Last week, during Nintendo’s Financial Results Briefing, company president Satoru Iwata was asked about how Nintendo planned to monetize their upcoming ventures into mobile games, specifically if they were planning on analyzing existing games as they designed their own. Iwata acknowledged that the most successful and common strategy in the Japanese mobile market (which seems very similar to North American mobile strategies) is to go after the small percentage of players who will be willing to spend massive amounts of money on in-app purchases – the so-called “whales.” However, he noted that while Nintendo understands very well how the mobile market currently works, the company was not going to follow suit. “I don’t think that we would be able to entertain hundreds of millions of consumers all around the world or to produce large and long-lasting achievements.”
Going against years of conventional wisdom isn’t easy, even for an established company like Nintendo, as some industry veterans have already pointed out. In the current state of the mobile market, whales account for half of all in-app revenue. It’s not terribly surprising, then, that this tiny segment of players occupies a large amount of developers attention – like high rollers at an upscale casino. Unlike high rollers, however, whales are not necessarily well-to-do patricians, but are often average wage-earners. As Mike Rose noted in an in-depth examination of free-to-play games, many of the people who spend heavily on in-app purchases can’t really afford to do so, often spending rent and food money on these games. As one interviewee pointed out, “Free-to-play games aren’t after everyone for a few dollars — they’re after weak people in vulnerable states for hundreds, if not thousands.”
While any business model that relies on extracting the maximum amount of profit from those who are least able to afford it is certainly on dubious ethical ground, there is also another issue – economic sustainability. Gambling in general takes a much higher toll on the poor than it does on the rich, but in my experience, casinos are generally more focused on getting more people in the doors than they are at trying to make sure that a few people leave with their pockets empty (though they often do that part quite well, too). In the realm of free-to-play design, however, the focus is always on the smallest, most lucrative part of their audience. In conferences and presentations on mobile games I’ve attended in the past, the primary concern is how to keep whales spending money. In this model, having a negative effect on your players is not just an unfortunate side-effect, it’s necessary to remain profitable.
Aside from the obvious ethical issues, this business model has a number of weaknesses. Developers must walk a fine line between neglecting their whales (not giving them enough opportunities to spend money) and overburdening them (allowing them to spend until they run into severe financial trouble). The exploitative nature of this model also generates a significant negative reaction against both free-to-play games and the videogame industry in general. Even Apple, whose app store earns significantly more from free-to-play games than other kinds, has begun pushing back against this business model by highlighting games with no microtransactions at all.
Although many experts remain skeptical of Nintendo’s dismissal of established mobile gaming wisdom, there are several good reasons for this move. Perhaps most important is avoiding the negative stigma that has been attached to the free-to-play games in the past. Iwata also suggests the value in seeking a “wide and small” strategy, rather than the typical “narrow and large” goal of mobile games. This is similar in many ways to the much criticized aim of the Nintendo Wii, which proved to be the company’s biggest success in years.
It should be noted that while Iwata said that Nintendo would be looking to find its own way in the mobile market, he hasn’t said that the company would actively prevent or discourage whales, only that they wouldn’t be building their entire strategy around them like other mobile developers. In any case, I hope that Nintendo’s entry into the market changes the way that developers think about monetization. I doubt that free-to-play games will be going away anytime soon, but I hope that developers will at the very least start to shift their focus away from finding new ways of exploiting whales and move toward creating a product that makes money without placing the financial burden on one small group.