The New Business Models Unveiled - Customer Relationship Management

We know from previous Chapter that consumer thinking and new expectations on how one works are all part of the new framework for corporate operations. Good start, if I do say so myself—and I do.

But I’m going to tell you a story about the PC and video game industry, which is the prototype of the new business model. Based on that story, I’m going to extract the characteristics so that you can see what kind of business model has been so successful and, hopefully, how it applies to you. Then we’re going to take a look at what to expect from it—advocates or at least loyal customers—and the current ways to measure that.

Get into the Game:PC/Video Games as a Prototype of the New Model
The Ambiguity of Play, Brian Sutton Smith says something that deserves to be immortal:“The opposite of play isn’t work. It’s depression.”

The integration of work and play is why we have a game industry (as opposed to a gaming industry) that raked in $25. 4 billion in 2006, blew that number out with $41. 8 billion for combined PC and video games in 2007, and is expected to do $68. 4 billion in 2012 according to PricewaterhouseCoopers’ game industry 2008 annual report.

The growth of high quality consoles like the XBox360,PS3, and Nintendo Wii and the games that go with them is certainly one of the reasons why the industry has skyrocketed to one of the most substantial on the planet. But there is another major explanation for this vast growth. Participation by the customers—the gamers—in the creation of their own experience. This is not only not trivial, it is perhaps why PC and video games are the cash cow they are. Everyone plays them—including 59-year-old me. The best way to understand how this can be is to talk about the mod community and the prototypical new business model.

The Mod Community:Hacking Is a Good Thing
Mod doesn’t mean “modern” like it did in the sixties. It means “modification. ” It applies to a specific way of configuring video or PC games. Rather than accept the product out of the box as is, you can actually alter everything from look to gameplay. The game becomes something you want rather than merely something you bought. There are groups of gamers devoted to nothing more than producing these mods. The experience is multiplied because there are very large global online communities working to sculpt changes to the games, which are then made freely available by the mod creators, often on the sites of the game producers.

This all began in 1996 when John Carmack, then president of IDSoftware, published his now classic game Doom. Prior to Doom, he had released another classic first-person shooter, Wolfenstein, which was hacked right away and new gameplay, characters, and levels wereintroduced. Rather than freaking out over the unauthorized hacking of Wolfenstein, Carmack decided that this was actually a pretty cool use of the game. As he said in an interview in 1999 on Slashdot:

Based on that the hacking in Wolfenstein, Doom was designed from the beginning to be modified by the user community . . . after the official release I did start getting some specs and code out.

The original source I released for the bsp tool was in objective-C, which wasn’t the most helpful thing in the world, but it didn’t take long for people to produce different tools.

I still remember the first time I saw the original Star Wars Doom mod. Seeing how someone had put the death star into our game felt so amazingly cool. I was so proud of what had been made possible, and I was completely sure that making games that could serve as a canvas for other people to work on was a valid direction.

A Doom/Quake add-on has become almost an industry standard résumé component, which I think is a Very Good Thing. The best way to sell yourself is to show what you have produced, rather than tell people what you know, what you want to do, or what degrees you have.

This triggered what has been the largest and most advanced customer company collaboration in an industry. The fans of any particular game are routinely creating modifications so that they and their own fans in their communities—have a personalized version of the game that suits their style of play.

The idea of customer participation reached a new level in mid-2008 with the release of the Spore Creature Creator. Spore is a game produced by Will Wright, one of the legendary game designers. The Creature Creator is an authoring tool that lets gamers create their own creatures, using a rich feature set of virtually functional body parts—meaning which hand with claws you choose will affect how the hands are used throughout the game—and a set of social characteristics and behaviors. That creature is then placed in an environment where it can evolve. You can create an infinite number of different creatures or clone an infinite number of the same creatures.

One of the unique features of the game is the Spore community catalog, a community repository for all the creatures sculpted by individual gamers. They can be plucked up and put down in each gamers’ unique Spore universe so you can see how well they adjust to an environment and what effect they will have on the environment over the centuries the game encompasses.

