It's like you spent your life savings building a house with rented bricks, and now the price of the bricks is going up. Unless you want to rebuild your house, you have no option but to pay the price demanded of you.
Today the idea of games as a service is growing. But not everyone thinks that might be a good idea. Why is the service model so attractive to developers, retailers and publishers and why might it be bad news for you, as an indie developer or a player of video games?
What is "Monopoly?"
A monopoly is when there is only one seller of a commodity. That seller is able to manipulate prices since buyers have no alternative source of that commodity. A similar and related system (oligopoly) is when there are just a few sellers who work together to influence prices for their own benefit. Both systems have almost the same outcome as far as customers are concerned.
Everyone knows the board game; In 1903, an American woman named Elizabeth Magie invented an educational game intended as a tool to illustrate the negative aspects of monopolies. The Landlord's Game, eventually became the popular board game Monopoly.
The end result of Monopoly is that one player eventually controls all of the property and revenues. The other players can no longer play. They are forced to concede and then it's game over.
This is an aspect of monopolies that is often overlooked. They almost always result is systematic failure and critical damage to the systems they exist in.
The board game deals only with the idea of property monopolies, but product and service monopolies are just as much a problem for us. When there is only one seller of a product or service, we can't get a good price.
What are the negative aspects of monopolies and are there any positive benefits?
The the real world, prices are usually kept low by competition. If a price is too high, and a competitor offers a better deal, the first seller has to lower their prices to compete. Where there is no competition, prices are able to rise unchecked.
The only theoretical limits are people's ability to pay, and their ability to go without. If they can't go without (for example a cure for cancer, or a university degree, or clean drinking water) then there is only one limiting factor, how much can they afford to pay and still live.
The effect is not only to raise prices, but also to restrict supply, since it only matters if some customers can afford to buy. If others have to go without, then the company saves money on production.
If seven billion people each pay a dollar for your life saving product, you have to produce seven billion instances of your product. But if seven people each pay a billion dollars for your product, you only need to produce seven.
For the company, the benefits are obvious, increased revenues, reduced production costs, total control of the market sector. This may even have some benefits for society, since it could reduce consumption, freeing up real world resources.
Theoretically, a bigger company has a higher level of economy of scale. They can produce more things more cheaply. In theory, this should boost supply and reduce prices, but it doesn't.
Under a monopoly, the normal rules of supply and demand don't apply.
How are monopolies created?
The usual way to create a monopoly is to capture a large part of the market, introduce barriers to entry into that market and make sure that competitors have no hope of unseating the king of the monopoly.
One of the most popular ways to do this is to offer your product or service for free.
When Britain's bus services were privatized in the 1980s some of the new companies used venture capital to run their services at a loss until their existing rivals went out of business. Some were even offering free tickets. The result was that only a few big regional service providers were left standing at the end. Their initial investment was repaid many times over, so that;
Between 1980 and 2014, the cost of motoring fell by 14 per cent, but bus fares increased by 58 per cent.
Bus passengers were left with no alternative to these overpriced services. If an competitor tried to enter the market, the same short term intensive competition would result, and only one of the two would be left standing afterwards. This clearly illustrates the problem with monopolies.
Today, the UK has some of the highest bus prices in the world. Lack of competition has produced high prices and poor services.
Doesn't the government protect us from monopolies?
We discovered the problem of this effect a long time ago, and as a society we tried to find ways to stop it from happening.
Most government have anti-trust laws and other regulations aimed at preventing monopolies, cartels and oligopolies. However, the usual classification of a this problem is a company which is using its advantage to create higher prices than the competition. This overlooks the fact that by the time a monopoly matures, the competition has already been eliminated and the high prices are the new normal. It is then too late to identify the problem behavior.
The time to stop monopolies from forming is during the high competition stage at the beginning, but since that stage often results in very low prices for customers, there is a reluctance to interfere.
Most of the laws do little to protect us from these predatory companies. Some effort is being made to correct this, but there is a lot of opposition from people with deep pockets and a stake in maintaining this arrangement, as well as from ordinary citizens who don't see the long term dangers of this effect.
Where have you seen this model before?
This is a common model today. Big companies are not interested in competition. Regular profits are not enough. They need mega profits to pay off their investors. They have gotten very good at finding the sweet spot where they can raise prices without creating an opening for a competitor to steal their crown.
For several years, Google has been offering their maps API for free. The service is great. If you want a map on your website, or you want any kind of navigation or geolocation in your apps, you would choose almost certainly Google.
Millions of websites and apps now have Google maps integration. It is a common part of many schools' coding curriculum.
But recently they started to restructure their prices. Instead of being free to access, billing and API keys became mandatory. Any site which didn't enable automatic billing would find their maps no longer worked.
