Recent Researches in Applied Economics and Management - Volume I
Open innovation and agile project management in video game industry
RADIM ŠPICAR
Department of Business Administration and Management
University of West Bohemia
Husova 11, 30614 Plzeň
CZECH REPUBLIC
[email protected]
Abstract: Global market for video games is poised to surpass $80 billion in 2016 with more platforms coming
to facilitate further growth. Video game players are often very vocal about changes they wish to see and ideas
they want implemented and yet major developers and publishers only rarely take these into account. This paper
aims to show the value of this enormous pool of ideas and customer base looking to actively participate in
shaping the final product beyond its initial release by analyzing the development process behind the free-toplay Path of Exile video game by developer Grinding Gear Games.
The main focus lies in describing how using open innovation and agile project management principles helps
Path of Exile to grow as a product and retain its player base, which is especially important considering the
chosen business model of being free-to-play, thus relying on players spending money on features not
necessarily needed for their gaming experience. Agile project management manifests itself in weekly patch
schedule, where content is added incrementally in small but frequent doses. Giving players an option to design
their own in-game item for a large fee represents some of open innovation concepts that Grinding Gear Games
utilizes. This particular option also results in a non-marginal revenue stream.
This paper also contains a preliminary survey of video game players aimed at finding out exactly what
makes them support a developer financially and whether open innovation and agile project management
principles can be used to enhance this revenue stream. Taking results of this preliminary survey into account,
related hypotheses for further testing are suggested.
Key-Words: agile project management, knowledge management, open innovation, software, video games
activities lead to internally developed products that
are then distributed by the firm. ... open innovation
is the use of purposive inflows and outflows of
knowledge to accelerate internal innovation, and
expand the markets for external use of innovation,
respectively. Open Innovation is a paradigm that
assumes that firms can and should use external ideas
as well as internal ideas, and internal and external
paths to market, as they look to advance their
technology.“
Agile project management methodology can be
understood as „an alternative to traditional project
management,
typically
used
in
software
development. It helps teams respond to
unpredictability through incremental, iterative work
cadences, knows as sprints. ... Agile development
methodology provides opportunities to assess the
direction of a project throughout the development
lifecycle. This is achieved through regular work
cadences ... at the end of which teams must present
a potentially shippable product increment. ... The
results of this ‘inspect-and-adapt‘ approach to
development greatly reduce both development costs
and time to market.“ [3]
1 Introduction
What was once viewed as a passing fancy is now
a multi-billion dollar industry. [1] predicts the
global market for video games to reach $81 billion
in 2016 from $66 billion in 2010. With new video
game consoles announced or released by all of the
industry’s main players (PlayStation 4 by Sony,
Xbox One by Microsoft and Wii U by Nintendo)
and new platforms such as increasingly powerful
smartphones and tablets, there is little reason to
doubt that the industry will continue to grow.
This paper aims to show how modern
management philosophies, such as open innovation
and agile project management, can be applied
during development of a video game. It also aims to
provide related hypotheses for further testing. To do
this, the development of Path of Exile video game
by a New Zealand developer Grinding Gear Games
was studied from the moment it had entered a
Closed Beta stage in June 2011 until March 2013.
According to [2], open innovation “can be
understood as the antithesis of the traditional
vertical integration model where internal R&D
ISBN: 978-960-474-323-0
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Recent Researches in Applied Economics and Management - Volume I
customer are in graphical effects, while gameplay
stays equal. While somewhat ethical in the sense,
that money cannot buy advancement, thus making
all players equal regardless of their financial
situation, this model essentially eliminates a big
reason for players to spend money.
Instead of choosing a P2W model, Grinding Gear
Games decided to use communication, agile project
management and open innovation concepts to build
lasting relationships with its customers. The
emphasis is on the future. Since Path of Exile is an
online game, failure to generate enough revenue to
cover costs would eventually lead to the shutdown
of the servers and inability of people to continue to
play. Thus players know, that by purchasing
cosmetic features they not only gain additional
graphical effects but they also help to assure they
will be able to play in the future. This is further
accented by the patch deployment system used by
Grinding Gear Games, which will be discussed in
the next chapter.
