try and test them through the use of the information gathered through the interviews and the questionnaires.
After the data was analyzed, most of the results yielded the expected results. However, the analysis on 'loyalty' refuted our first proposition and therefore this part of our research will make use of existing literature to try and understand why this discrepancy appeared.
Choi and Kim (2004) argue that people will constantly thrive towards playing the same game over a period of time if they feel high degrees of loyalty towards a certain brand. Kotler and Armstrong (1989) describe loyalty as the repeated tendency of an individual to make use of a certain product or service, without feeling the need to use other substitute products or services. This shows that a person that is loyal towards a product or a service will look for opportunities to constantly engage with the offering.
53
However, our research did not look for answers in terms of whether people are loyal towards a certain brand, but wanted to get a better insight into whether people that possess high degrees of loyalty would be willing to engage in the purchase of virtual goods of that particular brand.
Lee (2010) builds on Barthe's (1996) model that proposes four factors that motivate people to play online games, Firstly, achievement plays a crucial role; players set goals to attain, and strive towards achieving them. Secondly, the thrill of exploring a new virtual world acts as a strong motivator. Furthermore, the opportunity to socialize with others (as previously mentioned in our research) keeps players motivated. Finally, imposition upon others. Players use all the available features in the game to either help other players or to destroy them in the virtual world. Being given this chance to act according to their own judgment also acts as a motivator. Lee (2010) tested the hypothesis that all these factors correlated will lead to an increase in loyalty. He concludes that loyalty indeed can increase based on these factors, but only coupled with a proper game design and a well structured virtual environment.
Huang and Hsieh (2011) developed a model based on the uses and gratification and flow theory to explain the loyalty that players have towards a game (their analysis focused on MMORPGs). As flow theory has been discussed in our research and proven throughout our analysis, the theory of uses and gratification (U&G) will be briefly discussed further. U&G emerged as a topic in communication research, and has grown in importance with the penetration of internet capabilities as social activities. Most MMORPG participants see themselves as online game 'players' (Yee, 2006). Therefore, the psychological need view based on uses and gratification theory shows that entertainment gratification and social gratification (interaction, dialogue with other participants) are two key factors that determine player's degree of loyalty towards a game (Hsu and Lu, 2007).
Shaikh and Jumain (2014) come up with four factors that lead to customer loyalty. They argue that motivation, satisfaction and fulfillment, exploration and achievement play an important role in explaining how players become loyal to a certain brand of online games. The model they present is considered to have universal applicability and therefore can be applied to any virtual world.
We described all these models that try to explain what motivates people to stay loyal to a particular brand in order to highlight the paper's interest in discussing 'loyalty' as a potential factor that influences the player's willingness to pay for virtual goods. There is a clear interest in literature on what creates loyalty, and more importantly if loyalty leads to addiction in the long run. Our results on this topic, which constituted the basis of our first proposition, were confirmed by the participants in the
54 interviews, but were clearly refuted by the 290 respondents of the questionnaire. We believe that future research on the link between loyalty and willingness to pay still needs to be conducted.
Moving on to the next set of aspects that were tackled during this research, firstly I must point out that the conceptual model and the propositions were drawn based on the scarcity of information that the literature provided on this topic. Analyzing aspects such as service improvement and new content, the state of flow, interaction, feedback and recognition and the introduction of gaming platforms and eSports I believe are a novelty in the existent literature on online games when discussed in close relation to the willingness of the participants to engage in micro-transactions and the purchasing of DLCs. All these factors were analyzed and the results supported our conceptual model and the propositions that we have made. Although the relationships were not as strongly as expected, inferences can surely be made that they play an important role in shaping the player's desire to further engage in the online gaming phenomenon by purchasing different types of virtual goods.
9.2 Implications for game developers
The results that emerged from this piece of research look to fill in a gap in the literature. The gap comes from the lack of interest in what motivates people to invest in the games they play, and what factors can increase and decrease the amounts of money they are willing to spend on this leisure activity.
This part of the thesis will focus on the aspects discussed in the literature review, and will try to look at potential implications that our findings can provide to the business part of this phenomenon in general, and game developers in particular.
From retail to online distribution
It was clear from our interviews that the transition was beneficial for the gaming scene. Several aspects were discussed, and agreement was struck that the transition brought more openness to the way in which people can access gaming content. Furthermore, it paved the way to more informed decisions. Individuals that wish to purchase new games can now find all the information needed before deciding whether a product is worth the cost, or whether the environment that the game sets fits with what the player expects. In addition, having the possibility to get feedback on the products from players that have purchased the game seems to increase the people's willingness to purchase additional content. However, this is not new to game developers, as most of the big players of the market have set up their own platforms through which they now market their products.
55
Free to play and hybrid models
All the potential business models that accompany games have been discussed and free-to-play models have emerged as victors. Packaged game sales have decreased during the past years, as well as subscription based models. There is agreement that the success that World of Warcraft had with its subscription model is unlikely to repeat in the future as it is virtually impossible to capture such a big mass of players. Also, it has been argued that subscription based models increase the addictiveness level of players, and imposes a sense of waste of money if the individual cannot find the time to play after the payment has been made.
It is impossible to establish a large community if the players are not given the opportunity to experiment the game at first. Furthermore, hybrid models are considered viable models if a developer wishes to experiment with the way it markets its products. Integrating several characteristics from different models may not dissuade people entirely from trying on a new game that they believe has potential to grow. Caution however needs to be exerted when choosing these characteristics. On the other hand, as Satoru Iwata, the CEO of Nintendo argued, it is not about what model is the best, but what model suits the type of game one wishes to market. He continues by saying that each model has its advantages and disadvantages and it is just a matter of finding out exactly what the customers expect. For the game developers, this information that can potentially be helpful from our research stems from trying to choose the best model that fits their offering. As it has been concluded that there is no ideal model, a very thorough analysis of the potential clients and the market that the game wishes to tap into needs to be conducted in order to understand what do the customers want, and what do they expect.
