E.g. I just bought a game 85% off on Steam (for a discounted series and I own all the previous titles). Assuming the publisher makes no profit from this sale, how do they make future revenue from me?
In: Economics
Digital products are a little unique, the first copy takes huge amounts of time, effort, and money to make, but every copy after that is free.
If a company spent $100 making a game and thought they could sell 10-12 copies they need to price it at $10 to make their money back. After they sell the 10th copy of the game, everything is profit even if it’s only $0.01. But what if they only sold 5 copies? They still need to sell $50 worth of games to make their money back, maybe 10 more people would be interested in the game for $5
There are many reasons for a sale, altruism and recouping losses as above, but the biggest reason is for promotion. Maybe it’s a multiplayer game, more people playing keeps he game alive, and in-game transactions are future profit. Promote the brand, promote the next game, the next season, etc. unlike traditional advertisement, putting an old game on sale generates money rather than costing. There is no downside.
Aside from the steam example, a business needs capital to operate. When something doesn’t sell for a long time, it becomes dead inventory. It’s better to get back some of the investment in order to reinvest in something which does turn over. It’s better to have your money making you more money rather than tied up in product that gathers dust.
thought experiment for you:
You spend a year writing some software. You figure you spent $20,000 in outside costs, maybe you say your time is worth $100,000 salary if you’re generous. just making up numbers, doesn’t matter. So to cover your costs you need to sell the software and make at least $120,000… You think there’s maybe 250,000 people out there who’d be your ideal customer, but you’ll probably only get 10% of them if you’re lucky. But you want to make a little money too not just pay yourself back. So you price your software at $100. You do pretty good and sell 20,000 copies which nets you $200k…. It’s been a year or two and sales have started to dwindle… you could keep selling it for $100, or you could offer a discount, say 85%… so now you’re selling it for $25 and you sell another 2,000 copies which is another $50k.
Even though you offer a discount, it’s still profit for you because you’ve already recovered your costs, now you’re just trying to squeeze out as much money as you can.
is there microtransactions or are they about to try to sell you something else.
they already made their money. what’s next and why do they want you interested in them
The economics of video games (and downloaded media in general) is weird. The actual thing you’re buying is a license, which costs practically nothing. All the costs involved with getting you a game to play is already paid for (mostly development and marketing), and the company is just trying to recoup the losses. The only way the company makes money is by selling enough copies, and there’s a ton of sunk cost fallacy that goes on.
Fun fact: most games are a net loss. So most game companies don’t make money.
A product has 3 costs
Development cost: The cost it takes to develop the product
Production cost: The cost it takes to produce the product.
Distribution costs: The cost of getting the product from the producer to the customer.
For a digital game almost the entire cost is development. And that’s a fixed cost regardless of how many copies the game sells. Production costs are near zero (whatever computing power it takes) and distribution costs are very low (whatever manpower, computing and storage it takes to get the customer to buy).
What this means is that you have infinite supply (since you have no production cost) and then you have a demand curve. That curve is related to how many people are willing to buy the game at a given price point (the higher the price, the fewer the customers). So you need to set the price at a point where Game Price x Customers = Maximum revenue. Reviews and word of mouth can influence where this point is, but that’s basically it.
So. Imagine this graphically. [Like this demand curve](https://www.thebalancemoney.com/thmb/yBdcJeJq3O8WrXGp1yjVB7QUxaY=/750×0/filters:no_upscale():max_bytes(150000):strip_icc():format(webp)/demand_curve-56a9a6613df78cf772a9395b.GIF). Game Price x Customers forms a rectangle (p0 x q0 if you look at the linked image). And that’s your original revenue. However. As long as you don’t cut into your original customers, if you later set the game at a lower price (p1)…you’re going to have a new rectangle of revenue (new customers being q0->q1 willing to buy at p1 price). As long as you don’t lose too many customers (“I’m going to wait for a sale, there will always be a sale”) that’s a new square of revenue that you’d never get otherwise.
In short, you’ve made more money than you would have otherwise made at basically no extra cost.
In the example you provided it costs them nothing aside from steams cut to let you download the game. For physical things in store it sometimes makes sense to sell at cost or even below if they have excess stock and no room for the new stuff that’s coming in. It gets you in the door to potentially buy full price things and they don’t have to pay to store or dispose of it.
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