2 Problem Formulation
Both open innovation and agile project
management are principles widely used across
various industries. However, their use in the video
game industry has so far been largely limited. While
agile project management is usually connected to
software development, video games are a very
specific category of software, where there are many
vastly different customers for the same product,
making the agile project management principles
hard to apply. The question then is: “Can open
innovation and agile project management be used in
game development and if so, to what effect?” The
following text tries to answer this question by
observing the practice of Grinding Gear Games
during their development of the Path of Exile role
playing video game.
First, a proper background needs to be
established. Path of Exile is an action role-playing
game (or ARPG) developed by Grinding Gear
Games. As of March 2013 it is in a public Open
Beta stage with no official release date announced.
It has entered Open Beta on January 23, 2013 after
being in a Closed Beta stage since June 2011. It is
important to note, that since it is free to play and
now open to the general public, the eventual move
from the Open Beta stage to a release stage will be
largely symbolical. As of March 2013, tens of
thousands of players are playing concurrently at any
given time with the total player base numbering in
the hundreds of thousands.
Similarly to the most played video game in the
world during a 12 months period in 2011 and 2012,
League of Legends, and the fourth most played
video game during the same period, Heroes of
Newerth [4], Path of Exile is free to play (or F2P).
This means that players are not forced to pay for
(most of the) content and developers have to rely on
players actually choosing to support them by
purchasing various features with real money.
Some developers choose to provide distinct
advantage to paying customers (for example by
allowing them to purchase functionally different
equipment only for real money), or allow them to
skip certain repetitive aspects of the game (or
grinding) in exchange for real money. This model
stands on the assumption, that players will pay to
get ahead or to skip parts they find boring. Such
games are sometimes characterized as “pay-to-win”
(or P2W), because they allow paying customers to
obtain advantage over nonpaying customers.
Grinding Gear Games has chosen a different F2P
model, where it only offers cosmetic upgrades for
various features of the game. Thus the only
difference between a paying and a nonpaying
ISBN: 978-960-474-323-0
3 Problem Solution
The following observations have been made
during the period between June 2011 and March
2013 and are still relevant as of June 2013.
3.1 Agile methods in Path of Exile
Before the widespread use of internet among
general population, developers had limited options
as to how to change their product (through
“patches”) after it had been released. With no easy
way to distribute such patches, most people had to
rely on game magazines that came with CDs. At that
time, a shipped product was essentially final. Agile
development could hardly have been implemented
since it requires regular communication with the
customer. Shipping out new physical products to
hundreds of thousands of customers around the
world every few weeks was simply not feasible.
However, with video games today moving away
from physical distribution and towards digital
distribution, changing the product can be done
quickly, easily and with low costs for both the
developer and the customer. Today, video games
will notify their players via the internet when an
update or a patch is available and further ease the
process of installation. This allows developers to
make and distribute changes to their products with
ease.
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Recent Researches in Applied Economics and Management - Volume I
is ill-received, the developer can remove it in a
matter of days, which shows the customers that they
are being listened to. On the other hand, slower
patch schedule (especially when coupled with bad
communication) creates tension and frustration for
customers, which may lead many to leave, believing
the developer does not care about their problems
and opinions. Both of these points strengthen the
relationship between the developer and the
consumer, which is extremely important for F2P
games, since they rely on continuous support rather
than one-time investment.
Most developers have adopted this system of
online digital distribution of patches so they can
essentially “repair” their product after it had been
released. However, only a few of them (e.g. Arcen
Games) realized that such a system enabled agile
project management to be used in video game
development. With high speed internet connections
becoming more and more common, especially
among gamers, downloading new versions of a
product every week is hardly a problem.
Grinding Gear Games decided to take advantage
of this distribution channel by developing and
releasing content in phases. Closed Beta started with
only the first act of the game and little in terms of
features. As of March 2013, Path of Exile has three
acts and several times as much content as it had
when it had entered Closed Beta. Moreover, there
are plans for at least one more act and other
features. As long as it remains commercially viable,
there is no reason to think more content will not be
developed.
The move from only a handful of features to a
large slew of them happened slowly over time. This
can be best contrasted against expansions for
regular, non-F2P games. Those are released at least
several months (but sometimes even years) after the
main game and contain a large number of features.
Instead of that approach, Grinding Gear Games
chose to deploy a large number of small patches
containing both bug fixes and additional content.
