# Interesting monetization scheme

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http://arxiv.org/abs/1611.01471

not only games, but games seem to be one of the most suitable areas

what would you say?

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So when the player doesn't want your game any more, they give you the game back and you give the money back?

Not sure how that works at all with virtual goods that can be copied, and if you have to give the money back at any time you'll have to hold it in escrow, so you'd never turn a profit.

Did I misunderstand?

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This sounds absolutely terrible for games and software of any kind.

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Players will have to give the fun they had back as well.

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This paper proposes a business model wherein the customer lends you some money, and in exchange you lend them a license to your product for an agreed period of time. At the end of the agreed period of time, the customer either chooses to keep the product (and you then keep their money) or return it, causing you to return their money to them. The customer does not have the right to return the product earlier; there is no early-termination mechanism.

On the surface this is not dissimilar from, say, Steam's refund system, although the intent of this model is clearly for the "agreed upon length of time" to far exceed Steam's window of a few hours. That means that you can't (shouldn't) account for any of that money being realized until the end of the agreed-upon time period, at which point hopefully the user will keep the product and you'll get to keep the money. While the paper posits you could invest the money in the interim, that's not very attractive as you must be sure you can keep enough liquidity to pay out all your customers at the end of their agreements. Investing the money into anything risky would thus be irresponsible, but investing in anything that has a guarantee of not losing the money is basically not worth it because the returns would be trivial, especially given the likely term of the "agreed upon period," which for games would probably need to be a few months.

As a developer, your ability to realize revenue and profit is thus deferred for several more months beyond the completion of the game. If you have a publisher, that publisher will not likely pay you while you both sit around and wait, so you'll need some other way to float your payroll until then. That's impractical for many developers. Since you're waiting, you don't have a true idea of how successful your game will be. How many sales did you actually stick? You'll have to wait months to know. In the meantime you can't really tell how much money you're going to make from the game so you can't tell if it is worth investing your time into continuing with that game or finding a new project, et cetera.

This model basically tacks on a few extra months of effective development time to any product, during which a developer must effectively self-fund and suffer extreme unreliability of information about what their next steps could be. It offers no realistic, practical benefit to the developer (or the publisher) that I can see, and consequently is a bad idea. A good business model must treat both consumer and producer fairly and understand the leverage each side has over the other, taking that into account and arriving at something reasonably balanced. This model shifts the balance of power towards the consumer rather drastically.

Also:

• The comment that "piracy might decrease because consumers view this as more fair" blithely ignores a huge portion of the pirate market, those who simply pirate because then can, not out of any principled stand or inability to afford the product.
• The paper posits that this would be useful for products with large initial expenses... and then names some products (like Unreal, Adobe's products, et cetera) that no longer have those large initial expenses and have subsequently switched a subscription or royalty-based model that is more attractive for the smaller companies that the paper claims to champion.
• The paper cites mostly mobile-related platforms when referring to game development, but focuses only only the shortening "lifecycle" (presumably in the consumers hands) of a game. It ignores the fact that any sort of up-front pay model is fairly rare in mobile games these days, where F2P and microtransactions are the norm, and profits are turned primarily by whales and by keeping players hooked on a game as long as possible.

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As Josh mentioned, currently when I get a check from steam, I get the money the month following the end of the billing cycle. This is to avoid potential chargebacks etc.

For example, I'll get my check for last month (ending 10/31) on 12/01.

With this system I'll have to wait even longer (maybe much more).

What's more, things like steam trading cards etc can't really be used with this system because someone could buy a game, try to get lucky cards, and refund it if they don't.

Also there's the liability that you'll piss off your community (either because of a bad update or even a rumor) and immidiately lose all the pending transactions (which can bankrupt a developer).

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That's a whole lot of bullshit formulae to make conjecture look like science.

If the best case for the seller is "everyone pays the full amount that they were willing to spend at the start" and the worst case is "nobody pays you anything but gets to use the product anyway" you may as well just stick to a standard retail model that is going to be broadly equivalent to the best-case option anyway. The suggestion that the "number of deals in this scheme should be far more" has no support, but any increase is likely to be linked to the likelihood of asking for a refund at the end, making the gains small or even negative.

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and if you have to give the money back at any time you'll have to hold it in escrow

no, the seller would have a fixed term contract, say for 3 or 6 or 12 months

Players will have to give the fun they had back as well

yes! you will have to shake them out - up to the very last smile

This paper proposes...