In a brilliant move, Electronic Arts released the Creature Creator months before the full game’s September 2008 release date. This allowed the aspiring Spore gamers to create their creatures and place them into the community repository (and locally on their own PC) before the game’s full environment was available. The Creature Creator retailed at $9. 95—which is above and beyond the retail price of $49. 95 the full game sold at. The expectation was that there would be a million creatures created by year-end 2008. Here are the real numbers for the first month to July 18, 2008 at 4:00 pm, directly from the Spore community site—one month after the release of the Creature Creator:

  • 1,970,195 total creatures uploaded in the 30 days.
  • 31,955 creature uploads in the last 24 hours.
  • 7,604 people joined the Spore community in the prior 24 hours.
  • 691,242 joined the Spore community in that first month.

This is staggering, and it proves the benefit and value of the mod community as a new business model:

  • The effect of releasing a tool that modifies a game can be viral—nearly 2 million creatures created in a month.
  • The marketing value? There were 691,242 members of a community anxiously awaiting the game release so they could buy it.
  • The conversation on this is vibrant and continues to this day—if you Google “Electronic Arts” and “Spore, ”just short of a year after its release, there are 5, 990,000 references that pop up in a nanosecond or two.
  • The revenue potential was (and is) phenomenal. There is a free version of Creature Creator, but the number of sales of the $9. 95 version reached such substantial numbers its first week that it was number one in PC game sales and number six in overall consumer software sales that week and continued that strongly for several weeks after. Keep in mind, this tool was just the teaser for the full game, which was a separate purchase.
  • The community is participating in the Spore “experience” as its members are creating creatures, blogging about it, talking about the individual creatures, and commenting on the creatures that others have created.

Here’s is first Spore creature

first Spore creature

More Mod Please
This is only one example of countless mod community success stories. One of the key factors in that success is that the game production companies are co-participants and active supports of the mod communities. Many game companies host fan sites where the mods are available for download and forums discuss the finer points of anythingnfrom coding to the history of the mod. This involves a major effort on the part of the modders themselves. Their participation is passionate and their involvement deep. Yet they are not compensated for their efforts by the game company. What the game company does is providethem with tools to do the modification and visibility into the source code, with resources that will help them publicize the mods—such as forum locations, storage for the mods themselves, and downloading tools. That’s pretty much what the modders get for what is often months and even years of work. But remember, this isn’t a typically mercenary effort. This is a labor of love and play, which, incidentally, is every bit as much value to a customer as revenue is value to a company.

This all goes back to what customers value. It isn’t necessarily what the companies value. There is value for the game’s fans in the actual experience of creating the mod and value in the community participation. There is value in the mod being made available for free. There is value in the input the modders give the company about the tools and the changes in the game that they are looking for, whether as code changes or new features or functions.

One particularly crisp example revolves around a game called Rome:Total War, a runaway hit that opened a game franchise when it was released in 2005 by Sega for the PC. In fact, it was so popular that IGN, a gamer rating service and publication, named it number four in the Top 25 PC games of all time.

The game was loosely based on Roman history. You adopted a faction and historical leader and attempted to conquer Rome. A group of committed fans decided that the historical accuracy wasn’t sufficient, and in 2006 they began to create a mod that they called Rome:Total Realism. What made this remarkable was the level of effort, the team that built it, the remarkable discussions, and the number of downloads. The team that built version 6. 0 of this mod consisted of the following positions (some individuals had multiple positions):

  • Lead programmer
  • Lead skinning artist, 3D artist, jack of all trades
  • Lead graphics artist, video producer, web designer
  • Lead 3D artist
  • Programmer, 3D artist
  • Lead historian, programmer
  • Skinning artist
  • Music composer
  • Assistant programmer
  • Graphics artist, programmer
  • Campaign map designer
  • Forum administrator
  • Public relations

Remember, these are unpaid, passionate fans devoting their time to creating this mod, which was downloaded over 800,000 times in its first year of existence. If you didn’t know that, you’d think this was a full-blown professional development team working for Sega. The level of detail involved was astounding. Discussions went on in the forums about arcane points of Roman history to make sure that a uniform had the proper color for a barbarian army. Take a look at this one of thousands of changes to the gameplay.

Changed Parthian stables. Now Tier 1 builds Horse archers, tier 2 Huvaka, tier 3 Persian cavalry and tier 4 cataphracts.

Whatever that means.

But there is another case. What happens when you care about your products, but you don’t really care much about your customers?

Sony Does It Wrong, Again
Sony produces excellent hardware. They have an engineering culture that is defined by a view of the customer that says “if we build it, they will come. ”This means, we’ll figure out what we want to produce, produce it, and the customer will buy it. Pretty much like Oracle was until the last couple of years.

Sony builds a product like the Bravia TV or the PSP or a Blu-Ray player and while people attracted to the hardware will buy it, it never seems to sell at the expected level.

Why is this? Because the customer not only has little to say about the development of the product in an era where product development has entered the customer’s domain, but Sony actively has discouraged customer participation and stays invisible (or opaque, if you prefer) to their customers when other companies are struggling with how to be more transparent. Sony considers its intellectual property entirely sacred and makes every effort to prevent any encroachments on it, unlike the open source approach taken by the John Carmacks or the Segas of the game world.

A case in point was their handling of the first crack in the PSP firmware. In its earliest days, the Sony PSP (the handheld game unit that Sony has been producing since 2005) was hacked. There was a game called Wipeout Pure, which, if you reverse engineered it, would provide an Internet browser, in violation of Sony’s agreements. Sony’s response? They created an Internet browser for the PSP owners and then closed off the hole by updating the firmware so the product couldn’t be hacked. Unlike much of the game community, which releases the source code and even best practices guides on how to modify the games, Sony thinks this is a dangerous thing and remains a closed, somewhat arrogant environment. Their lack of customer involvement is also why as early as 2005, they lost the number one position in consumer electronics to Samsung, who very much involves their customers and external expert networks in their planning, development, and problem solving.

Much of the game industry, even including its multi-billion dollar giants like Electronic Arts, supports the open source approach that has driven much of its success. Their approach supports the contemporary customer’s outlook without trying to subvert it. It accepts the peer trust that exists and at the same time is able to institutionalize practices that will both cede control of the environment to their customers and still profit from it, because they give the customers the ability to participate in the creation of a highly personalized experience that also drives sales. This is borne out by data from IDG Consumer Research Report on the game industry which found that, as far back as 2006, even before all the social networking had become prevalent, only 17 percent of gamers actually found official publisher game sites useful, while 70 percent of gamers got game-specific info from forums, game fan sites, and third-party news websites—which were often sponsored or supported by the game companies!

Most important, what kind of business model can be extrapolated from this example?

Characteristics of the New Business Model
Traditional business models are rapidly losing their oomph. The kind of business organization that sees itself as a producer/distributor of products or a service provider and then sees its returns based strictly on products or services sold, is becoming the coelacanth of the 21st century—a weird looking specimen in a fossilized state.

While the game industry has been a great lab for a new business model, it is gaining credence throughout multiple sectors, far beyond just games. The model is intermeshed with contemporary social CRM and customer engagement strategies. You can’t have one without the other, though you can build toward either or both incrementally. There are some distinct characteristics that define this model:

  • The lines between producer and consumer are blurred. The effort is cooperative and the interest in making the products “consumable” is mutual. For example, at the 2002 annual Game Developers Conference in San Jose, game company Valve Software founder Gabe Newell unveiled Steam, a distribution network that would offer instant updates to recent Valve games and new titles from Valve and other companies. Among the new titles was Day of Defeat, a multiplayer add-on to Valve’s bestselling first-person shooter (FPS), Half-Life. This wasn’t a Valve original product. Day of Defeat was a mod and the company supported it by distributing the updates as if it were a company product. The company and the customer were operating in conjunction with each other. This is a collaborative value chain in (my) enterprise jargon.

