Loss Leaders

I’m a big fan of Valve’s Steam service. It took me a while to come around though. Even today I still keep local copies of all my games in case of a doomsday scenario. It takes a lot of trust to buy into a Digital Distribution service. Will they respect their customers, because it’s not like you can take your library someplace else if they decide to change their Terms of Service for the worse? Will they remain competitive, or will I have to start buying from other services and fragment my library? Will I still be able to access the things I paid for in 10 years?

One of the things that push me over the edge was their amazing sales. Amazing games for just a few dollars. As someone who was unemployed at the time, or even just price conscious, it was too good to pass up. The basic idea is loss leading. Valve, or the publisher, takes a hit on the sale of a game hoping you’ll come back and buy more games from Steam or from that franchise. In the end, gaining a returning customer at the cost of a game that they may have never bought anyway.

David DeMartini Origin’s, EA’s competing DD service, boss was asked in an interview about these sales to which he responded, “We won't be doing that. Obviously they think it's the right thing to do after a certain amount of time. I just think it cheapens your intellectual property.” Take from that what you will considering partiality of the speaker.

Valve’s business development chief, Jason Holtman, responded to the criticism, “If all that were true, nobody would ever pre-purchase a game ever on Steam, ever again. You just wouldn't. You would in the back of your mind be like, okay, in six months to a year, maybe it'll be 50 per cent off on a day or a weekend or during one of our seasonal promotions. Probably true. But our pre-orders are bigger than they used to be. Tonnes of people, right? And our day one sales are bigger than they used to be. Our first week, second week, third week, all those are bigger.”

What’s underestimated in Holtman’s response is the importance of the social side of gaming. If all your friends are playing a game now, you’re more likely to buy it now to be able to discuss it with them or play it with them. Not to mention, if you happen to pick up a multiplayer game several months after launch, your libel to be greeted by many an empty server.

I’ve recently started dabbling in another Digital Distribution service, Amazon MP3. They too have been a major user of the loss leading tactic. It’s not odd to see a $10 album drop to $3 or songs drop from 99 cents to 25 cents. And boy do they give away free credit like there’s no tomorrow.

They too faced scrutiny for their tactics. One unnamed retailer is quoted in a report as saying, “I love it when they have a successful loss leader pricing deal. I can't stop laughing every time I think about how much money they must be losing”.

The problem is that music doesn’t have the same social aspect as gaming. Outside of people who are really into the technical aspects of music, most really don’t discuss it beyond “like” or “dislike”. There’s no real analog to multiplayer in music. So, there’s no pressure to buy music quickly beyond a few special circumstances like social gatherings. At the same time, this means the price of music will generally stay constant over time. What is a 99 cent song now will remain so for the remained of its life, barring sales.

While Amazon certainly has the money to keep their MP3 Digital Distribution service afloat for quite some time, I question how effective their loss leading strategy will be in the long term.

Osama bin Laden: a Postmortem

I’ve stayed away from news posts, although I am still considering some news-round-up posts if I can find the time, and stuck mainly to content rich posts. This post will be no different, although the death of Osama bin Laden is news, there’s a lot going on in the Middle East, and I want to explore that.

I want to start out by saying I was not one of the ones out in the street cheering when Osama was killed. I just have something against celebrating the death of another person. I suppose it has to do with my belief that the world isn’t so black and white as to lump people into extremes. But, if you ask anyone who lost someone during the attacks or in the subsequent war that followed, they weren’t celebrating either. This was a time for reflection.

A lot of people like to cite the Muslim religion as the driving force behind Al Qaeda. That it was a clash of culture that led Osama on his path: “They hate us for our freedom”. While there was religious influence in the group, it was not the driving force. The Middle East is a region in which religion is all pervasive, with many operating theocrats. So, the real goal of Al Qaeda is political.

There is a huge disparity of wealth in many Arab countries; a small ruling elite controlling most of the wealth and resources, leaving the rest in poverty. It was easy for Al Qaeda to recruit terrorists when there were so many that are disenfranchised, poverty stricken. Many believed they had no future. It was easy for Al Qaeda to point their finger at ruling elite and the west, who had given their blessing to many of these rulers, and rally support against them.

But, Al Qaeda’s motives were never the problem, it was their modus operandi. Drawing support against a dictator is a noble pursuit, and many in the international community would support it. But when you attack civilian and peace time military, that is inexcusable and will label you as a murderer. And you will have to face the consequences, as Osama bin Laden did.

But, Osama bin Laden’s death was largely ceremonial. Al Qaeda’s support in the Middle East had waned. And it was not just the military operation in the Middle East that had minimized their influence.

In late 2010, a series of nonviolent protest swept across the Middle East. Known as Arab Spring, disenfranchised and impoverished citizens challenged the established dictators. In a few months, several countries had ousted their dictator and undergone revolution. People had found a way for change that didn’t require terrorism. Al Qaeda was left to watch as they became irrelevant.

Many claim that Osama bin Laden’s death was a turning point in the “War on Terror”, but that point came month ago when people chose peace over violence.