The new billing structure is highly opaque. It's hard to see which of your functions are free and which are accruing charges. For a non-technical owner of a website, it could be impossible to understand why their previously free site is now costing thousands of dollars a year. They have to go back to the web designer who built the site and pay them to fix the problem.
Why are service monopolies especially bad?
Google maps is not a product. It is a service. It doesn't have a one off payment, you have to pay for it every month, forever. There is no requirement for them to keep their prices low, transparent or even affordable. Many billions of dollars have already been spent on digital infrastructure by companies which integrated Google into their architecture.
It's like you spent your life savings building a house with rented bricks, and now the price of the bricks is going up. Unless you want to rebuild your house, you have no option but to pay the price demanded of you.
This is a different situation to if the maps were a product. In that case, existing infrastructure would be unaffected. Only future websites would have to pay the higher prices, and they could decide not to. They might try an alternative like Open Street Map. Any rapid price rise would simply lead to lost customers and a loss of their monopoly position.
It's arguable that monopolies are only really possible in services, since there are very few one-off products we can't do without, and it's usually possible to offer a cheaper alternative.
How does this relate to games?
The current trend in video game development is towards games as a service. Either you pay monthly for access to a games library, or you buy games and keep them in your own digital library.
But players now don't actually own their games. The games they bought are owned by the service provider, if they stop paying for the service, they lose all their investment.
Many games are working on this service model too. You might get the base game for free and then have to make ongoing payments to keep it running, or buy the newest virtual gear or fashions. All those purchases only exist within the game. If you stop playing, all your purchases are gone.
It's obvious that neither customers nor game developers are going to get the best deal from this situation.
If you have read this far, you can understand why this is attractive to the developers.
They can introduce their gaming service, probably at a lower cost than competitors and build up a huge number of customers. Once people have invested in their gaming infrastructure, they will be reluctant to change service providers.
If Steam decided tomorrow to raise their revenue share up to 35%, who would leave the site? How many game developers would raise the prices of their games to pass the extra cost on to the players? It's usually the customer who bares the biggest burden of a monopoly's excessive profits. How high could Steam raise their revenue share before losing their monopoly position?
Another problem is with 3rd party integration. Google is just one of the service providers which create the infrastructure for games to be created, sold and played. These services can also become monopolies. Are you using a licensed game engine to produce your games? If they raised their prices, what would you learn a whole new engine or would you pay the extra cost?
It can reach a point where our whole gaming infrastructure is overpriced. Where your only choice is to pay the extortionate prices or stop playing games completely. And for society as a whole, the rise of monopolies is an even bigger problem. Remember what happens at the end of the board game? There's a good reason the game evokes so many strong emotional responses.
How to avoid falling victim to the monopolies?
For developers it can be important to avoid using third party services which are not open source and free. At the very least, examine how a price change in a service such as Google maps or a licensed game engine might expose your business to unsurvivable overheads.
Look around for alternatives. If you can, try to contribute to those alternatives to make them better. They often rely on community updates and contributions.
Game retail sites like Steam may offer a good deal right now, but they are not required to do so for ever. Make sure that if a price restructuring happens, you could move your game off of the site to a rival, or even set up your own site with minimal cost.
Try to keep track of your existing customers so that you could migrate their game libraries too. If you leave people no access to games they have already bought, then they aren't going to be happy with you. Maybe offer people an option to register their purchase separately with you, so that they can get a replacement in future, independent of Steam.
For consumers of games, the best option is to avoid anything that looks like a "games as service" model. It's not in your best interest in the long run.
What is the future of monopolies?
Google has invested a lot of money in its mapping programs and will continue to do so as applications for maps continues to expand. Companies like UBER and Tesla also have huge investments of capital that have to find a return. Steam and EA and other companies have their shareholders and all of them have to make mega profits in order to maintain their position as king of the hill.
Google says "Don't be evil" and we have to trust that they will use their position of advantage for good. But these companies are not accountable. If they choose to be evil, there's little anyone can do to stop them.
Perhaps it's only right that these companies should get back the money that was invested. But once a monopoly is created it can last for years, even centuries and during that time, prices are unaffected by the effects of supply and demand.
For 2,600 years there was a monopoly on salt in China which affected up to 25% of all the salt used on the planet. They had a monopoly enforcing police force with 25,000 officers, and regular crackdowns on illicit salt trade.
Two thousand years from now will Google still have a monopoly on maps? Will Steam still be the only way to sell games? What if these companies get bought out by bigger ones? What would happen to a Steam store owned by Disney? What would happen to Google if it was absorbed by the Chinese state?
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