Cash shop confirmed

[Lux_Rayna]

Bottom line is they don't need cash shop revenue to maintain the status quo or to provide new content. Subscription fees and expansion revenue cover this without needing to hurt the integrity of the game.

Ignoring the argument about whether or not a cash shop hurts a game's integrity, what you are suggesting is not how businesses measure performance. I think this is where your confusion comes in. Businesses are not in the business (lol) of maintaining status quo. Its quite the opposite. Businesses are about growth of revenues, sales, and profits over a significant period of time. "Growth" is the name of the game...not status quo.

A sub model fails to do the above for obvious reasons. The only source of growth in a sub model comes from either (1) net subscriber growth (players gained - players lost), and (2) increased subscription rates. Competition and a saturated market prevents SE from raising subscriptions without crippling their userbase. We can both agree that is not an option. This leaves only one real option, which is to gain new players significantly faster than you lose them, and to do so at a greater rate every year going forward. That's a tall order, especially when you realize that it costs money to acquire each and every new player.

This creates a problem. The only way to grow players at a faster rate is to throw more money at gaining players. When you factor in competition, new releases, etc etc., your ROI goes south rather quickly. This is normally where games go on life support and maintain a status quo, *if* a company feels it is worth it to do so. It doesn't cost *that* much (relatively speaking) to run an MMO. Its just there's an opportunity cost associated with keeping a game alive, as that money could be spent on a game that will actually generate a lot of growth/revenue. Every company's decision on this is different, but in SE's case they kept FFXI up and running with a few changes. I'm guessing FFXIV had a lot to do with that decision.

Long story short, a strictly sub-model does not meet the growth standards necessary to justify SE throwing a lot of $$ at the game. Whether or not you agree with having those kind of growth standards in the first place is another discussion entirely.

[Vhailor]

Long story short, a strictly sub-model does not meet the growth standards necessary to justify SE throwing a lot of $$ at the game. Whether or not you agree with having those kind of growth standards in the first place is another discussion entirely.

What "growth standards" would you argue are necessary?

Clearly subscription-model MMOs fall under the category of cash cows. Their success is viewed through the prism of customer retention and longevity, not growth. As you yourself stated, maintenance of an MMO is relatively cheap; FFXIV likely makes enough in one or two months of subscriptions to pay for an entire expansion's development (and this is a conservative estimate). The expansion, of course, not needing an extensive marketing campaign and having a fairly predictable number of purchases, will pay for itself almost immediately upon release. The only uncertainty from SE's perspective is whether an expansion will contribute to enough retention to justify the investment.

I'm not certain how you're linking a decision with these obvious factors to a cash shop.

[Lux_Rayna]

What "growth standards" would you argue are necessary?

FFXIV has to grow revenues/sales/profits at a reliable rate YoY. For a sub-based model, this can only be measured through box sales, subscriber-base, and retention rates. Box sales are obviously the least important after initial release. You are right in that the raw revenue of subs is probably enough to cover an expansion. But we have to consider a cpl of things:

How much did it cost to get those subs? Whats the net profit? How much of that profit can be reinvested and how? We also have to consider how many subs we lost over the specified period of time. Finally we need to make sure that the money reinvested will not only improve customer retention (as you said), but also pull in more subscribers (to make up for lost ones).

A cash shop alleviates the pressure on an expansion to do well. Its cheap content to produce, and generates revenue w/o having to find new subscribers.

[Vhailor]

FFXIV has to grow revenues/sales/profits at a reliable rate YoY.

This is absurd; SE as a whole aims to increase their revenue and profit when measured year over year, but FFXIV as an individual product will never be held to that standard. Cash cows exist to provide steady revenue streams which are then used to invest in higher-growth (and higher-risk) areas. The MMO market is not suitable for sustained growth in profits, and companies know this. Certainly MMOs will exhibit growth within their first couple of years, but they will inevitably fall off after that, no matter what additional revenue streams SE attempts to create.

[Lux_Rayna]

This is absurd

Its not really. Granted it wont be held to the same growth standards as other products for obvious reasons (ie its a diff product), but it is held to some kind of growth standard. Just because its a cash cow doesn't mean it has 0 growth as a benchmark; it just means that growth, while necessary, does not trump retention. The presence of inflation in any economy makes growth a requirement. A cash cow that cannot keep pace with inflation will actually lose you money over time. That obviously defeats the purpose of the cash cow.

[Vhailor]

Its not really. Granted it wont be held to the same growth standards as other products for obvious reasons (ie its a diff product), but it is held to some kind of growth standard. Just because its a cash cow doesn't mean it has 0 growth as a benchmark; it just means that growth, while necessary, does not trump retention. The presence of inflation in any economy makes growth a requirement. A cash cow that cannot keep pace with inflation will actually lose you money over time. That obviously defeats the purpose of the cash cow.

They can't possibly be held to a standard of positive growth. There is no feasible way in which FFXI has exhibited growth in profits over the past five years, nor has WoW. More to the point, your statement about inflation being applied to profit is flatly wrong. You have to look at it in the context of how much the company invested in the title for that statement to hold any water. All profit has to do in order to have a net benefit for the company is outpace the rate of inflation on the amount of money invested.

For instance, if a company spends $10/yr to support a product, which features declining profits of $100 in the first year, $90 in the second year, and $50 in the third year, then even at its worst, it's producing a 400% ROI. That's not losing the company money. The MMO model closely tracks this; a company spends an initial sizable investment, and then has a steady (relatively low) cost of investment year to year in order to maintain the title. Profits can drop, but in successful sub-based MMO models, like FFXI, the annual profits (while dropping in a YoY sense) still produce a strong ROI year over year. That's not to say it will happen indefinitely, but certainly over a 10-15 year period, titles have managed it (WoW and FFXI being examples of this).

I'm surprised to hear you're running a business while misunderstanding this principle - the mathematics of it is fairly simple.

[Roris]

Its not really. Granted it wont be held to the same growth standards as other products for obvious reasons (ie its a diff product), but it is held to some kind of growth standard. Just because its a cash cow doesn't mean it has 0 growth as a benchmark; it just means that growth, while necessary, does not trump retention. The presence of inflation in any economy makes growth a requirement. A cash cow that cannot keep pace with inflation will actually lose you money over time. That obviously defeats the purpose of the cash cow.

So again, why not openly discuss it way back before ARR's launch? Back when both the uncertainty of ARR's success and the necessity for more funds was even bigger. I'm sure a simple statement like "We'll be launching with a cash shop limited to past seasonal event items" would have still be met with a backlash, but it would have been more understandable considering 1.0's financial situation and also because there was already the antecedent of older event items not being available for purchase with gil from event NPCs, like how both the Santa suit materials and the suits themselves weren't made available again when the reindeer costumes were introduced in 1.0.

Why wait after the success of a game to double dip? The answer is obviously that they now have that extra playerbase they know they can get that extra money from. Them making money is not the issue, I'm sure no one has an issue with a company making money or else players wouldn't be subscribed to this MMO. It's them being upfront about it months before, if not before ARR's launch, not just a week away from 2.4 out of nowhere and especially after stating their views on cash shops and F2P models in multiple past interviews.