Pricestuck

I've been noticing a lot of confusion in the videogame community about what kickstarter is.  People talk about it as a new way to fund games.  It's not.  It's a new way to bring a very old marketing trick into play when selling games.

For those that don't know, kickstarter is a website where artists can propose projects and ask for funding to help make them a reality.  Lately, it's become big in the video game industry as a way to get good sized funding for a game.  Take the current Homestuck adventure game kickstarter campaign.  It's one of the big successes in the history of kickstarter -- 1.2 million funded at this time and still 20 days left to go in the campaign.  So hooray, weird niche indie game finds funding!

But it hasn't really found funding.  Almost everyone who is contributing "funding" is actually purchasing a copy of the game: everyone who contributes at the lowest level,15 bucks,gets a copy.  Higher levels get a copy plus some gewgaw, like a t-shirt or themed deck of cards or whatever.  Kickstarter isn't funding the game, it's taking pre-orders.

So 12,100 backers times 15 dollars equals... $181,5000.  So how has the game raised over a million dollars?  Price discrimination.  Price discrimination is the simple idea that even if you make the most money selling widgets for five dollars, you still have rich customers who love widgets and would buy them for six bucks, and there are still poor people out there who would buy your widgets at a still-profitable four dollars. So to capture all those rich people at the higher price level you add some bells and whistles that cost you next to nothing, and sell a DELUXE edition for six dollars.  Then you chop off some features, even though it hardly saves you a thing in the costs department, and sell the BASIC version to the poor folks.  In the video game industry this has traditionally been done by selling deluxe editions to rich people at launch and by selling  gradually cheaper versions of the game as time goes by after launch to capture the poor dude's dollar.

Kickstarter is doing price discrimination in a new way.  Even though any of the contributors could get the game for 15 dollars, they get some cheap trinkets if they pay more.  More importantly, they get to feel like they are helping in the grand cause of getting this thing they want made.  So, for example, a dude contributed 10,000 dollars to the Homestuck kickstarter campaign.  What's weird is that video game players are fine with and celebrate kickstarter, but other forms of price discrimination -- blocking out content already in a video game unless customers pay more, for example -- infuriates them.  Tell a gamer that if he pays more he will get a trinket and it will go towards the publisher making better product and he gets super excited.  Make the exact same proposal but hide the basic nature of the transaction by telling him he's buying downloadable content and he gets furious.  Robin Hanson might get excited here about the importance of signaling honesty.