Creation of an ecosystem
Throughout several questions from our interviews, the concept of 'ecosystem' emerged. The interviewees described it as a primary need for today's gaming scene.
The participants emphasized the need for developers to not only offer quality products but to try and create an entire ecosystem around that product. This can be done in a variety of ways and by using different tools. The creation of an ecosystem means offering the players additional activities that would keep them interesting in the product offered for a longer period of time. DLCs and micro-transactions are one way of keeping the players engaged. Through offering them the possibility to customize their characters, unlock new game features or simply giving them a sense of accomplishment and fulfillment helps to keep the audience motivated to continue playing that particular game.
56
It must be noted that the introduction of such mechanisms, although they have been used with all types of business models, are more prominent in free-to-play games. This is because, an individual that has the opportunity to try the game for free, gets to understand how the game works and ultimately gets to love the game, would be more willing to pay for additional features than individuals that have already paid a subscription or bought the entire product. This concept is pretty straightforward. It's human psychology to prefer to pay a sum of money divided in several payments over a longer period of time, than paying upfront for a game you may not know a lot about (Gourville and Soman, 2012). It also results in a prolonged sense of satisfaction and pleasure for the individual and will results in him wanting to constantly maintain this state.
As part of this ecosystem, other mechanisms have been used that ultimately have the same principle: maintaining customer base. The introduction of trading and betting platforms alongside the proliferation of electronic sports have increased people's interest in online gaming. Even if most of the times, these platforms are owned by entities that have no interest in developing games, they constitute a valuable addition to the business models of developers that release free-to-play games. Through these platforms, players are given the opportunity to interact with other players that share the same interests, swap or trade items, bet on the outcomes of professional eSport games, or simply always staying informed about the gaming phenomenon. The interviews however raised the question of imposing taxes to these virtual 'shops'. There was agreement that all the trades that take place online should be taxed as any physical product is taxed in the real world.
Furthermore, it is all about giving people something more to strive for than just the in-game experience. This is where eSports come into the picture. Although they only recently caught the eye of the media, professional gaming teams have existed for many years. Their exposure increased during the last years due to high investments in the gaming scenes, sponsorships from large organizations, and maybe most importantly the growth of platforms that broadcast online games (Twitch.tv is the biggest steaming website, which has been bought in 2014 by Amazon. Also, it is interesting to see what the future will hold for Twitch once YouTube release their gaming platform later on in 2015). Professional eSport teams have increased competitiveness within these virtual worlds. Players now have something more to strive for, they have people or teams that they support, and therefore are more willing to invest in a game if they perceive that this investment would bring them one step further to their favorite players. This idea has been supported by the findings in our questionnaire analysis. Also, as part of this ecosystem,
57 professional teams have also exploited this phenomenon. Most important brands in eSports now have their own virtual shops through which they sell merchandise to their fans.
Turning back to the implications that these results could have on game developers, several issues need to be considered. Firstly, whatever type of game an organization promotes, they need to ensure that their audience is constantly engaged with the game. They can do so by creating this ecosystem that we have been talking throughout our research. It can come in many different types or shapes, but its core characteristic should be offering players extra features that augment the gaming experience. Trading items, interacting with other players, or even creating the feasible competitive environment for competitive play. Secondly, by creating such a competitive environment (which proved to be a very strong lock-in mechanism) the developers give the players models to follow and therefore shapes their behavior in a way that the players are constantly looking for opportunities to improve and to constantly be able to relate with their in-game idols. Finally, even if all these steps are taken, fairness needs to be maintained at all steps. Pay-to-win models, unfair trading and bias could potentially destabilize an online environment and lead to a reduction in the number of players.
Lock-in mechanisms
The last aspect that we are going to draw upon is based on the results of the interviews on lock-in mechanisms. It has emerged from our discussions that financial rewards and money in general cannot be considered sufficient lock-in mechanisms. Our interviewees argued that a united and strong community, the creation of a competitive environment, feedback, personal gratification and current encouragement of the community could be what keeps people engaged with a certain game or franchise. Some of the factors that were more strongly stressed in our interviews were in line with Crawford's (1992) problem solving theory that argues that alongside the setting of goals (which can be categorized in the competition and continuity factors), feedback and interaction are the pillars of establishing a strong environment around any leisure activity.
Developers need to constantly thrive to foster an environment that promotes these types of characteristics. Giving the people more opportunities to engage with the game rather than simply playing it could yield benefits for both sides. This can be done through the creation of trading and swapping platforms, promotion of competitive play, the broadcasting of games so that players can easily follow their favorite players or teams, and overall increase the engagement of the individuals with the virtual worlds that they love. It needs to be a sustained effort so that players believe that their time and
58 money investment in a particular game is constantly rewarded. Rewards don't have to be targeted at every individual in particular, but need to be for the community as a whole.
9.3 Limitations
It must be noted that although this piece of research took both a quantitative and qualitative stance, several limitations need to be considered. Although data saturation appeared during the interviewing process, incomplete information or inappropriate selection of the information may have appeared. Also, the model applied for the interviews was supported by a small sample and therefore a more broad and comprehensive analysis is needed in order to be able to generalize the findings. Furthermore, the results and the conclusions of the analysis were mainly based on a handful of games (Dota2, CS:GO, World of Warcraft and League of Legends). Even if these games cover the most important business models that have been tackled during our research, the current study may not be fully applicable to the whole gaming industry.
