clock menu more-arrow no yes

What Can the Video Game Business Learn From Airlines and Uber?

Answer: How to price products in ways that will keep people coming back, according to a startup called Gondola.

Gondola

When you make a purchase in a free-to-play video game like Candy Crush Saga or Clash of Clans, you often have to go through a “store” — that is, a menu within the game that lists the things for sale. “You can get this item for 99 cents, but this better one is only $2.99 …” and so on.

The prices of those items only occasionally change and are the same for all players — and that’s a problem, Gondola CEO Niklas Herriger says. In other words, there’s no reason the same items couldn’t have different prices for different buyers.

Gondola used to develop games, but in the past two years has pivoted to become an app analytics company. Its newly announced product, a “dynamic pricing engine” for game developers, represents an interesting twist on the free-to-play business.

“As opposed to other industries, our merchandise comes with unlimited supply,” Herriger said of virtual goods. “There’s no marginal costs. We never have the problem that we can’t sell differently to different people.”

He said by changing the price of virtual items in specific, strategic ways, game developers can prevent users from “churning out” (that’s “leaving the game for another one,” in English). For example, a player might hit a level that’s difficult to beat without a certain item that normally costs $3; Gondola’s algorithm tries to anticipate if cutting the price to $2 would keep that individual playing, which may in turn lead to more than $1 of additional sales.

“I don’t even remember a time where airline tickets were not dynamically priced,” Herriger said. By that, he’s referring to the way variables like day of the week and number of seats remaining on a flight can swing the cost of those seats.

The variables that Gondola tracks include how long users have been playing, how many levels they’ve beaten, whether they use Android or iOS, where in the world they are and what (if anything) they’ve previously purchased from the store. Based on those metrics, the company’s engine automatically prices in-game items according to what it thinks will keep those users playing, and then tracks how they respond, which feeds back into future pricing slides.

When Herriger compared the idea of variable prices to Uber’s “surge pricing” model, I asked if he was concerned about how customers would think about the prices they see. After all, Uber has a fairly clear explanation for why it temporarily raises prices — demand is outweighing the supply of available drivers — rather than an algorithmic secret sauce.

“What you’re asking is, ‘Will my users hate me?'” Herriger said. “It’s a good concern.”

His answer, of course, is no. Users will not hate developers that use Gondola, because most users will see lower prices than they would otherwise. This means they will have fewer barriers to keep playing a game they’re enjoying.

“The perception is, oftentimes, that dynamic pricing is about squeezing the last dollar from the ‘whales,'” but that’s not really the case,” he said. “A substantial number of users would churn out before their first purchase might be made. Only really skilled players might see a significant increase in virtual goods prices.”

According to a Gondola press release, the games in which the pricing engine has been tested have seen revenues rise by 12 percent, on average. Herriger declined to comment on which games, specifically, that referred to, but the company’s website alludes to having worked in the past with My Singing Monsters maker Big Blue Bubble, Jelly Splash maker Wooga and Cut the Rope maker ZeptoLab.

This article originally appeared on Recode.net.