Josh, thanks for the detailed answer

but investing in anything that has a guarantee of not losing the money is basically not worth it because the returns would be trivial, especially given the likely term of the "agreed upon period," which for games would probably need to be a few months

but what if we have just a lot of buyers - they just keep a constant balance level by random payments

that constant level (of course, descreased a bit - just to be sure we can always pay to anyone) is the money we can invest

lot of clients means high constant level which may be tens million

even short-term conservative investments may be attractive with such sums

what do you think?

As a developer, your ability to realize revenue and profit is thus deferred for several more months beyond the completion of the game. If you have a publisher, that publisher will not likely pay you while you both sit around and wait, so you'll need some other way to float your payroll until then. That's impractical for many developers. Since you're waiting, you don't have a true idea of how successful your game will be. How many sales did you actually stick? You'll have to wait months to know. In the meantime you can't really tell how much money you're going to make from the game so you can't tell if it is worth investing your time into continuing with that game or finding a new project, et cetera.

yes, agree

but i'm not sure this is a really big problem

or at least there should be companies that could live with it

This model basically tacks on a few extra months of effective development time to any product, during which a developer must effectively self-fund and suffer extreme unreliability of information about what their next steps could be.

publisher may pay advance money as it happens with books?

It offers no realistic, practical benefit to the developer (or the publisher) that I can see

don't you think it can turn more players into payers? :)

e.g. I save money for summer holidays and use them to improve my character in some online game

best of both worlds :)

This model shifts the balance of power towards the consumer rather drastically

exactly! with the hope that they appreciate it and multiply greatly

not out of any principled stand or inability to afford the product

not sure.. in poor countries with relatively good education they may pirate because the  soft is too expensive

It ignores the fact that any sort of up-front pay model is fairly rare in mobile games these days, where F2P and microtransactions are the norm, and profits are turned primarily by whales and by keeping players hooked on a game as long as possible

this actually is another form of F2P as I see

and microtransactions are just shaded - they hide in short-received interest from the money a player deposits to the game

this sheme also seems to help hooking as well ..

because someone could buy a game, try to get lucky cards, and refund it if they don't

but it's ok - buyer had been keeping his money during the contract on your account - the article says it is enough

Also there's the liability that you'll piss off your community (either because of a bad update or even a rumor) and immidiately lose all the pending transactions (which can bankrupt a developer)

yes, you're right,

but look, companies like paypal, visa, mastercard are still alive

people trust them

it seems this sheme is for a specialized monetization company - not for any small gamestudio

not small gamestudios

something like that - large online game tries to sell different ingame stuff for real money

a lot of people feel like idiots to pay real money for virtual stuff

but this scheme may seem more fair for them

you keep you sales and other schemes

but you add one more scheme for the army of those who don't pay

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The paper suggests the IP holder may invest the money however he likes. This is a lie.

ye.. that sounds very impressive, but please read more carefully before making an impression

section 2, second item

"• Manufacturer may use the invested money at his own discretion, e.g. deposit to a bank, or buy obligations, or invest to development, but he has to return all the money upon the end of the agreement"

Some goods, software in particular, is worthless after the consumer has used it

Why limit yourself to IP? Rent a car, rent an apartment. At the end of the month, ask your money back!

I can't agree with that, by no means

Software is just as good as before after the usage, car - not

but yes, piracy is a hard issue.. I understand what you mean by deprecation here

ok, forget about software, i see it is a difficult topic

but what about all that online stuff like weapon or armor or racinig car

in online games they may be used and returned (absolutelly under control - no piracy) in the same condition :)

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online stuff like weapon or armor or racinig car in online games they may be used and returned (absolutelly under control - no piracy) in the same condition

You're making an argument for not paying for virtual goods. That's okay; but don't pretend there's actually a revenue model for game developers hidden in here.

We charge money for virtual goods not to cover some imaginary wear and tear costs during the rental period or even to cover the marginal cost at sale time, but simply to generate revenue through which to run the game. Your suggestion provides plenty of value for customers (by giving them whatever they want at minimal cost, approaching zero) while given developers minimal revenue, approaching zero.

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[quote]The paper suggests the IP holder may invest the money however he likes. This is a lie. [/quote]ye.. that sounds very impressive, but please read more carefully before making an impression

Oh, I did, that's why I am saying this :)

The two parts in emphasis contradict each other:

Manufacturer may use the invested money at his own discretion, e.g. deposit to a bank, or buy obligations, or invest to development, but he has to return all the money upon the end of the agreement

If you are required to return all the money, then you cannot possibly invest the money at your own discretion. You can only invest the money in a very rigidly limited way that is guaranteed not to lose value. So, buying ground property is pretty much the only thing you are allowed to do. Therefore: "It's a lie".