Also, another potential limitation may stem from the fact that no game developers or individuals working in the production of gaming content could be contacted in order to take part in the study. Therefore, all the results are based on the community's perception or individuals involved in the gaming environment in different positions (professional casters, organizers, video content editors, team managers).
10. Conclusion
The constant increase in technological capabilities and the possibilities brought by the increased use of online services has also impacted the world of computer games. Game manufacturers are constantly looking for ways to improve their offerings and also the best possible ways to market their products. Although a quite debated topic in the literature, a perfect model has not yet emerged, and therefore the purpose of this research is to look into the benefits and drawbacks of the available business models in the gaming industry. Going more in depth, we wanted to understand what are the key factors that would prompt people to not only buy computer games, but further engage in purchasing virtual goods that are part of these virtual realities.
59
10.1 Theory versus empirical findings
The thesis started with introducing the topic of our research and the research questions that formed the basis of our analysis. Afterwards, a review of the available literature on online gaming was conducted in order to understand where our study fit within the bigger picture and how can the results add to existing information on online gaming, and business models in particular.
Boyd (2004) argued that online games are, as any other leisure activity, a way in which people look to satisfy their need for interaction, socialization and the need for diversification of daily routines. Crawford (1982) goes a step ahead and talks about the factors that are key to people when choosing this sort of activity over others. He concludes that an online environment encompasses goals, operations and feedback. These three characteristics pave the way to creating a strong and cohesive community, that allow players to extract all the benefits of such an environment, as described in literature by Plant (2005), Jensz and Mertens (2005) and Becker, Chernihov Shavitt and Zilberman (2012). Communities are fundamental in keeping players constantly entertained and motivated to continue investing time, but as Bekhtina (2002) pointed out, curiosity and interest, cognitive stimulation, enjoyment of different life styles and ultimately recreation could also be added to this list. Also, the social and cooperative nature of these virtual worlds contribute to the proliferation of the phenomenon (Chappel et al, 2006).
It can be observed, and also stressed in Griffiths's (2003) research, literature and research has started to put more emphasis on the benefits that this sort of activity can bring to the development of individuals, and not only focus on the negatives that for a long time have led to online gaming being perceived as damaging to people's health and behaviors.
Moving on to the business behind the games, Jackson (2007) stressed the importance of new and innovative streams that are needed in order to cope with the player's demand for new content and new venues of entertainment. Chong (2009) believes that the gaming industry has shifted during previous years from gaming 1.0 to gaming 2.0. He argues that this transition has divided the game developers in two distinct categories: the winners, those developers who have adapted the business models to the requirements of the market, and the losers who decided to stick to the strategies that once brought the success. From his analysis, hybrid models have emerged as potential solutions to dealing with this constantly changing environment. Incorporating aspects from packaged games, subscription models, and free-to-play models might be the solution in the long run.
Lock-in mechanisms and the introduction of virtual goods have also been key aspects in our research. In their research, Choi and Kin (2004) emphasize that creating an environment that fosters loyalty and
60 positive customer experience, increases the chances of sticking to a particular brand in the long run. Building on this finding, our research turned to the study of Csikszentmihalyi and Csikszentmihalyi (1988) that discuss about the connection that an individual has with an activity that keeps him engaged, and coined it the "state of flow". This concept can be applied to any industry that requires the participant to spend a large amount of time connected to the activity. When a player enters a state of flow, his concentration levels increase to a point where no external stimuli can distract him from carrying on with his initial activity.
In terms of the use of virtual goods, literature support the idea that free-to-play games have paved the way for the existence of such pricing mechanisms (Lee, 2013). Nojima (2007) argues that item-based pricing mechanisms are similar to price discrimination, where each player pays to their value experience as opposed to be required to pay a fixed rate or a subscription. However, caution needs to be exerted when choosing which items to offer in exchange for real money. Oh and Ryu (2007) stress the importance of striking a balance between the items that can be purchased with real money and the items that can be gained with in-game currency so that purchasing an item with real currency does not destabilize the virtual realities.
The conceptual model that we presented earlier on in our research tries to bring together the factors that were considered paramount to keeping people engaged with the virtual realities as presented in the literature. Furthermore, we tried to find potential relationships between these factors and the player's willingness to engage in micro-transactions and the purchase of virtual goods. The next table summarizes the most essential findings from the literature and our research.
Research Relevant implications Our research
Through online games, people satisfy the Online games give an individual a sense of Boyd (2004) need for interaction, meeting new people, belongingness, something to strive for. It creating new linkages and adding diversity can only be obtained through constant in their lives interaction
Problem solving theory offers a From our interviews, feedback emerged as a Crawford (1982) framework that guides the player's paramount characteristic of an online actions and is based on: goals, operations environment. The setting of goals was also a and feedback. key component in our discussions.
