[Industry] Microtransactions/Points

There is currently a lot of angst going on in the gaming communities regarding microtransactions, and there's a lot of accusations going around on all sides. I thought I'd share my perspective on what the benefits and downsides of microtransactions are. (For those who don't know, microtransactions are essentially exchanges of very small amounts of money. The first microtransaction system I'm aware of was BitPass in 2003.)

Microtransactions work from a business standpoint for a few reasons. First, credit card processing is expensive for merchants. For an online retailer to handle a Card-Not-Present transaction, it generally works out to about thirty cents plus three percent of the total plus a daily "processing" fee to handle all of the charges processed that day. So for a $20 charge, ninety cents go to the credit card company, plus whatever that transaction's share of the processing fee may be. It adds up.

Second, they help mitigate risk. For electronically distributed software and content, it's fairly well known and accepted that the primary loss factor is piracy...people who never bought it in the first place. The second largest loss factor, though, is the chargeback.

Let's say that I make a new game, GameX, and decide to sell it online. In order to sell it online, I take credit cards or PayPal. I decide that the best price balance for me to make money on top of the card fees and PayPal fees as well as encourage impulse purchases is $5. This means that forty-five cents out of every sale are going towards processing charges. Now, I'm targeting a niche market, and I only sell 1,000 copies. After charges (ignoring the processing fee), that means that my game cleared $4,550. (I'm excluding my bandwidth charges for the software here.)

Now, let's say that one customer who actually bought the game decides to contest this $5 charge on his credit card. (This is called "friendly fraud.") He received the game, played the game, and just decided to contest it for whatever reason. The moment it is contested, $5 (not $4.55) get deducted from my account. Because I'm a small-volume e-retailer, I also get charged a $25 chargeback fee. I then have twelve days to challenge this charge being contested. Assuming I win, I get that money back, but I only have a 30-40% chance of that happening with electronically distrubted software. If the charge is contested a second time, $30 goes away again and I have only two ways of trying to get it back. The first is to make an appeal through Visa/MasterCard. Doing that requires that I spend $150 to file the appeal, and pay them $250 to review the appeal. Obviously, that's not worth it, especially considering that retailers only win their appeals under 40% of the time. The other way is to send a collection agent after you, but given that most collection agents have a minimum charge of $30, that isn't worth it either.

Now, in this case, one customer wiped out the profit of over six sales. From what I hear from other e-tailers, in the above example, fifteen chargebacks are a more likely number, which reduces what I clear down to $4,100 after dispute charges. In other words, those fifteen chargebacks wiped out nearly 10% of my income. That isn't counting the manhours lost fighting the chargebacks in the first place, or other expenses necessary to keep a business going. In addition, because over 1% of my charges were charged back, I'm now seen as a "high-risk" e-tailer, and I start getting higher charges and extra charges per month.

Microtransaction services like Xbox Live Marketplace and the Wii's Virtual Console help by reducing/eliminating a lot of this risk for developers. Let's use Microsoft Points as an example.

When you spend your $20 on Microsoft Points, you get 1600 points to do with as you wish. The reason that it is 1600 instead of 2000 is that when you purchase your points, Microsoft takes their cut then. Their cut goes towards maintaining and upgrading the service, handling chargebacks, et cetera. Based on what you see above, that means that out of Microsoft's share of that 400 points, about 90 are going to the credit card companies, and potentially as much as 300 are going to chargebacks. Whatever remains after that goes to Microsoft to maintain the Points service (employees, servers, auditing, etc.).

Now the rest of this money is virtualized, and is immune from chargebacks. Now points can be utilized by services, like Windows Live Messenger, the Zune Marketplace or Xbox Live. So, let's say that I get GameX on Xbox Live Arcade. I decide on 400 points for my price point ($5 real money) and sell my 1,000 units. My end result, assuming no additional fees on my end, is $4,000. It's $100 less than I had after the chargebacks, but I didn't have to exert any manpower towards pursuing the friendly fraud. When I get that check at the end of the month, I don't need to worry about parts of it vanishing sometime in the next sixty days because of chargebacks. (The Live service itself takes a small amount of points to cover bandwidth costs for the content, but I'm excluding them because they are comparable to the bandwidth costs I excluded above.)

Now for the real upside of microtransactions. Let's say that I make a small expansion pack for GameX, say an extra 20 levels. I can drop it on Xbox Live Arcade for an obscenely low amount (say, 100 points) because I'm not having to pay the credit card processing charges, etc. For me to sell the same item outside of Live for real money and clear the same amount of money after processing fees and asshole chargebacks, I'd have to increase the cost to nearly $2. I can actually sell something on Live for one point if I choose to. There's no way I could do that with a credit card.

There are still some downsides, though. Right now, neither service has a means of transferring purchased points to other console owners. Neither service has a means of transferring ownership of purchased content either. That said, I can see the customer service headaches associated with handling either of these two scenarios, so the downsides are minor at the moment. However, they are points that are going to have to be addressed going forward.

Services like Microsoft Points and Wii Points help eliminate a lot of the risk and headache associated with electronic distribution. As we transition to microtransactions, you're going to see some great examples (the Oblivion expansion pack on Xbox 360 for 800 points compared to $20 for the PC), some pathetic examples (*cough* horse armor *cough*), and some "what the fuck are they thinking" examples (*cough* GT:HD *cough*). Please try to be patient with us as we experiment here...we're as new to this concept as you are.