These patches usually come at a pace of at least one
per week, though sometimes this may rise to 4 or 5
per week, coming close to one patch per day. The
end result for both approaches may be largely the
same – large amount of content after several
months. The main difference is in how the end result
is achieved.
There are two main advantages to a fast patch
deployment philosophy considering the chosen
business model. When a patch is deployed, all
players can immediately test it and experience the
changes. Thanks to feedback provided via the game
forums, the developer can quickly gauge the
reaction to isolated changes and decide whether or
not to keep them. This allows the developer to test
out concepts before fully committing the resources.
If players react negatively to the logic behind certain
features, there is no need to upgrade and polish such
features.
More importantly, a fast patch schedule allows
the developer to react quickly and visibly to
customers. When a certain newly introduced aspect
ISBN: 978-960-474-323-0
3.2 Open innovation in Path of Exile
When Path of Exile was still in Closed Beta
stage, Grinding Gear Games tried to raise funds
through several promotions ranging from getting
access to the Closed Beta for $10 to a Diamond
Supporter package for $1000. This most expensive
option (which is still present in the Open Beta stage,
although without other benefits) allowed the buyer
to work with the developer to design a custom
unique item that would appear in the game. As of
March 2013, more than 100 such unique items were
added to the game with more than 250 people
purchasing the associated option. There are also
plans to offer packages that would allow players to
design their own monsters, skills or other features of
the game.
In this way, not only does Grinding Gear Games
get new ideas for items to implement, it also creates
a substantial new revenue stream. During the Closed
Beta phase, supporter packages managed to raise
more than $2.2 million, with more than $0.25
million from Diamond Supporter packages. People
are clearly willing to pay large sums of money to
have their ideas implemented. There is also a thread
on the game forums that serves as a place for all the
people who do not want to (or cannot) purchase the
package to post their ideas for unique items.
This shows only one of the ways that open
innovation is present in the development process.
Ideas for new skills, new quests, other new features
and even completely new mechanics are posted
every day on the game forums. This creates an
almost endless stream of innovation ideas for the
developer without any costs or time investments.
Both agile project management and open
innovation can help to strengthen the relations
between the customer and the developer. Their true
power, however, can only be seen when
implemented together. While open innovation
brings a constant stream of new ideas, agile
development allows them to be tested, all with
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Recent Researches in Applied Economics and Management - Volume I
minimal costs. It is incredibly simple to take an idea
for a new skill from the forums, reuse a few effects
and animations and release it in the next incremental
content patch. If the feedback is generally positive,
work can begin on designing new effects and
animations and on general polishing of the new
feature. If the feedback is generally negative,
development can be stopped and rolled back to a
previous patch with only a few hours of manpower
wasted.
While new items, monsters and skills are
relatively isolated features, people are eager to
suggest whole new quests, themes and mechanics
for the game. Many of the customers are also
customers of other games in the genre and thus can
suggest things they liked in other games. This saves
the developer huge amounts of time spent on doing
research of the present competition and, maybe
more importantly, past products.
4) Do you have ideas that would, in your
opinion, benefit Path of Exile?
5) If so, have you suggested them to the
developer?
6) If so, have any of your suggestions been
adopted?
7) If so, do you feel more inclined to spend real
money afterwards?
8) Do you feel that communication between the
developer and the community is important?
9) Does adequate communication between the
developer and the community make you feel
more inclined to spend real money?
The first question was answered with a wide
array of responses ranging from the beginning of
Closed Beta to only a few weeks. This suggests that
the preliminary survey captured both long-time and
new players.
The purpose of the second question was to gauge
the attractiveness of agile development to customers
– 38 out of 50 respondents answered positively,
which suggests with a confidence level of 95% that
customers prefer a lot of small patches. The third
question is directly related to the second one. Here
32 out of 50 people answered positively, which
again suggests with a confidence level of 95% that
patches with desirable features make people more
inclined to spend real money. This suggests that
developers should try to deploy several smaller
patches instead of one big patch. Not only do people
prefer it as a deployment system, every patch may
also potentially bring customers to spend more
money, thus generating more revenue for the
developer.
The fourth and fifth questions aim to gauge to
what extent customers come up with new ideas for
innovations and their willingness to share them.
Unsurprisingly, the vast majority (44 out of 50
people) of players has ideas on how to (in their
opinion) improve the game, while 38 out of those 44
have already suggested at least some of their ideas.