61
Reasons why people join virtual Besides these factors, competition, Bekhtina (2002) communities: curiosity and interest, interaction, personal gratification and cognitive stimulation, enjoyment of a achievement have been found to motivate different life-style, recreation people to join virtual communities Players find the social and cooperative Cooperation coupled with competition have Chappel et al. (2006) nature of the games as being what keeps been found to be key characteristics them motivated and engaged especially in free-to-play games
The transition from gaming 1.0 to gaming Our interviewees argued that there is no Chang (2009) 2.0 has given rise to hybrid business perfect business model, but there is the models need for models that incorporate characteristics from all the existent models Cummins (2002) Interaction can be wither player to player Our analysis showed that it is equally or player to environment important to create a positive relationship between players, but also with the surrounding environment. Loyalty and customer experience is what It has emerged that loyalty is a key aspect in Choi and Kim (2004) makes people stick to a certain brand keeping people motivated to play the same game over a long period of time. However, from our questionnaires, it cannot be argued that this impacts the willingness to pay. A balance needs to be struck between All the interviewees agreed that pay-to-win Oh and Ryu (2007) items that can be purchased with real games are damaging to the communities. money and items that can be gained They allow individuals that invest in a game through in-game play to gain a heavy advantage over their opponents. Item-based pricing mechanisms are Giving the players the opportunity to decide Nojima (2007) similar to price discrimination, where each for themselves whether it is worth investing player pays to their value experience as a game would attract more players than opposed to paying a fixed rate or a having to pay upfront, or on a monthly subscription bases. Table 13: Literature versus empirical findings
62
10.2 Summary of empirical findings
The research showed that the world of gaming is undergoing a transition from games that were merely intended to be played for a leisure activity, to a phenomenon that incorporates aspects such as competitive play, broadcasting of events, professional teams and managerial teams. Free-to-play models have been considered the ones to pave the way to this shift as they offer a higher degree of openness and also the possibility to engage with a game at different levels. Players prefer these types of games as they can be firstly tested before any financial commitment has been made.
The interviews showed that the gaming phenomenon has grown due to the creation of ecosystems. These ecosystems encompass everything that a player can do in relation to a certain game. Trading and betting platforms, professional teams, LAN or online events, have all contributed to the growth of the ecosystem, and have added to the constant proliferation of computer games.
The results of the questionnaires pointed out to the fact that service improvement and constant novelty in content, reaching a state of flow, interaction, feedback and recognition and the introduction of trading platforms and eSports have all contributed to increasing the willingness of players to purchase virtual goods.
10.3 Future steps in the research
This piece of research can be extended by taking a more in depth look at every game in particular. By doing so, future research can look into the differences and similarities between the communities of different games. This can help to better understand what dame developers do right in terms offering their customers and environment that fosters cooperation, competition and ultimately increasing the player's willingness to pay.
Furthermore, it would be beneficial for further research to take an approach that focuses more on the developer side to try and understand the position of game developers in terms of the gaming scene, and their opinions towards how the future of the industry will look like and what the game producer companies need to in order to remain competitive. Also, an emphasis of the design and pricing mechanisms of several gaming platforms such as Steam or Origin would contribute to the literature. A comparison between platforms may yield valuable information towards why players prefer one compared to the other.
63
Micro-transactions could also be analyzed in terms of the types that currently exist. It would be interesting to research what types of virtual goods people prefer and the factors associated with the preference. Finally, although I believe it is quite interesting, but unfortunately could not make it a focal point in this research, future research could focus on the ways in which game developers raise money for competitive tournaments through crowd funding. It is a novel concept that has tremendously increased in importance during the past years, and is starting to shape the world of gaming.
64
11. List of tables and figures Figure 1: Design features for personal interaction...... 9 Figure 2: Number of players per type of game...... 17 Figure 3: Features that lead to customer loyalty...... 20 Figure 4: Conceptual model...... 30 Figure 5: Location of participants...... 35 Figure 6: Game distribution...... 36
Table 1 : Sample gross margin calculation...... 23 Table 2 : Participant's age...... 47 Table 3 : Participant's gender...... 47 Table 4 : Highest degree of education...... 48 Table 5 : Involvement in computer games...... 48 Table 6 : Correlation between loyalty and willingness to pay...... 49 Table 7 : Correlation between service improvement and new content and willingness to pay...... 49 Table 8 : Correlation between interaction, feedback, recognition and willingness to pay...... 50 Table 9 : Correlation between the state of flow and willingness to pay...... 50 Table 10: Correlation between the introduction of trading platforms and eSports and WTP...... 50 Table 11: Linear regression model...... 52 Table 12: Linear regression with all the independent variables...... 53 Table 13: Literature versus empirical findings...... 62
65
12. References
1. Amine, A. (2011). Consumers' true brand loyalty: the central role of commitment. Journal of Strategic Marketing 6:4, 305-319.
2. Bartle, R. (1996). Hearts, clubs, diamonds, spades: players who suit MUDs. [online] Available at: , http:// www.mud.co.uk/richard/hcds.html. [Accessed 10 June 2015].
3. Becker, R., Chernihov, Y., Shavitt, Y. and Zilberman, N. (2012). An Analysis of The Steam Community Network Evolution. IEEE 27th Convention of Electrical and Electronics Engineers in Israel.
4. Becker, R., Chernihov, Y., Shavitt, Y. and Zilberman, N. (2012). An Analysis of The Steam Community Network Evolution. Convention of Eletrical and Electronics Engineers in Israel. IEEE 27th.
5. Bekhtina, V., J. (2002). Psychological research of MUD gamers. Unpublished diploma thesis, Psychology Department, Moscow State University.
6. Bell, C. and Newby, H. (1971). Community studies. Westport, Praeger.
7. Blackburn, J., Simha, R., Kourtellis, N., Zuo, X., Long, C., Ripeau, M., Skvoretz, J. and Iamnitchi A. (2011). Cheaters in the Steam Community Gaming Social Network. [online] Available at: http://arxiv.org/pdf/1112.4915v1.pdf, [Accessed: 20 April 2015].
8. Blog.dota2.com, (2015) Dota2. [online], Available at: http://blog.dota2.com/?l=english, [Accessed 21 April 2015].
9. Boyd, S. (2004). Being wired encourages human contact: The Third Space. [online] Available at: http://www. corante.com/getreal/archives/004843.html [Accessed: 20 April 2015].