Remember that stocks may lose value for non-foreseeable reasons and not recover, obligations may go up in smoke (and you're just out of luck, if the debitor can't pay, your obligations are not worth the paper they're printed on, and there's nothing you can do!), and even banks can -- and have -- gone bankrupt. Twenty years ago, one could have said "Oh, but that never happens", but not today. You can't even store your money at the central bank (under the assumption that the central bank cannot go bankrupt, go ask the Icelanders) because not only are you not getting any interest, indeed you have to pay to do that.

Edited by samoth

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As an example of that, the top rate of completely safe Government-backed savings in the UK right now is about 1.45%. Subtract the current inflation rate of 0.9%, and you're looking at a tiny rate of return in real terms. Maybe enough to hire someone on minimum wage for every million users you have...

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As an example of that, the top rate of completely safe Government-backed savings in the UK right now is about 1.45%. Subtract the current inflation rate of 0.9%, and you're looking at a tiny rate of return in real terms. Maybe enough to hire someone on minimum wage for every million users you have...

Looks like UK is the place to invest then!

I can only dream of getting 1.45% here -- banks are so desperate because "parking" money actually costs negative interest that I'm being offered sums in the 6-7 digit range for 0.75% p.a. with 10 years fixed interest. They're happy if only someone who is credit-worthy will take their money and put it into something where there is a seizable security (such as in ground property). Because then, they no longer have to worry about paying fines. Now, the catch is, of course, that this is meanwhile a risk investment, too. Since interests are low, prices skyrocket. Eventually the bubble may burst, and then suddenly your investment is worth 20% less...

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but what if we have just a lot of buyers - they just keep a constant balance level by random payments that constant level (of course, descreased a bit - just to be sure we can always pay to anyone) is the money we can invest lot of clients means high constant level which may be tens million even short-term conservative investments may be attractive with such sums what do you think?

"A lot of constant buyers" doesn't really change anything, it just complicates the analysis. The big problem is the N months between the day one sales and the time the day one revenue can be realized. Once you get past that threshold, this model is (barring the whole investment issue, which I'll cover) basically no different from a model where the customers return window is longer: it will normalize out over time. The question is is there anything in here for the seller that is beneficial enough to justify the difficulty of that first few months of dead time. I assert the answer is no.