[Milestone] Torn

This is my 700th blog post, and I'm a bit torn.

On the upside, I've met a lot of interesting people and had a lot of wonderful experiences as a direct result of this blog.

On the down side, there are a few opportunities that if I take them, may reduce or eliminate my ability to blog in the near future.

On the upside, posts I've made have managed to spark debate about piracy and bring attention to issues directly related to QA in the games industry.

On the downside, most of the debate about piracy has been dominated by people whose idea of original speech is farts after two seperate meals, and games QA is still stuck in a bit of a quagmire of "too much responsibility, too little authority, way too little pay."

On the upside, I'm still independant. I haven't sold out to anyone...my voice is still mine.

On the downside, my "not selling out" has actually counted against me recently.

So I am a bit torn. Over the next hundred posts, expect to see many thinly-veiled hypotheticals, a little incoherent ranting, maybe a post or two that were promised back in the 500's, and maybe some more stupid top 10 lists.

(Stupid trivia: My most ripped-off post is the Top 10 Signs You Are Dating A Tester.)

[Miscellaneous] Weekly Wrapup

Had a great trip last week. When I got back late Friday, found I had all of my characters restored with 99% of everything how it should have been. All I was missing was my gold, so I spent nine hours on Saturday and levelled from 53 to 55. Got my gold back in the process.

I'm working on a response to Session-Based Testing. Brief summary of what I'm working towards: nice technique, but not a drop-in replacement for testing structure in an iterative gaming scenario by itself.

Microsoft released XNA Game Studio Express Edition (beta 2) last week. So far, major improvement over beta 1, but I hope that XNA GS Pro completely retools the content pipeline. While the pipeline in GSEE is ideal for individual developers, I see major problems integrating it into a team-based system. I'm working on writing a pair of custom importers at the moment (PCX files and Quake MAP files). I'll keep people posted.

[Science] The Ten-Foot Pole

Normally, I try to avoid talking about religion and religious topics. It's very difficult discussing what a person believes. That said, here is an item that does require some discussion. (Thanks to Sarkie for the link.)

First off, evidence of vestigal limbs on dolphins do exist as part of the fossil record. Evolution of dolphins has been researched on a regular basis. But that's besides the point. What I wanted to get to was this sentence...

Remember Jacob, just because something appears in a book that does not make it true.

I dislike the sheer amount of hypocrisy contained in that sentence when taken in the context of the entire reply. "I don't want you to agree with the bulk of scientific knowledge, so I want you to rely on this translation of a 2,000-year-old book instead, but I don't want you to trust what you read in books...except this one."

Science and faith should supplement each other, not supplant each other. A belief can lead to a theory, but a belief in and of itself is not a theory. Even members of the Vatican have stepped forward and said as much.

Please, believe what you want to believe. But please be willing to submit your beliefs to the same level of scrutiny that you submit the beliefs of others to. After all, I believe that there may be a religious tenet or two about this...

If you believe the data presented by science is incorrect, then by all means, go forth and construct an alternate theory, create an experiment to prove that theory, and then share the experiment and the results with the world. After all, until several hundred years ago, it was common knowledge that the sun revolved around the earth. (Some people still believe it.) If you can back it up and your experiment survives peer review, who knows?

[Testing] Where Is Our XP?

I had an interesting conversation today with a gentleman who actually seemed to feel that my Microsoft testing experience could be a hindrance to me in the future. It was interesting because he was the first person who ever had a negative leaning to that experience, but after continuing the conversation, not only did I fully understand where he was coming from, it led to lots of questions in my own mind.

First, some background. At Microsoft, testing has a level of power that is unheard of outside of in "the real world." While most test teams are kept in check by effective test leads and managers, some testers tend to abuse their power and use the bug database as a bully pulpit for design changes. On top of that, the process guides everything. There is a very rigid flow of specs, plans and test cases that have to be gone through for most items. The practical upshot of this power and process is that the test team becomes a laser-focused tool dedicated to beating the living shit out of your product and finding as many bugs as humanly possible in the short amount of time that they have.

However, there's a limitation to the Microsoft process, and it's a fairly major one...what happens if the project changes dramatically tomorrow? The Microsoft testing process is ideally suited to a waterfall development system, but does not adapt well to more iterative development methodologies. The level of prep-work that is done for a Microsoft-level testing scenario can turn out to be wasted effort after a single day of pair programming working on the core of the system during a Scrum run.

This led to the big question. We have agile development systems. We even have agile content creation systems. Where is our agile testing system, our Extreme Testing? Most testing systems are based on the work done by Kaner. What about Whittaker? While his work streamlines testing, does streamlining really make us more agile? The difficult part of all of this is that while the definition of the program can change, our duty towards the program remains the same: ensuring that it works. This does require at least some level of preparation and planning.

Personally, I shoot for more of a loose plan based on the milestone deliverables and weekly goals, and that tends to work quite well, but it still relies heavily on work done during previous weeks adding up for the end. This doesn't let me turn on a dime, but I can course correct fairly quickly. It's not like the pure MS methodology, where redirecting test is like turning a luxury liner so that it misses an iceberg...

Since I have a fairly QA-oriented audience, I pose the question to you...How do you keep your test department agile in the face of Extreme Programming methodologies?