10. Brightman, J. (2014). EA: Digital revenues to overtake physical in two years. [online] Available at: http://www.gamesindustry.biz/articles/2014-02-20-ea-digital-revenues-to-overtake-physical-in- two-years [Accessed 03 March 2015].
11. Castranova, E. (2005). Synthetic Worlds: The Business and Culture of Online Games. The University of Chicago Press.
12. Caves, R. (2000). Creative Industries: Contacts between Art and Commerce. Cambridge, MA: Harvard University Press.
66
13. Chang, O. (2010). Casual Games Publisher Big Fish On Track to Make At Least $130M This Year. [online] Available at: http://www.forbes.com/sites/oliverchiang/2010/11/22/casual-games- publisher-big-fish-on-track-to-make-at-least-130m-this-year/ [Accessed 23 May 2015].
14. Chang, T. (2009). Economic and Business Dimensions: Gaming Will Save Us All. Casual Connect 2009 conference.
15. Chappell, D., Eatough, V., Davies, M., N., O. and Griffiths, M. (2006) EverQuest - It's Just a Computer Game Right? An Interpretative Phenomenological Analysis of Online Gaming Addiction. Int J Ment Health Addiction. 4: 205-216.
16. Chen, H., Wigan, R., T. and Nilan, M., S. (1999). Optimal Experience of Web Activities. Computers in Human Behavior. 15(5), 585-608.
17. Chiu, S., I., Lee, J., Z. and Huang, D., H. (2004). Video game addiction in children and teenagers in Taiwan. CyberPsychology & Behavior: 7: 571-81.
18. Choi, D. and Kim, J. (2004) Why People Continue to Play Online Games: In Search of Critical Design Factors to Increase Customer Loyalty to Online Contents. CyberPsychology & Behavior. Vol. 7, Number 1.
19. Cole, H. and Griffiths M., D. (2007). Social Interactions in Massively Multiplayer Online Role- Playing Gamers. CyberPsychology & Behavior. Volume 10, Number 4, 2007.
20. Collins, E., C. (1992). Qualitative research as art: toward a holistic process. Theory into Practice. (2), 181-185.
21. Crawford, C. (1982). Art of computer game design. Berkley, CA: Osborne/ McGraw Hill.
22. Csikszentmihalyi, M. (1990). Flow: the psychology of optimal experience. New York: HarperCollins.
23. Csikszentmihalyi, M. and Csikszentmihalyi, L., S. (1988). Optimal experience: psychological studies of flow in consciousness. New York: Cambridge University Press.
24. Cummins, N. (2002), Integrating e-commerce and games. Personal and Ubiquitous 6:362-370.
25. David, B. and Wiemer-Hastings, P. (2005). Addiction to the Internet and Online Gaming. CyberPsychology & Behavior. Volume 8, Number 2.
26. Davison, P. (2013). Does Anybody Really Like Microtransactions? [online] Available at: http://www.usgamer.net/articles/does-anybody-really-like-microtransactions [Accessed 17 May 2015].
67
27. Debeauvals, T. (2012). Business intelligence in world of warcraft. University of California, Irvine, 66,11.
28. Dess, G., D., Lumpkin, G., T. and McGee, J., E. (1999). Linking corporate entrepreneurship to strategy, structure and process: suggested research directions. Entrepreneurship theory and practice, 23, 85-102.
29. Dota2.prizetrac.kr, (2015). The International 2015 - Dota 2 Prize Pool Tracker. [online] Available at: http://dota2.prizetrac.kr/international2015 [Accessed 6 May 2015].
30. Eisenhardt, K., M. and Graebner, M., E. (2007). Theory building from cases: Opportunities and challenges. Academy of Management Journal, 50(1), 25-32.
31. Entertainment Software Association, (2014). Essential Facts About The Computer And Video Game industry. [online], Available at: http://www.theesa.com/wp- content/uploads/2014/10/ESA_EF_2014.pdf [Accessed: 20 April 2015].
32. Gillespie, T. (1997). Digital storytelling and computer game design. Proceeding of the 1997 CHI Conference on Human Factors in Computing Systems 148-149.
33. Gourville, T., J. and Soman, D. (2012). Pricing and the Psychology of Consumption. Harvard Business Review. [online] Available at: https://hbr.org/2002/09/pricing-and-the-psychology-of- consumption [Accessed 20 June 2015].
34. Griffiths, M., D. (2003). The therapeutic use of videogames in childhood and adolescence Clinical Child Psychology and Psychiatry, 8, 547-554.
35. Griffiths, M., D. and Dancaster, I. (1995). The effect of Type A personality of psychological arousal while playing computer games. Addictive Behaviors, 20, 543-548.
36. Griffiths, M., D. and Hunt, N. (1998). Computer game "addiction" in adolescence? A brief report. Psychological Reports, 82, 475-480.
37. Griffiths, M., D., Davies, M., N., O, and Chappell, D., (2004). Demographic factors and playing variables in online computer gaming. SyberPsychology and Behavior, 7, 479-487.
38. Grubb, J. (2015). World of Warcraft surpasses 10M subscribers once again. [online] Available at: http://venturebeat.com/2015/02/05/world-of-warcraft-surpasses-10m-subscribers-once-again/ [Accessed 21 April 2015].
39. Hagel, J. and Armstrong A., G. (1997) Net Gain. Boston, Harvard Business School Press.
68
40. Hamari, J. (2009). Virtual Goods Sales: New Requirements for Business Modeling? University of Jyvaskyla, Dept. of Computer Science and Information Systems.
41. Hawkins, J. (2005).'The Mayor's Commission on the Creative Industries', in Hartley, J., ed, Creative Industries. Maldon, MA: Blackwell Publishing, pp. 117-25.
