The video game industry has undergone a seismic shift over the past decade. The popularity of games-as-a-service (GaaS) has reshaped development, launch, monetization and the overall business model. While opinions on the impact vary, it’s clear that the changes catalyzed by software-as-a-service in gaming are here to stay.
The Traditional Gaming Model
Traditionally, video games were developed and sold just like any other software:
- Games were packaged in physical disks and sold at retail stores like GameStop for ~$60
- After launch, publishers might release paid downloadable content (DLC) map packs and expansions priced at $10-30
- Sequels were launched every 2-5 years once initial sales declined
This model meant:
- Single upfront payment per game
- Limited post-launch monetization opportunities
- Long dev cycles between sequels
- Significant risk if new IP failed to resonate
Top publishers like Activision and EA relied on proven franchises like Call of Duty and Madden that could bankroll riskier projects. Strong sequels were the goal.
The Rise of Live Services
Over the past decade, publishers have shifted to “live service” games – the gaming industry term for games-as-a-service (GaaS).
Live service games operate differently than traditional titles:
- Games launch as unfinished ongoing “services”
- Content is added regularly via free updates and patches
- Monetization is shifted to microtransactions and virtual currencies rather than a single upfront payment
- Games are supported indefinitely rather than sequels launching
This transition was driven by several factors:
Digital Distribution – Platforms like Steam enabled rapid deployment of patches and content vs packaged software release cycles.
Mobile Gaming – Mobile app stores normalized microtransaction models and free-to-play among consumers.
Engagement Over Units – Publishers shifted focus from unit sales to recurring consumer spending and long-tail monetization.
Lower Risk – Live service models allow greater flexibility to tweak games post-launch based on player feedback vs rigid dev cycles.
Predictability – Recurring revenue from microtransactions is more stable than relying on mega-hits to drive occasional spikes.
Hit live service games like Fortnite and Apex Legends showed the massive earnings potential of the model.
Soon, every major publisher adopted live services to some degree. But executing well proved challenging.
CD Projekt Red: Resistance to Change
Polish studio CD Projekt Red built a reputation for high quality single player RPGs like The Witcher 2 and The Witcher 3. They epitomized traditional gaming values:
- Avoiding microtransactions in favor of complete $60 experiences
- Taking time to polish rather than rushing games
- Sequels only after thorough R&D vs annual releases
This approach paid off spectacularly with The Witcher 3 in 2015:
- ~$81M development budget over 3 years
- 6 million copies sold in first 6 weeks
- 50 million copies sold to date
- Widely considered one of the best games of all time
But CD Projekt struggled to replicate this success.
In 2020 they launched Cyberpunk 2077 after 8 years of development. Despite high expectations, the game was a disaster:
- Buggy, broken gameplay even after numerous delays
- Review bombing and Sony pulled it from PlayStation store
- Stock price plummeted nearly 50%
Cyberpunk highlighted the risk of long dev cycles in traditional gaming. After one failure, CD Projekt lacked sufficient recurring revenue to stay afloat.
In response, they announced plans to develop future titles as live service games. But lacks expertise so far in that model.
Square Enix: Failed Pivot to Live Services
Japanese publisher Square Enix built franchises like Final Fantasy on story-driven single player games. But by the early 2010s, they saw the need to evolve.
After a string of big budget flops in 2013, Square Enix’s CEO acknowledged in a letter to investors:
“The financial results reflect an intrinsic problem within the game business model. Profit opportunities are non-existent during the game’s development. I believe the problem is not a one-time event… we face the structural issues of an inflexible earnings model and long-term, large-scale development.”
To adapt, Square Enix inserted multiplayer and microtransactions into all titles:
- Deux Ex and Hitman as unfinished live service games
- Added virtual currency to Tomb Raider and Just Cause
But these changes were superficial and poorly received. Square Enix’s franchises were fundamentally single player focused.
They fared poorly as truncated live service experiences. Hitman and Deus Ex failed to earn back their budgets.
In a last ditch effort, Square Enix invested 3 years and ~$170M into a dedicated live service game – Marvel’s Avengers. But the game flopped at launch due to lack of content, bugs, and repetitive gameplay.
Square Enix’s kneejerk push into live services proved unsuccessful. Their strengths lay in crafting narrative single player experiences. Chasing trends led to subpar games that alienated fans.
Take-Two Interactive: Measured Success
Take-Two Interactive, owner of Rockstar Games and 2K, took a more measured approach to live services.
Rockstar stuck to their philosophy of high quality games on longer cycles:
- Red Dead Redemption 2 in 2018 after 8 years of development
- 160M+ copies of GTA V sold since 2013 launch
These mega-hits funded continuous updates to the online modes of GTA V and Red Dead Redemption 2 – both now thriving as live service titles.
Meanwhile, Take-Two’s other studios (2K, Firaxis) carefully built up live service capabilities:
- Added virtual currency to NBA 2K13
- Experimented with season passes and post-launch DLC for Borderlands 2, Bioshock Infinite
- Grew microtransactions in a targeted, game-appropriate manner rather than maximizing monetization
This strategy proved highly effective. In 2021:
- Live services made up 62% of Take-Two’s net revenue
- NBA 2K, GTA Online and Red Dead Online all saw record engagement and microtransaction spend
- Total net revenue exceeded $3 billion
Take-Two provided a blueprint on thoughtfully transitioning selective titles to live service models. Patience, expertise building, and aligning monetization with gameplay led to success.
Analyzing the Impact
The rise of live service games has been controversial. Players lament the end of complete $60 experiences. But there have also been benefits:
More games accessible to more players – Free-to-play opens the door to players unwilling or unable to pay $60 upfront.
Reduced risk – The flexibility of live service allows developers to adjust based on player feedback rather than bets on risky new IP.
Steady work and compensation for developers – Ongoing content updates provide stable employment rather than layoffs after launch.
There are also notable drawbacks:
Focus on monetization over gameplay – Some publishers emphasize addictive monetization systems over crafting great gameplay.
Bugs and unfinished experiences – The “ship now, fix later” mentality has led to more unstable game launches.
Less narrative focus – Live services emphasize open-ended multiplayer experiences over story-driven single player content.
Crunch and burnout – The “live ops” treadmill has resulted in excessive crunch as teams try to keep up with player demand for fresh content.
Ultimately, live service games now dominate the industry. But poor execution has bred resentment while prudent strategy aligning monetization with great gameplay demonstrates it can be done well.
Publishers must balance player value and business model. Games that neglect compelling core mechanics to focus solely on revenue extraction will inevitably struggle. But those that align monetization thoughtfully with solid design can thrive.
The Road Ahead
Live services are here to stay, but new trends are emerging:
- Seasonal model – Example: Fortnite Chapter system. Rather than endless content, more games may shift to defined seasons that reset progression and mechanics. Eases burnout.
- Hybrid monetization – Some paid single player games are adding optional microtransaction components similar to Red Dead Online existing alongside Red Dead Redemption 2.
- