Unless you’ve just arrived from Caprica, chances are you’re probably well aware that the global financial market is in a freefall right now with some of the largest banking names going under, and others receiving a massive federal bailout. Both the Dow and NASDAQ are riding somewhere in the North Atlantic aboard the Titanic, and it doesn’t take an advanced degree in economics to understand that a recession is looming on the horizon. Lose all hope and head for the hills? Heck no. NOW is the time for free-to-play gaming to go in, guns blazing. Let’s see how and why:
Let’s take a step back for a moment and think about the last recession that we saw. The 2000-2003 recession, while not quite accompanied with a multi-tiered sub prime mortgage fiasco, was quite harsh on retailers worldwide. BUT some industries and specific companies actually manage to thrive in poor economic markets. Those that buy advertising (as opposed to selling it) are the ones that make off like bandits. Obviously, given a recession, ad buyers are able to snatch up much higher profile and/or wider reaching advertising that previously affordable.
Online gaming companies, ecommerce companies, and lead generation firms for example are all buyers of online advertising. In our last round of ‘oh crap, where did all the money go?’ companies such as Expedia, Zappos, Lending Tree, Lower my Bills, Netflix, and Classmates.com were all able to grow to over $100 USD in revenue thanks to the ultra cheap media.
There is however, a notable difference this time around, and it comes to us via Consumer Confidence. In the 2000-2003 recession, consumer confidence was higher than this time around. In order to highlight this, let’s take a look at ‘In-Market Automotive Shoppers’. Compete.com talked about consumer confidence back in September with this article and graph:
Obviously, an in-market buyer is someone ready and willing to make a purchase. Clearly, times for the auto industry have seen better days. Granted, a car and a free-to-play game (microtransactions included) aren’t even in the same ballpark, but I note this to point out that ‘considered purchases’, big ticket items including cars, homes, etc. have showed a noted decline, in part due to consumer confidence.
Taking a look at small purchases, Seeking Alpha is quick to point out that even the morning cup of Joe, normally purchased at Starbucks as seen a decline:
There was a time when getting a coffee at Starbucks Corp. (SBUX) – whether a basic “tall bold” or a souped-up venti concoction – was considered a relatively cheap treat, though those of us with a daily Starbucks habit might think otherwise.
However, a report from RBC Capital Markets analyst Larry Miller indicates that even that daily cup of store-bought java is one of the victims of the credit crunch. Mr. Miller lowered his 2009 earnings estimates – to $0.90 from $0.95, and said:
[The move] reflects our proprietary survey work, which suggests Starbucks sales continue to weaken as consumers are changing their habits and brewing more coffee at home.
And now for our bright shiny star in the midst of a seeming dark financial future: Games. The gaming industry has traditionally bucked the financial trends, and thrives in time of discontent. Perhaps folks are looking for a way, if only momentary and fleeting, to forget their bank account issues or missing 401k by blasting their way through level 27, or purchasing that shiny new outfit for their head banging Guitar Hero.
A certain amount of any game development budget is dedicated to new customer acquisition. If free falling advertising rates can still maintain the same amount of pre-recession eyeballs, free-to-play games may be in the perfect position to cash in on advertising fiesta. And given the price…who could resist something for free?