The Benefits Of Piracy Aren't Always In The Expected Places

from the and-that's-not-a-bad-thing dept

Mon, Aug 25th 2008 3:42pm — Mike Masnick

One of the issues that comes up when we discuss the economics of infinite goods is people too often falsely define the product that's being sold as the market, rather than the benefit. As we mentioned the other day, that's why the builders of horse carriages reacted the wrong way to the automobile. If they had realized they were in the transportation business, the automobile would have been as an opportunity to provide a better transportation experience. One of the side effects of properly recognizing the benefit is that it often shifts around the business model of the market you're in. The money may end up coming from somewhere entirely differently than before. The music industry is discovering this today (painfully). The money isn't in the product itself (music) but in the scarcities made valuable by the product (concerts, access to the artists, creating new works, etc.).

So, for folks struggling with these issues, one of the most important things to do after figuring out what your real market is, is to then figure out where all the scarcities are that are made more valuable by freeing up the infinite goods. The trick is to then position yourself to capture money in that market. But where this gets really tricky is those products may be surprising or appear to be in a totally different space (e.g., concerts rather than selling plastic discs) and that can be scary for those who are used to the old model.

I've had a few folks submit the GameIndustry.biz interview with Todd Hollenshead, the CEO of id Games, where he talks about the "hidden benefit" of piracy... but for computer makers, not video game producers. He's correct, other than the fact that it's not that hidden. There's a very real and admitted benefit to computer manufacturers -- but that doesn't mean that there also isn't a benefit for the video game makers themselves. Basically, when you look at the video game market, one of the big scarcities that benefits from free games is the computer makers.

But rather than somehow blaming them for not fighting piracy hard enough, why not take advantage of that? Get PC makers to finance new games, pointing out that if they give out the games for free it will help drive more people to buy the next generation of high powered PCs that are needed to run the games. In that way, everyone can benefit. The PC makers (or maybe even Intel or someone) can pay for the game, and then use that to turn in more sales of high powered computers. The video game developers get paid, the computer makers get a great tool to sell more new PCs and users get a free game with their PC. Everyone comes out better off and there's no "problem" of piracy.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: benefits, economics, piracy

28 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Evil Mike, 25 Aug 2008 @ 4:12pm

OOh! Synergy.
[ link to this | view in thread ]
LBD, 25 Aug 2008 @ 4:14pm

Smart
That is a rather smart potential solution.
[ link to this | view in thread ]
Nagolod, 25 Aug 2008 @ 4:43pm

Intel and Project Offset
Who knows, that may be along the lines of what Intel had in mind when they bought Project Offset some months ago...
[ link to this | view in thread ]
Toby, 25 Aug 2008 @ 4:52pm

Proprietary Games
Although there's a good point in here, I would see an unfortunate result for the end-customer. Proprietary games. If you are trying to encourage sales of your companies hardware, are you going to invest in making a game that could run on any of the staandardised hardware? I think not. Customers would start to see hardware that only runs on Intel-based systems with NVidia graphics cards and Maxtor hard drives (or something similar). People would need multiple computers just to handle the different hardware requirements for different games (just like consoles).
[ link to this | view in thread ]
Moderation, 25 Aug 2008 @ 4:55pm

Wow... brilliant! Appears someone was paying attention in the 90s.

Microsoft released new version of Windows with higher hardware reqs... PC makers sold more high end PCs... which in turn sold more 3rd party software to run on the new PC under the new version of Windows... etc...

It was a very nice cycle in deed. Even if some people pirated Windows, they couldn't pirate the hardware needed to run windows... Likewise, today, some gamers pirate the latest games, but I guarantee you NVidia (or ATI) got paid!
[ link to this | view in thread ]
Anonymous Coward, 25 Aug 2008 @ 5:05pm

Arggggggggggggg Matey
[ link to this | view in thread ]
Anonymous Coward, 25 Aug 2008 @ 5:06pm

Re:
And I hope the sarcasm is intentional, because we've seen what a nightmare results from this. If you don't, see comment #4 (or history).

Another attempt to relocate the market somewhere other than the thing that's actually being produced and valued: music, games, etc., and just as unconvincing.
[ link to this | view in thread ]
Kiba, 25 Aug 2008 @ 5:19pm

Re: Proprietary Games
Aren't most games already proprietary?
[ link to this | view in thread ]
Anonymous Coward, 25 Aug 2008 @ 7:36pm

It would work...
...until someone gets upset, and then sues because they think it is a monopoly. It would probably be someone on this very site would complain. Tofu? Overcast? Mike? Anyone?
[ link to this | view in thread ]
Anonymous Coward, 25 Aug 2008 @ 7:39pm

The 80s
Hey the 80s called and want they marketing and economic playbook back. Such an old idea. You should be sued for lack of innovation, and wasting valuable internet bandwidth.
[ link to this | view in thread ]
Anonymous Coward, 25 Aug 2008 @ 9:55pm

proprietary pc games? yeah that's doomed to fail. it's been tried before.
[ link to this | view in thread ]
anon, 25 Aug 2008 @ 9:55pm

"Get PC makers to finance new games, pointing out that if they give out the games for free it will help drive more people to buy the next generation of high powered PCs that are needed to run the games."

That's an ideal scenario, far removed from the real world where we all live in. But what if PC makers refuse to do so? After all, they don't need the games to sell PCs; it's the other way round. And they can always turn around and say: Sales are good enough, we don't need to throw money at game developers.

"Everyone comes out better off and there's no "problem" of piracy."

Is that about to happen? Unlikely. Everyone except the game developers will continue to be better off, and they will be left with no other option but to whine about piracy.
[ link to this | view in thread ]
ike, 26 Aug 2008 @ 12:11am

Blizzard + Intel and Sony?
At a 40,000* attendee media expo in Toronto this past weekend, Sony and Intel sponsored a costuming contest. The best World of Warcraft costume won a Vaio laptop. The concept is not foreign to them. They just need to step it up a level.

* -- That figure is a couple of years old. It's probably gone up since then.
[ link to this | view in thread ]
SteveD, 26 Aug 2008 @ 3:25am

No one remembers Crysis?
The sort of system Mike talks about already exists.

Games are not sponsered by PC builders but component manufacturers like Intel and Nvidia who use games with demanding system requirements as a means for driving new business.

A great example of this was the NVidia/Crysis/Microsoft collaboration. NVidia had already been designing a new range of cards to work with the upcoming DirectX 10; a major selling point for Microsoft and its Vista operating system which was so far achieving poor sales with the games community.

Crysis advanced graphics engine and previews created immense hype which was soon harnessed by the two companies as a promotional tool for their respective products. Crysis shipped with a ‘Works best on’ card explaining the level of graphical detail available from each of NVidias new graphics cards (the highest settings only available with the premium card), while Microsoft convinced the company to lock away the highest level of detail for Vista users only (a lock soon broken by creative modders).

The end result was very average sales for the game amid heavy piracy, but a big uptake on Vista and NVidia graphics cards.

The big problem with this sort of promotional model is its only that useful for games with impressive graphics engines, and many of the companies that make those are increasingly moving away from the PC market (like Epic).
[ link to this | view in thread ]
Cixelsid, 26 Aug 2008 @ 3:39am

Re: Proprietary Games
What century are you living in?! We already have those, its called Wii, Xbox and Playstation.
[ link to this | view in thread ]
Anonymous Coward, 26 Aug 2008 @ 5:30am

Id has always been wrong on this . . .
I have seen Todd talk about piracy before and one of his favorite comments is about their DOOM-Wolfenstien floppy days where they released the demo and game together on a floppy. You needed a "key" to unlock the full game, but pretty much any key would do and so DOOM was pirated like mad (to be honest I dont know anyone who paid for it - however I have paid for multiple copies of every subsequemt release from this company).

While Todd and his ilk like to point to how many people played his game for free, he never mentions how much attention the widspread success of DOOM gave his company and his industry. He is a millionaire several times over as are the other founders of his company (as they should be). Id has gone on to remarkable success and today are leaders in thier genre and industry. While they may believe this is "in spite" of piracy, I would argue that thier early success was largely because of it.
[ link to this | view in thread ]
David, 26 Aug 2008 @ 6:06am

Re: No one remembers Crysis?
> ... and many of the companies that make those are increasingly moving away from the PC market (like Epic).

All the more reason for PC companies to do what Mike is suggesting I would have thought. What could be better to lure customers back to the PC platform, than sponsoring the creation, or even the porting, of games and then giving them away!
[ link to this | view in thread ]
chris (profile), 26 Aug 2008 @ 6:54am

Re: Proprietary Games
If you are trying to encourage sales of your companies hardware, are you going to invest in making a game that could run on any of the staandardised hardware? I think not.

i think so. PC software is what it is because of interoperability. hardware marches on at a much faster pace than software.

you might see optimizations for a given chip or video card but you see that already today with certain daughter cards (agea physX for example). games like city of heroes and ghost recon are optimized for those cards, but play like any other game on amd/ati hardware.

PC gaming hardware changes fast. hardcore gamers buy new video cards every couple of months and new rigs every year. no developer in his/her right mind would make a PC game that was confined to a specific hardware configuration.
[ link to this | view in thread ]
Anonymous Coward, 26 Aug 2008 @ 6:58am

Re: Id has always been wrong on this . . .
This marketing campaign ('cause that's what it is) works great and is nothing new: give them something for free to whet their appetites, then charge them for more. However, this only works if there is a genuine way to charge for the "more." Id took that approach with Doom/Wolfenstein ... but not with anything else, and that's not how they made their money.
[ link to this | view in thread ]
chris (profile), 26 Aug 2008 @ 7:12am

Re:
That's an ideal scenario, far removed from the real world where we all live in. But what if PC makers refuse to do so? After all, they don't need the games to sell PCs; it's the other way round. And they can always turn around and say: Sales are good enough, we don't need to throw money at game developers.

office and windows may sell a lot of dell and ibm computers, but gaming is another story.

video cards, high end processors and high end memory are brisk businesses among gamers. they are the only market that i am aware of that will not just buy new gear as soon as it comes out, but then proceed to void the warranty on it by overclocking or flashing it with third party firmware just to gain an extra percentage point of performance.
[ link to this | view in thread ]
Anonymous Coward, 26 Aug 2008 @ 7:36am

Re: Re: Id has always been wrong on this . . .
"This marketing campaign ('cause that's what it is) works great and is nothing new: give them something for free to whet their appetites, then charge them for more. However, this only works if there is a genuine way to charge for the "more." Id took that approach with Doom/Wolfenstein ... but not with anything else, and that's not how they made their money."