Any investment carries risk of loss. Generally risk of loss scales with potential for return. You have to understand that a business, in this sales model, cannot consider money from sales theirs until after the N month period. That means they're investing somebody else's money with the obligation to return it later. That means they must be extremely conservative with the investment, bordering on basically not investing it at all. If the business is unable to pay their debts at the end of the term because they have lost money on bad investment choices, they will go out of business, either by their own choice or because they will be sued into oblivion by the lenders (customers). The only truly safe place to stash this money is in a bank account, which is insured against loss (although in the US the FDIC insurance limits are only up to $250k, so you won't be stashing "tens of millions" of dollars in there. I feel fairly confident assuming there is a similar limit on the "complete safe Government-backed" banks in the UK Kylotan was referring to. Not to mention that there is nothing in a game developer's skillset that necessarily suggests they will have brilliant, mutal-fund-management-style minds and thus have any real clue how to effectively shepherd this investment. But others have harped on your misrepresentation of the value of the investment clause of this model enough, I think. In the US you can get a high-yield savings account that approaches 1% APY. That's 0.01% after inflation, per Kylotan's 0.9% figure. On 250k that is... drumroll....$250. And that's after a year. After two or three months (which is the most reasonable term for this agreement, I think) you're looking at about $25. You're not going to float your studio for three months on$25. Even if this number were something more realistic for covering a studio's operating cost for three months... even if you could somehow safely earn enough on these investment to get you $25,000 in three months... that's not enough because you need to keep that money invested to capitalize on all that interest gain. For the entire three months. So you still have nothing to pay your day to day costs (including payroll) with, unless the publisher, for some reason, decides to cover you for that time). but i'm not sure this is a really big problem or at least there should be companies that could live with it You don't seem to understand how the majority of game development companies function. They are not usually financially independent, they are generally funded by publishers to produce a game. That means it's the publisher basically footing the entire bill for the studio's day to day operation. Why on earth would they continue to pay for an extra few months of the studio running when they're getting nothing out of that studio during that time? One should not plan one's business model around the idea that everybody involves will make poor financial choices, and paying a studio to do nothing for a few months is exactly that. publisher may pay advance money as it happens with books? Again, here's a misunderstanding about the game development business. The publisher has already paid the developer an effective advance to make the game. The is an advance that the developer is generally contractually obligated to repay, in whole or in part, before the developer themselves gets to see any actual profit from the game. So not only would the publisher balk at the idea of funding a studio to spin its wheels for three months, the studio would as well: it increases their debt to the publisher but adds no value to the game, and thus does not increase potential sales (which would allow the developer to see a profit sooner). don't you think it can turn more players into payers? No, I think it means fewer actual paying customers. Customers are not altruistic in the general case, they will make the choices that benefit themselves over you the game development. If this means they have extracted sufficient fun out of a game in the N month window, they will return it to you. They will not, in the majority case, elect to let you keep their money just because you're such a nice guy who chose a business model that favored the customer exclusively. exactly! with the hope that they appreciate it and multiply greatly As above, this is unrealistic. This paper (and perhaps you) is analyzing a business model in a fantasy world where everybody loves everybody else and appreciates their good faith gestures and sings Kumbaya every night around the campfire. This is not the world we live in. and microtransactions are just shaded - they hide in short-received interest from the money a player deposits to the game This does not make any sense to me at all; I cannot figure out what you're trying to convey. But microtransactions are not interest, nor are they investment. They are a simple, direct exchange of currency for virtual goods or perks, completed immediately. They're not hidden or shady at all, accounting-wise. Sometimes there are some interesting accounting issues with them, for example if you exchange real money for virtual currency, and then use the virtual currency to purchase in-game items, sometimes for accounting purposes the revenue for the transaction is not realized until the latter transaction (virtual currency for virtual good). This is not unlike the way gift certificates at retail work commonly, though. Edited by Josh Petrie #### Share this post ##### Link to post ##### Share on other sites Tax is another interesting topic. Or analysts, if you have gone IPO. You sell one million worth of licenses. The tax office immediately says: "Oh wonderful, you owe us 180k in VAT", and at the end of the year they'll say: "Of the remaining 820k, you still owe us 300k business tax, and uh... next year, we would like to see quarterly advance payments, that'll be 75k on April 1st". Meanwhile, your zealous analysts post on their tweets: "Expecting upwards of 500k win, FY17 forecast 750k". Then comes that day you've been waiting for: 50% of your customers ask back their money. Unluckily, there's only 520k left. Win expectations are not quite met, your company's stock value plummets into a nothingness, and guess what the tax office will say: "Huh, what do we care. Just, the fuck, pay your due tax". #### Share this post ##### Link to post ##### Share on other sites Manufacturer may use the invested money at his own discretion, e.g. deposit to a bank, or buy obligations, or invest to development, but he has to return all the money upon the end of the agreement as for me the second part does not contradict but just explain and specify but ok this is a worthless word-play So, buying ground property is pretty much the only thing you are allowed to do dont be this conservative :) do you use banks? everybody does. even large companies with huge money take the risk so you argue against all our finance system (which i agree is actually not so good) Government-backed savings in the UK right now is about 1.45% eu is not the best place to invest now, especially uk with its brexit china, india, russia, brazil much higher interests even with the most conservative government bonds I can only dream of getting 1.45% here where? Eventually the bubble may burst, and then suddenly your investment is worth 20% less... yes, that may happen.. and it would be a funny time for everybody They are not usually financially independent, they are generally funded by publishers to produce a game but this monetization scheme seems to suit much more a publisher or specialized monetizator company rather than a single gamestudio the more so since - yes, i agree that investments are for professionals - not for game developers This does not make any sense to me at all; I cannot figure out what you're trying to convey. But microtransactions are not interest, nor are they investment. They are a simple, direct exchange of currency for virtual goods or perks, completed immediately. They're not hidden or shady at all, accounting-wise. i mean if a user put his 100$ to a bank for a year and receives some interest, say 5$(it is still possible, not in eu and maybe not in us, but anyway) than this 5% is his "shaded" fee to the developer, his short-received income from "microtransactions" i meant only the "micro" part :) like in the example with 5$ the user pays about 1\$ each 2 months

Tax is another interesting topic.

this does not seem to be the case

the situation resembles banking rather then selling

i doubt bank pays his tax from the overall deposit

income is the tax-base anyway

by the way, bank may even be a direct monetizer,

a bank and a large game publisher or a bank and the Steam may play as one

and yes, thanks for everybody!

