Hey D3 forums
Fully cognizant of the degree to which it is bad netiquette, another newbie registers just to post in an old thread! I hope you'll be forgiving. I'm in a mood to blather about economics.
I'm a Mac user. There aren't that many Mac games. A few days ago I was on macgamestore.com glaring annoyed at the release of some new 'AAA' strategy game (maybe was it a C&C?): boxed product, no demo available. I clicked around various related listings. Ended up with the D3 demo on my machine. Ran through the tutorial. And another demo game. It's awesome, I'm in love, I have to have it.
A few days, a couple exhausted demo games, and much fruitless internet scouring later, I'm here to blather about economics. If I could have bought D3 as a digital download for an appropriate price, I would have by now. Appropriate price? At certain points in these last days, my willingness to pay has certainly been over $200.
I'm not a unique or beautiful snowflake, but the value of something is a bit different to every person. I like my instant gratification. I calculate an expectation of the value I will derive from something and don't need to shop for deals (though I do shop for deals sometimes because I derive pleasure from that activity itself). I have evaluated D3 as a game that could provide (a very high level of enjoyment) * (a very large number of hours) = a lot of value to me. I have sufficient disposable income and an inclination to express appreciation for people who create value for me. And I have an extreme aversion to physical goods.
[these things have of course not always been true. *reminisces about being a snowflake* ]
To me, the ecological costs of physical distribution relative to digital distribution are unacceptable. There are a number of embedded assumptions in this, some of which may be naive. But all of the issues discussed in this thread about technical difficulties and costs of digital distribution are I believe inherently solvable by technology. If here in 2009 we're really not there yet it'd be kinda astounding (I think we are), but would just mean it'll be next year, or the year after. Transaction costs of digital distribution decrease with technological improvements much more rapidly than transaction costs of physical distribution do. Torn damp packages and four months waiting for customs in Brazil are transaction costs of physical distribution that are much less likely to be 'solved' in the next iteration of technology than transaction costs of digital distribution like resuming downloads.
I find it quite interesting that Tim said support costs for digital distribution are much higher than for physical distribution. It wasn't really clear from how you stated it, but I assume you must have meant the 17:1 comparison was for DD of a game vs. PD of that same game, and that this ratio was similar across all games that have DD and PD options? to control for quality differences between those games for which DD is available and those for which it's not.
I don't know the timescale over which these things can shift... is this 17:1 still the case (1+yr later)?
That's an issue to solve which should be solvable.
I'm a little unclear on part of the marginal cost stuff for the producer/seller side. I understand that due to the efficiencies of scale of physical manufacture, the marginal cost of a physical unit decreases with the number of units produced. But Tim's post seems to go further, saying that the marginal physical unit actually decreases the cost of previous units,.. that marginal cost of a physical unit is actually _negative_?! That seems like a broken (illogical, distorted, unsustainable) system, that must eventually be replaced with something better (more sane).
My impression is that at the scale digital systems are operating, marginal cost of a marginal unit is essentially flat (possibly not true for the cost structure of some of the transaction systems Shrapnel is using?). And I basically expect that as technology 'gets there,' marginal cost of digital distribution should go to zero, in a way that marginal cost of physical distribution *can't*. So given the choice of a marginal transaction as digital or as physical, I would expect the seller should prefer digital.
But Tim seems to say that once your fixed costs for physical are paid, the marginal cost of a physical unit is actually negative. Which seems counterintuitive to be point that it's really hard to believe. I don't know how much physical production costs, but I know how much it costs to ship a gig of data across the web, and it's a lot less than shipping a package across the United States, or around the world.
For me, as a buyer, transaction cost of digital is faaaar lower than transaction cost of physical. Many people have mentioned in this thread many reasons why transaction cost of digital is lower for them; I share most of those; my ecology neurosis is the only new factor I'm adding to the list. So the price tag I'm willing to pay for the digital transaction is far higher than the price tag I'm willing to pay for the physical transaction.
When I compare a theoretical physical purchase vs. digital purchase of the same software, my cost evaluation is like
[physical] price tag + s&h price + disappointment that I can't use immediately + ship time + receiving package + chance of delivery failure + handling physical media + cutting spine off manual + scanning manual + OCR'ing manual + search still won't be as good as if I'd gotten the manual directly as a text file + recycling physical material + regret about physical material that can't be recycled/wasted resources = total cost to me
vs
[digital] price tag - instant gratification = total cost to me
Most of those costs don't vary in size much from hour to hour or day to day. Instant gratification is the one exception. I'm not going to run through estimating dollar values to each, but you get the idea how there could be some moment at which it is more efficient (lower total cost) for me to pay $200 for a digital download than $60 to order a shipped box.
[I should note, in this scenario one very significant part of transaction cost is already paid in both cases: search cost. I have already incurred a large cost in reaching the point where I have some assessment of the expected value to me of the good (the determination that I want it). Had D3 not offered a downloadable demo, I certainly would never have reached that point.]
This is all in a world where seller and marginal buyer are considering whether marginal transaction should be digital or physical, and considering only marginal buyer's willingness to pay. There are all sorts of reasons why reality is nothing like this, including that markets with seller-set take-it-or-leave-it prices don't lend themselves to price discrimination, and that buyers might be freeloaders.
One person drew ire earlier in the thread by saying that the pirates offer better customer support. That comment is exactly right, for the specific meaning that those groups fearlessly minimize transaction costs. That transaction cost decrease can be even more significant in the effect on total cost for a consumer to acquire the good than the decrease in price tag, as transaction costs are often much higher than price tag. The great successes of licensed online distribution have been in online stores that effectively drive down transaction cost (including search costs). iTunes store? Steam? Yeah.
It's getting late where I am so I'm not going to delve into freeloading or anti-freeloading countermeasures right now, interesting though they are.
I understand that digital distribution for D3 isn't gonna happen. I'm not trying to make it happen. Just blathering about economics
Tim's contention that offering digital distribution isn't likely to increase sales is I think right. Potential buyers (again I am only talking about non-freeloaders) will either assess the likely value to them of D3 as so high that they are willing to accept the higher transaction costs (as every other poster in this thread I think has), or they wouldn't buy the game via DD for $60 anyway. Given a single price, offering DD would just shift buyers from PD, not significantly change sales volume.
We typically see DD and PD offered at the same price tag for software, or often DD has a lower price tag. The economics say that sellers really should be putting higher price tags on the DD. But of course in reality, that triggers all sorts of nastiness like 'other psychological effects.'
$200 for a game download?
preposterous!
right? right?
Illwinter, Shrapnel, will you sell me a DD of D3 for $200 Paypal?
I'm not going to order a physical box. I may be the first actual missed sale.
Re: Why Not Digitial Distribution?
Linear Mode