Its true they now have large coffers and an enormous brand name along with a publisher willing to spend millions marketing anything they produce. They no longer "need" the free word of mouth marketing advantage that the early piracy of DOOM provided. It just bothers me that they never have and I assume never will openly recognize that they did indeed benefit from piracy and widespread distribution of thier early products (just as an aside, I say all this as a long time Id fan).
[ link to this | view in thread ]
Anonymous Coward, 26 Aug 2008 @ 7:39am

Re: Re: Id has always been wrong on this . . .
"Id took that approach with Doom/Wolfenstein ... but not with anything else, and that's not how they made their money."

Your absolutely correct, Id made most of its early money by liscensing the engine that was so ably demostrated in DOOM. Doom was essentially a "promo" that lead to liscense deals for thier 3d engine and development. They were so successful at engine liscensing that they actually created an entire secondary market in the industry. All by handing out some free disks . . .
[ link to this | view in thread ]
awhite, 26 Aug 2008 @ 8:22am

Horseless Carriages
Most of the early body/chassis for cars *were* made by carriage makers.

The biggest being Fisher:

http://en.wikipedia.org/wiki/Fisher_Body
[ link to this | view in thread ]
Anonymous Coward, 26 Aug 2008 @ 8:43am

Re: Re: Re: Id has always been wrong on this . . .
They were so successful at engine liscensing that they actually created an entire secondary market in the industry. All by handing out some free disks . . .

They got started by handing out some free disks, but that's not their business model. That's the point: they made their money from licensing their engine and selling games. In a "everything's free" approach, that wouldn't be possible. Marketing with free that eventually leads to payment based on licensing and copyright only works in a system that legitimizes that payment.
[ link to this | view in thread ]
Craig McEldowney, 26 Aug 2008 @ 11:51am

Right on!
I just wrote a blog along the same lines called Holes in the Dam. I think that changing perception is key! If you can re-conceptualized piracy as an un-monetized use case, you open yourself to new business opportunities. You can at least make informed business decisions instead of making knee jerk reactions out of undefined fear. Businesses need to make informed decisions, especially with how quickly the market moves. Why write off potential revenue streams because you're not agile enough to capitalize on them?
[ link to this | view in thread ]
Dewy, 26 Aug 2008 @ 11:56am

People, no one is saying EVERYTHING MUST BE FREE... we're just saying you can no longer charge me for printing a disc, wrapping it in plastic and shipping it halfway around the world. That is waste in the name of the way it used to be done.

Fine, sell me the software at a reasonable price, but don't try to charge me for shipping and handling when its not required for anything other than your antiquated business model.

Free doesn't mean money doesn't change hands... it just doesn't come from where it used to anymore. sell the Game to PC makers to release with their new Pc's, license graphics from the game in a new cell phone commercial, host player conventions where you "rent" machines to play on...

But stop suing the public you designed the game for... just because they have found a better distribution model than you have.

I think its time we stopped using the word pirate to describe the partisans in the field of todays market.
[ link to this | view in thread ]
Kate, 26 Aug 2008 @ 12:18pm

arrgh
I don't see why the movie and music companies don't set up their own torrent sites and charge a monthly or by the GB fee.

It would shut demonoid and pirate bay down

because then the entire library of movies and music could be availble in good quality and stable seeds.

long tail marketing would work and these same companies sell the blank dvds and cds needed to burn/back up.

people would be more willing to try something they hadn't heard of or only vaguely knew of if it wasn't $20 or more for the one thing

but $30 a month for anything digitized

maybe then, fires at studios would also be less damaging, since other copies would exist out there
[ link to this | view in thread ]
Mark, 27 Aug 2008 @ 7:25am

Recognize Reality
People need to recognize that every law in the world is only as useful as its enforcement. It's simply not possible to enforce copyright law on millions of tech savvy users who really want to download your software for free. There are simply too many of them. On the other hand, it is possible to enforce copyright law on companies. That's why Id was able to sell licenses for its 3D engine to other companies.

Any company whose business model depends on the assumption that they can enforce copyright law on millions of people is doomed to fail.

The original article makes a good point, but presumably the PC manufacturers recognize that the existence of high-end games will improve hardware sales across the entire industry, not just for themselves. Maybe Dell is afraid of doing anything that would improve sales for HP. The idea could work, but only if the PC manufacturers cooperate to make it happen.
[ link to this | view in thread ]