Edited by ZaoBao

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Legally, at least here in the UK if you take money which you may have to return in this way you aren't allowed to invest it. For example a person renting a house may take a deposit and returns that deposit upon end of the tenancy if the house is in acceptable condition. However the landlord doesn't keep that money in their account so they can't invest it. It must be stored in a special escrow account which can only be released when specific terms are met. This negates the possibility of turning over any profit from that cash via investment or any other venture. Technically it's not yours until the "trial" period ends.

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this does not seem to be the case the situation resembles banking rather then selling i doubt bank pays his tax from the overall deposit income is the tax-base anyway

That is what you are saying, but it is wrong (or imprudent) for two reasons:

First, the tax office (and that's the only opinon which matters!) will have a different point of view. As soon as you get money in exchange for a product, you pay VAT/sale tax, and you have sales (presumably "win") which you must declare. Your negative sales when customers ask their money back after a year are of course allowable against tax -- but only that year, against that following year's sales. But before that happens, first of all you pay for this year. Nobody cares where you take the money to reimburse your customers from, above all the tax office doesn't care. They want their money now.

Second, arguing "but this is rather a bank" is a very bad idea. That means you have to follow a huge stack of regulations, FATCA and 2015/849/EU only being the two most well-known recent ones with an international scope (there's about two dozen others, plus local laws). Another interesting detail about calling yourself a bank would be the obligation to keep a minimum reserve (usually 10%, but in China it's a whopping 20%) and the obligation to engage a reinsurer, which again means you cannot use the money at your own discretion and you have very non-trivial expenses.

china, india, russia, brazil much higher interests even with the most conservative government bonds

Those are risk investments. I have invested in Brazil in the past (15 years ago), and it worked out well because I was lucky. But that doesn't mean it's not risky. Someone doesn't pay you 14% because they enjoy paying high interests. They do that because they aren't credit-worthy, and nobody will otherwise lend them money.

Risk investments are not a viable survival strategy in conjunction with "must pay back".

Edited by samoth

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Another interesting detail about calling yourself a bank

yes, you are right, but why to be a bank? why not just to work with a bank

like people anyway come to office bring their money to deposit

and here they just sit at the computer, and make this deposit through your game but directly to the partner-bank

they do not get interest but they get some virtual bonuses in exchange

technically and legally it is just a deposit - the bank operates it

what if a real bank plays with you in one team?

Those are risk investments

not more risky than us or eu if you KNOW what you are doing and have a trustable partner in there

state-banks investments are very stable and they are.. mm.. inertial

i mean you may see if something is going to happen with ALL the economy in advance

of course there are exceptions like 2008 or 2015, but risk is not so high if you work with state banks

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So, it seems like the practicality of this approach has nothing to do with games or virtual goods and is just about whether you have good enough contacts in newly-developed economies to be able to invest there confidently (even though the 'state banks are safe' argument holds zero water when there have been times in recent history when inflation rates exceeded interest rates, meaning you lose money just by having it in the bank). As such, I'm not convinced this thread has any more mileage on this forum.

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Those are risk investments

not more risky than us or eu if you KNOW what you are doing and have a trustable partner in there
The word "risk investment" does not mean it's somewhat more or less risky in a sense "What if the country declares bankruptcy", or "What if revenue is only half as good as promised". It means "You have a fair chance of losing your money -- even if no meteor the size of Texas hits Earth". That's why risk investment has such a high interest rate, this is to compensate for its risk. Anyone who is not a complete fool will only do risk investments with money that you can afford to lose because losing it is not altogether unlikely to happen. You don't put 10,000 on the roulette table if you can't afford losing them either, do you.

Risk investment rules out "trustworthy partner". They are risk investments precisely because the partners are not trustworthy. If they were, they'd only pay 1/10 as much interest.

Besides, saying "if you know what you are doing" is, mildly said, an indication of a dangerous level of Dunning-Kruger. There are few people who know. Very few, and you won't find them on a game developer forum. But even so, knowing what you are doing is not going to save you because whether or not a risk investment bails is not foreseeable or within your control. The single most important thing in investing money isn't knowing what you are doing, but knowing what not to do.

That is to say, not doing anything that can cause a loss which will break your neck. Taking liabilities and putting the assets necessary to pay these liabilities into risk investments is likely to break your neck, unless you are so immensely rich that you simply don't care about losing a few hundred thousand, or a million. Breaking your neck is likely even more so if it involves moving money around internationally in non-predictable, and non-usual ways with all the many legal implications, and you haven't hired a team of specialist solicitors. Who, of course, won't work for free.