The DICE Conference was a good one for me this year. It was truly great after 5 years in Korea to be back living here in LA again and catching up with so many people that I have not seen for years. I also got a chance to meet a lot of cool people for the first time. I met Richard Garfield of MTG fame, and I am looking forward to having a chance to play some games with him in Seattle this week.
When playing in the poker tournament was very cool to be seated between Greg Zeschuk of Bioware and Mike Mohraine of Blizzard. Greg and I chatted affably and I enjoyed hearing what are the things that Greg is thinking about lately (it has been over 5 years since he co-edited my book on game development), Mike on the other hand had to suffer my fan boy shock of sitting next to him and I think he had decided a while ago he just did not need to add any more friends.
I had time to sit in only three of the sessions: Gabe Newell from Valve discussed Steam and service; John Ricatello talking about EA and Bruce Shelley’s post mortem on Ensemble.
Easily the more interesting talk was Gabe’s talk on steam. He broke ranks with the normal executive approach and showed actual numbers behind their sales and promotions. He had a chart that declared on average a game with a 25% discount would generate about 250% more sales volume, a game with 10% discount something like a 35% increase in sales volume and a game that has a 75% discount has shown on Steam a whopping 1500% increase in total dollar volume!
I was a bit surprised that when I asked if the increase in new users
Even more exciting is that after the sale is over the new floor on the sales of the game stays up at about 2x-3x what it was before the sale. We ended up “having to do” a sale at GoPets for about a week in GoPets and saw a great spike of sales and after the event we have seen a steady 2x on sales. So it was very interesting to see the same sort of numbers happening at Steam. The reason why we “had to do a sale” will be a full blog post in a follow up article.
Ricatello’s is getting grief in some blogs for his frank discussion of “junk” but I think he did an okay job. It was yawn boring to me. It was not inspirational, it was not really edgy, it was just corporate. That is the problem when you are at that level, it is very hard to think of something that would have given true value to the audience and worth listening too without having non-trivial possibilities of causing the stock to jitter.
Bruce Shelley’s post-mortem was moving, for not only is a he a great game designer and a great guy – he was also one of our first angel investors in GoPets so I have come to know him over time. He is truly one of the most thoughtful and decent of the people in our industry and there are so many good people here.
He talked about what they did right and there were no big surprises there – build a great place to work, hire great people, and then make great games – and kill the merely good games (and bad!) But getting on to why did Microsoft shut them down you could see real emotion from Bruce. Despite his words he still could not believe that a studio that developed more than $600m of revenue for Microsoft would be shut down. If you assume that from 2001 to 2009 they had an average of 70 staff and if you assumed fully burdened they cost of each head was $25k per month (huge gross MS overhead amounts) at worst, worst case they consumed $170m of that $600m, with retail taking 33% there leaves a clear $230m. A quarter of a billion dollars of free cash flow added back to MS. Enough to pay for at least 6 weeks of Xbox 360 hardware cost overruns (read with dry humor) why would they not keep these guys?
In the end, Bruce shared his belief that fundamentally it was because Ensemble got relaxed – a sense of entitlement – no need to prove themselves again to Redmond after delivering the cash. But as new management came into Redmond – they should have taken the time out to “You. Me. Drink. We Friends” as my friend Won Il Su would advise on just about any business situation.
There were second order issues like having probably too many extra heads after cancelling projects, or an unnecessary new building but none of that would have counted if there was a solid line of communication back in Redmond. So Ensemble was shut down and the free cash flow of at least $30m a year erased off of the P&L books to save some managers the air miles down to Dallas.
Of course it seems like a colossal error by the new Don Mattrick led management team, but instead I see it that business is done in the Asian manner everywhere. Contracts do not matter, even profits do not matter – people will pay you and do business with you only if they really want to. Communicating with other people and other entities is phenomenally expensive in overhead of time, flying, wear and tear. In these tougher times, besides all of the thoughts of trimming costs – all of us geeks have to work a bit harder on our network maintenance…
*cough* I think that means more blogging on my part…
Thank you so much for the kind words Jussi!