Game Design, Programming and running a one-man games business…

The wild economics of selling online

There seemed to be a time where everyone worked in, or owned factories. Those factories would make widgets. You would build a widget factory that could make 10,000 widgets a year, and it would need to sell 5,000 widgets to break even. If you were unlucky, you sold less, but you probably had upgraded from a 2,000 widget shed/living room/small workshop, so that was unlikely. The best scenario was you sold 10,000 widgets, making perhaps twice the expected revenues and four times the profit. Maybe next year, you can borrow the money for a 20,000 widget factory, assuming widgets are still popular. Over a decade or more, you may end up tripling your salary, as owner.

Now it’s different. If my widgets are digitial, I can scale my factory far more cleverly. In terms of physical workspace, I need none, because bandwidth can be bought per MB and per second in ‘the cloud’. If I need more staff, I can recruit online, choosing from the estimated 1,966,514,816 people who are online, rather than the 2,000 people in my town. My ad budget can scale upwards by a factor of 100, or even 1,000 in the click of a mouse. You can even hire people online on a piece-work basis, and happily outsouce the customer service, the usability testing, the payment service, product fulfilment…

In short, a purely digital business like mine can just scrape along earning $10,000 a year, or thunder along earning $10,000,000 a year, like minecraft, and it can go from one to the other within weeks. WEEKS.

Obviously the reverse is possible too. The zero-infrastructure means there is nothing to sell when things go bad. The benefits of zero physica assets can also be a curse, in terms of the company having no real physical assets of any worth whatsoever.

It occurs to me that this is leading to far wilder income disparities for entrpreneurs than ever before. Only the most hardcore socialist thinks that everyone who runs a business is somehow evil and rich. We all know our local corner store that looks a bit ropey and probably doesn’t earn much. Generally, with the exception of bankers, we consider that competition works, and that businesses are making a reasonable profit, but not likely anything extraordinary unless there are outside signs, like a 10,000 strong workforce or huge headquarter offices.

Online changes that. Its only the publication of his sales data that makes it clear that minecrafts creator makes so much money. It’s only the l33t published office pictures that hint that puzzle pirates brings in some decent cash.

Online is different. People running a business online may be (often are) barely breaking even. They may also be multi-millionaires. I know quite a few people with online businesses, and their profitability varies dramatically. Despite my awkward admission I paid £75 for some jeans once, only me and my family know if positech is any sort of financial success.

Just as there may be more minecrafts than we know, there may be more penniless businesses too. If your corner store drops down to earning $100  a week, the rent is too high and your business folds. I know MANY people who have an online business that earns under $100 a  MONTH. The businesses still exist, albeit as part time ventures. Website rent is trivial compared to bricks and mortar, and the businesses remain active. The spectrum of online business success is far far wider than it is in the real world.

We live in interesting times..


4 thoughts on The wild economics of selling online

  1. Recruiting online has been critical for my current game. I’ve worked with about 10 or so different art contractors over the lifetime of the project, from many different countries, including England, Austria, Germany, Belgium, Australia, China, the States, and Canada. Most I’ve never met face-to-face. I’d probably have shipped with programmer art without it.

  2. Cliffski,
    how is that ‘jeans for 75 quid’ working out?
    Have any spreadsheet data for us to show?

    Let me rephrase your business advice:
    ‘If you buy a jeans for 75 quid or you need to buy 4 jeans for 20 quid in the same time then 75 quid is the way to go!’ :-)

  3. Tell me about it, I’m currently making a web-game (that I won’t advertise here because it’d feel all dirty) that so far has cost me approximately $150 outlay, for zero income, (not to mention the rather ridiculous amounts of time I’ve poured into the project and the hosting costs)

    Seriously, I could make more money ironing jeans for friends, but then that’s probably what Notch thought when he started mucking about with Java…

  4. You can put us firmly in the ‘barely profitable’ category :)

    Personally, we’re quite happy releasing sales figures for this first effort, even if it means advertising our own failure. Part of the value of being indie is that authenticity is a virtue. That means linking to crap reviews, and telling the world you’ve only sold 800 copies!

    Post-mortem of our first release, if anyone’s interested.

    http://www.pocketstarship.com/rotor.html

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