The Future is Still Retail

Let me share with you a quote from technical director of id Software John Carmack, “Everybody knows that eventually [everything] will be digital distribution like this – it’s only a question of time. […] Clearly, packaged goods sales are still critical on the big platforms at this stage, but that’s all going to go away sooner or later. This is the model of the future.”

Larry Ellison, CEO of Oracle Corporation, made a similar statement back in the mid-90’s, “[…] Me going down to the store and buying Windows 95, I’ve got to get into my car drive down to a store buy a cardboard box full of bits you know encoded on a piece of plastic CDROM and you bring it home and read a manual install this thing – you must be kidding you know, put the stuff on the net – it’s bits, don’t put bits in cardboard, cardboard in trucks, trucks to stores, me go to the store, you know, pick the stuff out, it’s insane.”

And here is another one from Peter Moore, VP of Microsoft’s interactive entertainment business back in 2006, “Let’s be fair. Whether it’s five, 10, 15, 20 years from now, the concept of driving to the store to buy a plastic disc with data on it and driving back and popping it in the drive will be ridiculous. We’ll tell our grandchildren that and they’ll laugh at us.”

These are all smart guys. In particular, John Carmack has a genius IQ, has repeatedly proven himself to be a brilliant software inventor, and is one of my personal heroes. But I’m going to stick my neck out and say all three of these guys are wrong. The argument they’re making is that digital distribution is “better”, so therefore it will eventually kill the retail market. They’re assuming that since buying digital is the most rational choice, it’s the choice everyone will make. The important thing that they’re missing is that typical shopping is not remotely a rational activity. There are a lot of factors that go into making purchases that have nothing to do with price, convenience, and features. What’s more, there are some things you just can’t get from a download.

If publishers switched to all-digital distribution tomorrow, then they would be leaving out a lot of potential customers…

1. The Collectors

Some people like to own things. They like to buy a game and set it on the shelf with the rest of their collection. People do this with books and movies, even though you can get those items digitally. I know publishers are always talking about how they’re not selling products, but licenses. But to consumers the distinction is about as interesting and relevant as the contents of the EULA. They think of buying games as buying things, and after the transaction they like to hold their acquisition in their hand and say, “This is mine.”

2. The Visitors

Hey games industry: How do I take my digital copy of Twisted Metal Gears of Warfare over to my friend’s house?

I’ve purchased games because I experienced them through friends. It would be foolish to dismiss the power and importance of this viral individual-delivery demo.

3. The Gift-givers

It’s Christmas morning. The kids come downstairs, and see there is nothing under the tree. Wait, no, there is! It’s just really small. There this tiny little pile of activation cards, game time cards, gift cards, and cards with Microsoft points. Merry Christmas, Timmy! I hope you like typing serial numbers!

Would Christmas morning still be a family fun time if “opening your gifts” involved simply checking your Steam account? I’m thinking not. In general, opening gifts is more fun when you’re opening boxes with stuff in them and not thumbing through a deck of plastic cards or clicking links. Christmas and birthdays aren’t going anywhere, so if game publishers were to abandon retail, they would be abandoning these sorts of sales. And the Christmas rush represents a lot of sales.

Another good thing (for publishers) about these sales is that they’re not very well informed. Your average teen is going to be very careful with their hard-earned money. They will read reviews and talk to friends before they commit a couple of days of earnings to a game. But grandma isn’t nearly so discriminating when she goes shopping for the grandkids. Those Deer Hunter games and Wii Shovelware titles might struggle to find a digital distributor, but they evidently perform really well just sitting on the shelf at Wal-Mart and waiting to fall into the cart of a less-than-savvy buyer. It would be foolish for a publisher to ignore these easy sales.

3. The Impulse buyers

People buy things they never intended. Happens all the time. Some people window shop for fun. Some follow their hunter-gatherer instincts, searching the aisles of the department store for bargains. Retailers know this, and have spent years studying the psychology of shopping. They know how to grab the attention of shoppers, how to lead them through the store, and how to entice them into buying things they never imagined they wanted when they left the house.

You can see this really clearly in the Black Friday sales in the United States. Everyone shops the day after Thanksgiving, so retailers try to out-do each other with insane deals in order to draw those shoppers to their stores. Many sales are obviously giveaways – when the retailer is offering you a $100 item for $20, then it’s a safe bet they are taking a loss. But it’s worth it for them, because shoppers will make up that loss by buying a bunch of other crap. This is why you don’t see those incredible sale items right up front, near the cashier. They’re placed carefully, to funnel you past a lot of other goods before you can claim your prize.

While it’s easy to see this sort of thing in effect on Black Friday, it’s actually happening year-round. Some people read reviews, compare titles, and then go to the store and buy a specific game. But a lot of people buy games and movies based on the fact that the box art caught their eye when they walked by it in the store. Giving up on retail would mean giving up these sales.

4. The Unconnected

Earlier this year, there was a study celebrating the fact that 78% of PS3 users have connected their machine to the internet. Xbox users are at 72% and Wii users are at 54%. A better (if more cynical) way to look at this is that between 20% and 50% of the console gaming market is completely closed to digital distribution. Some of those folks simply cannot reach broadband access from where their console is sitting. Others just don’t care about being connected. Those numbers will improve, but slowly, and they will never reach 100% as long as there are consoles that can operate independently of the net.

AAA game publishers are always crying about low sales and how hard it is to get a return on their investment in today’s market. If this is true, then they are in no position to abandon even 5% of their potential audience, much less 20% or 50%.

Carmack and other people predicting digital dominance are right to say that digital is the future. I’m sure it will someday be majority of the market. But it will never kill retail entirely, because retail serves people that digital can’t reach for technological, psychological, and cultural reasons.

Shamus Young is the guy behind Twenty Sided, DM of the Rings, Stolen Pixels, Shamus Plays, and Spoiler Warning. He still shops for games in stores on occasion.