Art Carden  

Minecraft, Survival Craft, and Network Goods

Imagining the Proto-Blogospher... The great sin, the even greate...

Minecraft has spawned a lot of imitators. One is Survival Craft, which we heard about a few days ago and downloaded. Our oldest has been playing it virtually non-stop for a couple of days, and he prefers it to Minecraft Pocket Edition because it has more stuff in Creative Mode (buttons, a crossbow, and other cool stuff).

In light of Tirole's recent Nobel for work in Industrial Organization, I've been wondering about the forces that break market power. In 2007, people were writing that MySpace is a natural monopoly, but the last few years have taught us that this isn't the case.

How should we expect to see this evolve? Should Minecraft mind the competition, or does a larger market for Minecraft-like games mean a larger market for what I assume is the original?

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CATEGORIES: Microeconomics

COMMENTS (5 to date)
ThomasH writes:

The strength of a natural monopoly is variable. It's hard to see how a close substitute to Facebook could gain market share. My space was never that well established. But then what a "close" substitute is is also an empirical question.

Mordecai writes:

And what happens to the popularity of Minecraft when we discover that we're actually mobs in a somewhat more sophisticated Minecraft-like game?

MikeDC writes:

There's a lot of moving parts to consider but I'd essentially consider Minecraft a dominant participant in a market with a competitive fringe.

Mojang (recently purchased by Microsoft) is the low-cost provider. The "natural" evolution I see is for the dominant firm to incorporate the best ideas from the fringe as the come along.

To put it simply, the dominant firm should always be able to more quickly implement specific improvements a fringe provider comes up with than a fringe provider can replace the full breadth of functionality provided by the dominant provider.

Basically, the dominant firm has to support a massive code base and an enormous number of different activities have to function well to make the game work.

The fringe modder or Minecraft clone writer can focus on improving aspects of gameplay they find more interesting, but it comes at the expense of supporting the gameplay functions they're not as interested in.

At the point the fringe modder really does a great job in improving some aspect of the game, it's pretty easy for Mojang to come along and incorporate that one particular improvement.

On the other hand, it would be very difficult for the fringe guy to incorporate all the other updates they weren't working on in order to make their fringe version more generally acceptable to the universe of Minecraft players.

I think this is evident with Survivalcraft. It was written to address one particular problem (Minecraft on portables). But the basic "official" Minecraft codebase scales from phones up to multi-server farms and does a huge amount of stuff that can't be done on Survivalcraft.

Barring a major technological change, then, Minecraft (and Facebook and other social-interaction reliant businesses) should encourage competition as the predominant means of finding and incorporating new product features. Trying to stamp out the competitors likely just generates ill will, and lays the groundwork for it's own functionality to become stale and eventually be replaced with something else.

David Condon writes:

I would perceive Minecraft as competing with a much larger market than just those with a similar art style to it. It's not even the biggest open world adventure game. That honor goes to Grand Theft Auto. Mario, Call of Duty, Wii, League of Legends, Warcraft, FIFA, Final Fantasy, Sonic, Pokemon, and Madden are all worth more than it. $2.5 billion is a lot of money, but certainly nowhere close to market dominance of an industry that takes in more than $90 billion per year. Madden and FIFA are better comparisons. Both control large niche markets that allow them a steady income stream. Both monopolies are contractually guaranteed. Both are owned by EA.

Dylan Tredrea writes:

Something, at last, in my wheelhouse! (Business analyst for a game studio)

Should Minecraft mind the competition?
The first big question: what does 'competition' mean? It's a (super common) mistake to only look at 'direct' competitors in games. In reality, you're competing against every other game out there. Especially for a game like this, with such a broad reach, every day another game is released that your players could decide is a better use of their limited play time.

Still, wow should Minecraft mind the direct competitors?
There will always be derivative products, and you have to keep an eye on them, make sure they aren't gaining too much ground, and you're only delivering proven innovations (not taking the same risks the others are required to compete; remember there are gameplay costs to the innovations that have a negative impact on market potential as well), but that should be the smaller portion of your strategy. (For what it's worth, I don't think this is really a concern, there aren't ways you can flank Minecraft, not that individual products won't be profitable, but due to a variety of factors the 'next' Minecraft is almost certainly just going to be the current Minecraft + a bunch of updates. (Games as live services, 'for the win,' as we would say)).

Survival Craft isn't really playing the same game as Minecraft.
The opportunity Survival Craft sees isn't beating Minecraft at Minecraft, it's leveraging the demand for that type of gameplay to DRAMATICALLY reduce one of the biggest costs: acquiring users. As a result these games have far, far less risk. It's really impossible to overstate the importance of this. If you have a way to reduce the cost of getting new users that is sustainable and scalable, this is an incredible competitive advantage that very few games have. (Of course there is a limit on these 'cheap' users as it will usually be only a portion of market/game you are following)

The biggest weakness of Minecraft, which could potentially be exploited by competitors, is their pricing structure
Minecraft is bought with a one time purchase (the 'old fashioned way' of just buying the game, compared to the dominate current model, free to play with ongoing (optional) extra purchases in the game). Their strategy to date, selling multiple versions on multiple platforms (mobile, PC, console) has been crazy successful (generally games that are not free to play and have an upfront cost are not that successful on mobile, Minecraft is pretty much THE exception), but this obviously isn't the same as a free to play game like Team Fortress 2 that is built on ongoing purchases, where the firm can expect ongoing and even increasing cash flow as they improve the service and add content. Eventually Minecraft will have sold all the multi-platform versions it can and will need additional revenue and this is a dangerous place. If Minecraft tries too hard to monetize players they will increase revenue per player, but decrease players. So it's not that a competitor could win, but that Minecraft could lose.

Hard to Analyze Market Size for Specific Games/Types
I'm not sure if I can answer "does a larger market for Minecraft-like games mean a larger market for what I assume is the original?" From the industry perspective, it doesn't really matter to us whether or not the market is larger, we know the risks of any game that is like Minecraft are reduced. In practice (in pitches to investors) Minecraft has probably been everything under the sun and many a crazy mechanic/ideas have probably been justified as 'similar to X in Minecraft.' There is a lot of reason to this rhyme, you want to innovate, but innovating too much- being too new- can be confusing. It's hard to say if this is due to the increase in demand (more installs of similar games as players seek them out) or an increase in player retention in games using similar mechanics (less players being confused (and no longer playing a game) by complex mechanics/gameplay, because they became familiar with something similar in Minecraft), both forces have the potential for big business impact. Plus there's the fact that only games similar to other games are funded, so the self-fulfilling prophecy possibility should be considered as well.

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