42. Holt, E. (2015). Iwata Thinks Some Games are Suited to the Free-to-Play Model. [online] Available at: http://www.gamnesia.com/news/iwata-thinks-some-games-are-suited-to-the-free- to-play-model [Accessed 25 May 2015].
43. Hsu, C. and Lu, H. ( 2007). Consumer behavior in online game community: a motivational factor perspective. Computers in Human Behavior. Vol. 23 No. 3, pp. 1642-59.
44. Huang, L-Y. and Hsieh Y-J. (2011). Predicting online game loyalty based on need gratification and experimental motives. Internet Research, Vol. 21 Iss 5 pp. 581-598.
45. Jackson, P. (2007). The Real Business Of Virtual Worlds. Forrester Research.
46. Jeckel, A. (2003). European Film Industries. London: BFI Publishing.
47. Jensz, J. and Martens, L. (2005) Gaming at a LAN event: the social context of playing video games. New media & society. Vol7 (3):333-335.
48. Jeon, G., R. (2004). A study on the actualization of interactive text: Analysis of the massively multiplayer online role game playing. Journal of Korean Communication, 48(5), 188-213.
49. Jin, D., Y. and Chee, F. (2008). Age of New Media Empires: A Critical Interpretation of the Korean Online Game Industry. Games and Culture. Volume 3. Number 1. 38-58.
50. Keng, C. (2014). Online Streaming and Professional Gaming is A $300,000 Career Choice. [online] Forbes. Available at: http://www.forbes.com/sites/cameronkeng/2014/04/21/online-streaming- professional-gaming-is-a-300000-career-choice/ [Accessed 28 April 2015].
51. Ko, CH., Liu, GC., Hsiao, S., Yen, JY., Yang, MJ., Lin, WC., Yen, CF., and Chen CS. (2009). Brain activities associated with gaming urge of online gaming addiction. Journal of Psychiatric Research. 43: 739-747.
52. Kotler, P. and Armstrong, G. (1989). Marketing: an introduction. New Jersey: Prentice Hall.
53. Kromand, D. (2015). Gamasutra - What Gamers Think About Microtransactions. [online] Available at: http://www.gamasutra.com/view/feature/132595/what_gamers_think_about_.php?print=1 [Accessed17 May 2015].
69
54. Kuss, D., J., Louws, J. and Wiers, R., W. (2012). Online Gaming Addiction? Motives Predict Addictive Play Behavior in Massively Multiplayer Online Role-Playing Games. Cyberpsychology, Behavior, and Social Networking. Volume 15, Number 9.
55. Lee, C., W. (2010). Influential factors of player's loyalty towards online games for achieving commercial success. Australian Marketing Journal 18. 81-92.
56. Lee, D. (2006, October 8). Online gaming becoming part of life. Korea Times.
57. Lee, R. (2013). Business Models and Strategies in the Video Game industry: an analysis of Activision-Blizzard and Electronic Arts. MIT Sloan School of Management.
58. Lenhdonvirta, V. (2009). Virtual item sales as a revenue model: Identifying attributes that drive purchase decisions. Springer Science+Business Media, 97-113, 97.
59. Lewinsky, J., S. (2000). Developer's guide to computer design. Portland: Worldwide Publishing Inc.
60. Longanecker, C. (2015). Why You Should Use a Subscription Business Model. [online]. Available at: http://www.entrepreneur.com/article/243573 [Accessed 19 May 2015].
61. May, C., A. (1994). Addiction to video and computer games: A case Study. Nervenheilkunde, 13, 314-317.
62. McChesney, R. (1998). 'The Political Economy of Global Communication', in McChesney, R., Wood, E. and Foster, J. Capitalism and the Information Age: The Political Economy of the Global Communication Revolution. New York: Monthly Review Press, pp. 1-24.
63. Miles, J. and Gilbert, P. (2005). A Handbook of Research Methods for Clinical and Health Psychology. Oxford University Press.
64. Ministry of Culture and Tourism (2007). The Rise of 2007 Korean Games: Guide to Korean Game Industry and Culture. Seoul: Korea Game Development & Promotion Institute.
65. Mosco, V. (1996). The Political Economy of Communication: Rethinking and Renewal. London: Sage Publications.
66. Myers, T., A. (2011). Goodbye, listwise deletion: Presenting hot deck imputation as an easy and effective tool for handling missing data. communication Methods and Measures, 5(4), 297-310.
67. National Research Council, (2010). The Rise of Games and High Performance Computing for Modeling and Simulation. National Academies Press.
70
68. National Research Council. (1999). Pathological Gambling: a critical review. Washington D.C.: National Academic Press.
69. Nojima, M. (2007). Pricing models and motivation for MMO play. [online]. Available at: http://www.digra.org/dl/db/07311.40164.pdf [Accessed 31 May 2015].
70. Oh, R. and Ryu, T. (2007). Game design on item-selling based payment model in Korean online games. [online] Available at: http://www.digra.org/wp-content/uploads/digital- library/07312.20080.pdf [Accessed 31 May 2015].
71. Orland, K. (2011). Toys R Us: Video Games Part of 'Weakest' Holiday Sales Category. Gamasutra, January 6, 2011.
72. Oxforddictionaries.com, (2015). community - definition of community in English from the Oxford dictionary. [online] Available at http://www.oxforddictionaries.com/definition/english/community [Accessed 28 April 2015].
73. Pachter, M. (2009). Money For Nothing: How Ancillary Revenues Can Extend The Console Cycle. Wedbush Morgan, Los Angeles, San Francisco, New York, Boston, Seattle.