  • The company moves from being the producer or distributor of goods or the provider of services to the aggregator of products, services, tools, and experiences to allow the customer to meet the needs of their personal agenda, or in bizbuzz, their personal value chain. This implies that what the company packages is actually a solution set, though not in the classic sense. For example, with the release of Half Life 2, not only did Valve release the game itself, but the source code, the tools to author the modifications, and a page where you could download the best practices that were culled from the hundreds of mods the game had engendered. You had all you needed to tailor your own experience if you were so inclined.

  • The users and producers are engaged in the co-creation of value. The game companies sell millions of copies of the game, and the gamers are able to make the game into something that has value to them—often emotional and always replayable without buying a new game.

  • The users have the tools to configure and/or customize their personal experience with the product. This is part of the core difference with the older business model. The traditional model treats products and services as items for purchase. The new model incorporates configuration tools as something available for the customer’s use.

  • The users and producers encourage each other and mutually define the future directions of the specific products. The game industry sponsors conferences for modders, and will typically invite influential modders and other key gamers into corporate strategy sessions. Blizzard, which holds an annual conference attracting as many as 6000 gamers, will wine and dine key gamers at the conference and let them in on future plans, in return for advice. The users and producers take advantage of the most advanced methods of communication within the global matrix (e. g. , user communities on the Web). Transparency is the rule, not the exception.

  • Even though the users are working on the product changes for their own experience, the changes to the product have universal and commercial value and drive the sales of the product. Valve Software’s Half Life 2 is one of the most modified games in history. One mod, Counterstrike, was so popular that Valve acquired it and by 2006, it had sold over 18 million copies, was being played on 36, 000 servers as a multiplayer game 24/7, and had over 4. 5 billion minutes a month being played. Not a commercial game—a mod. This game has since been superseded by World of Warcraft—you know, the one that you’re playing, but the mod was the most successful in gamer history.

  • The producer is not just the publisher/manufacturer but operates as an aggregator for the user’s creative interactivity. The company provides the products, services, tools, and experiences that allow the customer to personalize their interactions with the company in the way they want them.

  • The user is not just a purchaser but also an advocate of the experience around the product and, by extension, the company. The existence of multiple communities and sites associated with modders who are constantly chattering is a perfect example of this. Firaxis, the publisher of Sid Meier’s Civilization IV, has hundreds of mods—some on sites that are for the mods themselves (such as www. civfanatics. com), some that are the subjects of threaded discussions on the main Civilization IV website.

  • The companies and the customers jointly create and provide the tools to make this collaboration successful. The customers often create the tools. For example, the Rome: Total Realism team developed their own skinning tools to make the uniforms of the varying factions in the game accurate.

  • The customization effort itself, not just the result, is part of the experience, thus enhancing the producer/consumer collaboration all the more. Most of the more complex mods are team efforts, and the collaboration itself and the sharing of the mod with the public is as important as the results of the effort.

  • The overall effort involves a corporate culture that is defined by the voice of the customer first. The difference between John Carmack or Valve Software versus Sony. I rest my case.

  • The model uses and provides the most advanced technological tools for these globally matriced communities that are interactive and real time. Many of the mod teams have never met their fellow developers. They are successful because all tools, code, and communications media are available via the Web in either real time or as threaded discussions accessible on demand, despite the teams being spread across multiple nations.

  • The company and the customer each get value in ways that are appropriate and satisfying to them. they may have different sets of values, but the company and the customer are participating jointly in creating something mutually beneficial. Revenue or profit for the company; some form of emotional satisfaction for the customer.

  • The company’s revenues increase accordingly, as does their profitability, given that their customers are doing something freely—and for free. That remains the most astonishing facet of this business model. The customer has no problem doing this for free because they see it as a benefit to them.

Social CRM Business Model, in Sum
Social CRM’s business model is based around one central premise. The company moves from being a producer of products and a provider of services to an aggregator of products, services, tools, and experiences that give the customer the means to meet their own agendas.

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