At a 95% confidence level, it can be said that the
majority of Path of Exile customers have and
suggest ideas for improvement. Thus there is no
shortage of outside ideas. The sixth question
measures the extent to which Grinding Gear Games
listen to suggestions from their customers. Out of 32
people who voiced their suggestions, 15 have had
their suggestion implemented and 12 out of these 15
have felt more likely to spend real money
afterwards. While the sample size is too small for
any definite conclusions, these results point to
another possible revenue stream.
The last two questions gauge customer attitude
towards communication between them and the
3.3 Hypotheses for further research
Since Path of Exile depends on purchases of
graphical effects as its main revenue stream, it is
clear that customer retention is a key concept. While
non-F2P games do not need to retain the customer
beyond the initial purchase (unless they also run
some form of additional content offers), a customer
of a F2P game has to stick around long enough to
actually spend some real money on the offered
content. A big question that every F2P developer
must solve is how to get players to do just that – to
spend their real money on additional content that is
not crucial for their game experience. As previously
mentioned, many developers solve this problem by
utilizing a P2W system, through which they offer
players functional advantages in exchange for a
small fee. Since Grinding Gear Games decided not
to follow that road, they can only offer graphical
effects, thus rejecting a part of the customers that
would be willing to pay for in-game advantage.
If not an actual advantage over others or saving
time, what else could make customers more likely to
spend their real money? In a preliminary survey, 50
Path of Exile customers chosen at random from the
game forum’s population were asked to answer the
following questions:
1) How long have you been playing Path of
Exile?
2) Do you prefer a few big patches with large
variety of content or a lot of small patches
that add content incrementally?
3) Do you feel more inclined to spend real
money after a patch with desirable features
comes out?
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Recent Researches in Applied Economics and Management - Volume I
developer and it is here, where the results are the
most one-sided. 49 out of 50 respondents value
communication as important and 42 out of 50 feel
more likely to spend real money on a product
developed by a developer that communicates
adequately with the community. This suggests with
a confidence level of 95% that customers are more
likely to support a developer with good
communication.
sample size, ideally including a comparison of
comparable developers who differ mainly in the
suggested aspect:
1) Deploying a large number of smaller patches
attracts more revenue than deploying a small
number of larger patches in the same
timeframe and including the same amount of
content total.
2) Implementing suggestions from customers
attracts more revenue than implementing
ideas that are developed internally.
3) Frequent and regular communication between
the developer and the community attracts
more revenue than sporadic communication.
4) Players of non-P2W F2P video games spend
money more to support the developer than
because they want whatever they are buying.
While all hypotheses have been formulated based
on observing a developer of a F2P game, many
other developers use a business model of providing
additional paid content after the initial release of the
game. The first three hypotheses may be relevant for
such developers as well, since they are closely
related to customer loyalty and retention.
This paper was created as part of the SGS-2012028 project.
4 Conclusion
Since F2P games are among the most played
video games in the world, their numbers can be
expected to steadily grow in the future. This growth
is bound to bring more developers that shy away
from a simple P2W model that bases revenue
streams on providing functional in-game
advantages. Such developers will need to solve the
problem of generating revenue based only on
cosmetic features and other features not necessarily
related to in-game content.
Agile project management helps in deploying
frequent patches, while open innovation serves as a
stream of new innovation ideas and a revenue
stream. Both philosophies also help in letting people
know their ideas and concerns are being heard, thus
improving the communication between the
developer and the community.
Based on a small sample preliminary survey,
there are at least three revenue streams worth
exploring. It would appear that people are willing to
spend more money when desirable features come
out in a patch, when their suggestions get
implemented and when the developer exhibits
adequate communication with the community. All
these points suggest, that people are more likely to
spend money when they feel that their voice is being
heard, they see the game moving in the direction
they want or they at least have some idea as to what
is going on thanks to communication between the
community and the developer. Based on
observations during the Closed Beta stage, it would
also seem that since the purchasable effects are
largely cosmetic, people spend money more as a
sign to the developer that they are doing things right
than for the graphical effect themselves.
In conclusion, 4 hypotheses have been
formulated that appear promising but require further
research with a much larger and more distributed
ISBN: 978-960-474-323-0
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