74. PC Gamer, (2015). 27 million people play League of Legends every day. [online] Available at: http://www.pcgamer.com/27-million-people-play-league-of-legends-every-day/ [Accessed 21 April 2015].
75. Peel, J. (2015). Steam racks up 125 million active accounts, with help from Dota 2 and Counter- Strike. [online] PCGamesN. Available at: http://www.pcgamesn.com/dota-2/steam-racks-up- 125-million-active-accounts-with-help-from-dota-and-csgo [Accessed 6 May 2015].
76. Peichi, C. (2008). New Media for Social Change: Globalisation and the Online Gaming Industries of South Korea and Singapore. Science, Technology & Society 13:2 (2008): 303-323.
77. Peterson, S. (2014). "End of console era as we know it". [online]. Available at: http://www.gamesindustry.biz/articles/2014-09-08-the-end-of-the-console-era-as-we-know-it [Accessed 19 May 2015].
78. Peterson, S. (2014). "End of the console era as we know it". [online] Available at: http://www.gamesindustry.biz/articles/2014-09-08-the-end-of-the-console-era-as-we-know-it [Accessed 25 May 2015].
79. Plant, R. (2004). Online Communities. Technology in Society 26 (2004) 51-65.
80. Play Meter. (2011). State of the Industry Report. February 2011.
71
81. Pontzen, J., S. (2008). The development of a price control mechanism for MMORTGs. Ilmenau University of Technology. School of Business Studies. Department of Economic Theory.
82. Saed, S. (2015). Steam has over 125 million active users, 8.9M concurrent peak. [online] Available at: http://www.vg247.com/2015/02/24/steam-has-over-125-million-active-users-8- 9m-concurrent-peak/ [Accessed 6 May 2015].
83. Saunders, M., Lewis, P. and Thornhill, A. (2009). Research methods for business students. Pearson Education. Essex.
84. Seay, A., F., Jerome, W., J., Lee, S., K. and Kraut, R., E. (2004) Project Massive: A study of Online Gaming Communities. CHI 2004. Late Breaking Results Paper. Pittsburgh, PA 15213.
85. Shaikh, B. and Jumain, S., A., R. (2014). Grounded theory of Consumer Loyalty, a Perspective through Video Game Addiction. International Journal of Social, Economics and Management Engineering Vol:8, No:5.
86. Skinner, B., F. (1969). Contingencies of reinforcement: a theoretical analysis. Engelwood Cliffs, N.J.: Prentice-Hall.
87. Smith, J. (2011). Inside virtual goods: Tracking the US virtual goods market 2011-2012. [online] Available at: http://www.businessofgames.com/all/inside-virtual-goods-tracking-the-us-virtual- goods-market-2011-2012-is-here/ [Accessed 04 June 2015].
88. Statt, N. (2013). Micropayments, mega angst, and the future of console games - CNET. [online] Available at: http://www.cnet.com/news/micropayments-mega-angst-and-the-future-of- console-games/ [Accessed 31 May 2015].
89. Statt, N. (2015). EA scores with shift to online play. [online] Available at: http://www.cnet.com/news/ea-scores-with-shift-to-online-play/ [Accessed 04 April 2015].
90. Steinkuehler, C., A. (2005). The New Third Place: Massively Multiplayer Online Gaming in American Youth Culture. Journal of Research in Teaching Education nr.3.
91. Tracy, S., J. (2010). Qualitative quality: Eight "big-tent" criteria for excellent qualitative research. Qualitative Inquiry, 16 (10), 837-851.
92. Van Dreunen, J. (2010). Virtual Item Sales Research Series: North America. SuperData Research, September 22, 2010.
93. Van Dreunen, J. (2011). A Business History of Video Games: Revenue Models from 180 to Today. The Game Behind the Video Game: Business, Regulation, and Society in the Gaming Industry. New Jersey.
72
94. Willie, C., V. (2000). The evolution of community education: content and mission. Harvard Education Review 2000;70(2): 191-210.
95. Yamamoto, S. and Sharma, P. (2015). Winning Subscription Price Models - Subscription Pricing. [online] Available at: https://www.zuora.com/academy/guides/defining-a-winning-subscription- price-model/ [Accessed 19 May 2015].
96. Yee, N. (2005). Motivation to play in MMORPGs. [online] Available at: http://www.digra.org/dl/db/06276.26370.pdf [Accessed 31 May 2015].
97. Yee, N. (2006). Motivations for play in online games. CyberPsychology &Behavior, Vol. 9 No 6, pp. 772-5.
73
13. Appendices
Appendix 1: Codes categorization
Interviewee Occupation Location Date
Professional caster, Bucharest 12th April, 2015 Interviewee 1 video producer
Ex-professional Bucharest 14th April, 2015 Interviewee 2 player, professional caster, operations manager at PGL.ro Team manager at XPC Bucharest 16th April, 2016 Interviewee 3 gaming
Ex-professional Berlin 5th May, 2016 Interviewee 4 player, professional caster, Dota2 coach
Appendix 2: List of interview participants
74
Semi-structured interview guide:
General questions:
Could you describe your involvement in the gaming environment, since the beginning and up to date (professional gamer, caster, entrepreneur, etc)? How do you think being part of this phenomenon changed the way you live? How do you feel that the world is responding to the growth of E-sports? Will we get to a point where E-sports may seriously be seen as a strong competitor to traditional sports?
