Channel Sales: Games Have it Worse than Shrinkwrap Apps
Greg Costikyan’s two part Death to the Game Industry: Long Live Games provides an interesting look at the shrinkwrapped game business, and how much more awful it is than the state of application software distribution in North America. Application and game distribution is a rickety thing, full of faults. Greg points most of the serious ones, but regretably the only solution he offers is wishing for a better world in which the creator is exalted.
The nutshell version of the bad thing: Game developers are forced to give up their rights for a measly royalty advance from Game Publishers, who then market the games through Retail. Because the costs of the game channel are so huge, the original game developers often do not get anything more than the measly royalty advance, which often comes with strings attached that allow the publisher to make the development cycle of the game a living nightmare for the developer. Game developers are original creators and should have the big piece of the pie. Okay, dont rely on my nutshell version, go read Greg’s article.
The problem is a little less severe for application developers. Application developers dont always have to work with publishers, so they can come up with their own marketing plans, release schedules, competitive matrixes and other tools of the devil. But App developers have to work with distributors, of which there are precious few for consumer oriented applications. What distributors do is manage a big fat pipe to retail, which can include not only “pick and pack” wholesale shipping, but financing, managing market development funds, presentations at retail conventions, and less fun tasks such as returns from retail. An important lesson to remember as a new vendor: you are not the customer of a distributor, the retailer is. Accept that and it makes more sense. What is also aggravating is that store chains also expect many vendors to pony up to pay for advertising and in-store promotion. Distributors do not pick up those costs (unless its through an MDF program, in that case, they are a channel for your cash to retail).
This is why any vendor loves direct, internet sales. Greg especially loves internet sales, because the bite of the channel is bigger for games than for apps. The problem is that a great many consumers simply will not find your product unless it is in retail, or may buy an inferior competing product, not because they must buy in retail, but because the product is validated by its mere presence in retail.
There are two problems here: 1) the system is somewhere between the ancient world of bricks & mortar and the new world viral marketing instant download and satisfaction, and 2) your beanie may be on too tight.
The problem with the system is that its not easily remedied. If you sell vertical market solutions (except for the SMB market), PDA or phone applications, you are in luck. Your buyer isnt looking for your products in retail. If you make a development tool, you arent out of the woods. With general application tools like Visual Basic, you cannot ignore the “learning to program”, the value of academic distribution or GSA. Each of these markets need to be validated by the product existing in accepted channels. That university that represents 2000 academic seats may only buy from a list of three authorized resellers under very specific terms. The easiest solution is simply to create products that do not require the old, rickety and expensive channel.
Now for the beanie. Those rare few who succeed in Greg’s ideal world are the likes of George Lucas and Bill Gates. That is, they are technology geniuses who also were wise enough in marketing to exploit every opportunity and managed to succeed without giving away their intellectual property rights prematurely, or at all. These guys are surrounded by incredibly smart people, developers and business people both, who are all well paid and well appreciated. If you run your business treating your corporate staff (sales, marketing, customer service) as necessary evils, or walk into a meeting with publishers or distributors with that opinion, someone is going to smell it. The job of marketing and sales collectively is to remove every possible “no” to a new sale or upgrade. When it comes to partners of the publisher or distributor variety, if they catch a sniff of this, their expectation will be that you arent going to be a good long term partner. Convey that, and the deal is over before you’ve fired up Powerpoint.