Business models:
What are your thoughts towards how games were used to be marketed in the past (through retailers) to selling the games through structured online platforms? Do you believe this changed the proliferation of game franchises? How do you see the proliferation of all sorts of platforms (betting platforms, statistical platforms, items trading platforms) impacting the player's willingness to invest money in a game, and outside the game? Are you familiar with that DLCs and micro-transactions are? If yes, could you tell me how do you think the introduction of these pricing mechanisms has impacted the communities and the game developers? Do you believe free-to-play games attract more people compared to subscription based games, even if it means engaging in future transactions as the game progresses? Do you feel that subscription model will work in the future? What other alternatives could there be? What do you think a gaming developer can do wrong in terms of pricing mechanisms that will dissuade people to play that particular game? In terms of between-players transactions, do you feel that the real-money transactions should be more or less regulated (taxes, etc)?
Community:
How does a person's social and economic status impacts his willingness to pay for a game or for the perks that come with it?
75
Game developers use all sorts of lock-in mechanisms to keep their players engaged. What, according to you really makes people stick to a certain game, invest in it, and not switch to something else that may require less money invested? How do you feel about the increased number of e-sporting events that are being streamed and broadcasted and how do you think it impacts the community? What kind of improvements can be done in order to further engage people in this online-gaming phenomenon?
Appendix 3: Semi-structured interview guide
Questionnaire
Dear participant,
Thank you for accessing this questionnaire. This survey is part of my thesis research project that aims to explore what prompts players to engage in the purchase of virtual goods in the form of micro- transactions and DLCs.
This questionnaire is going to take about 4-6 minutes to complete. Please answer all the questions to the best of your knowledge.
The responses will be handled anonymously and will only be used for the purpose of my Master's thesis.
Thank you for your time and consideration.
Kind regards,
Bogdan Berbece
MSC in Business Administration - Entrepreneurship and Innovation
University of Amsterdam [email protected]
Basic details: What is your age? (Under 18, 18-25, 26-35, 35+)
What is your gender? (Male, Female)
What is the highest degree of education achieved? (Secondary school diploma, High school diploma, Bachelor's degree, Postgraduate degree)
76
Number of years that you have been casually or professionally involved in computer games(both offline and online) (More than 10 years, Between 5 to 10 years, Less than 5 years, Less than 2 years)
What is your current occupation? (Student, Employed, Unemployed, Retired)
Loyalty towards a certain brand:
'I will never spend any money on online or offline games.' (1 to 5 Likert scale)
'I usually play game franchises that I have known for a long period of time.' (1 to 5 Likert scale)
'I am loyal to a game I chose and I play it for a long period of time.' (1 to 5 Likert scale)
'The higher the loyalty I have towards a game, the more likely I am to purchase in-game perks' (1 to 5 Likert scale)
'The game developers take the necessary steps to ensure players stay loyal to a certain brand.' (1 to 5 Likert scale)
'I find it hard to switch to other games and start from scratch.' (1 to 5 Likert scale)
'My loyalty towards a brand comes from the fairness of their product pricing.' (1 to 5 Likert scale)
'My loyalty towards a brand comes from the quality of the content of the game.' (1 to 5 Likert scale)
Service improvement and new content:
'Developers are constantly improving their services and create new content.' (1 to 5 Likert scale)
'I prefer to purchase new content and features if I enjoy the game rather than just trying to further my online experience strictly through the game.' (1 to 5 Likert scale)
'DLCs and micro-transactions are beneficial in free-to-play games.' (1 to 5 Likert scale)
'I prefer free-to-play games rather than purchasing full games or subscription based games.' (1 to 5 Likert scale)
'I usually purchase cosmetic goods'. (1 to 5 Likert scale)
'I usually purchase goods that offer me a considerable advantage or new experiences'. (1 to 5 Likert scale)
State of flow:
'I feel certain games are addictive.' (1 to 5 Likert scale)
77
'If I become addicted to a game, my willingness to pay increases.' (1 to 5 Likert scale)
'I usually get distracted by other things while playing computer games.' (1 to 5 Likert scale)
'Playing a game for a long period of time only makes me want to play it even more.' (1 to 5 Likert scale)
'If I am engaged with a game, new content that requires real money transactions would make me quit the game.' (1 to 5 Likert scale)
'If I am engaged with a game, I am willing to pay for constant updates and improvements.' (1 to 5 Likert scale)
Interaction, feedback and recognition:
'Interaction with other players is important to me.' (1 to 5 Likert scale)
'Feedback that I receive for my in-game actions is important to me.' (1 to 5 Likert scale)
'Recognition within the community is important to me.' (1 to 5 Likert scale)
'If a virtual environment offers good interaction, feedback and recognition, I would be willing to spend money.' (1 to 5 Likert scale)
'Competition with other players is important to me.' (1 to 5 Likert scale)
'I would be willing to pay for certain perks if this would increase my reputation within the community.' (1 to 5 Likert scale)
Trading platforms and eSports:
'I am familiar with virtual goods trading platforms (both item swaps and item purchases).' (1 to 5 Likert scale)
'I am familiar with eSports(competitive online games).' (1 to 5 Likert scale)
'The proliferation of online trading platforms has prompted me to purchase virtual goods with real money.' (1 to 5 Likert scale)
'Transactions on trading platforms are fair.' (1 to 5 Likert scale)
'Following the eSports phenomenon (competitive events) and supporting one or several teams has made me invest in virtual goods.' (1 to 5 Likert scale)
78
'Streaming professional games via different channels has increased my willingness to pay for in-game virtual goods.' (1 to 5 Likert scale)
Willingness to pay:
How much money would you be willing to spend on a monthly basis on virtual goods and DLCs? (None, Under 5 Euros, Between 5 and 10 Euros, Between 10 and 20 Euros, More than 20 Euros)
What influences you to spend money on games? (Loyalty, Service improvement and new content, State of flow, Interaction, feedback and recognition, Trading platforms and eSports)
Appendix 4: Online questionnaire
79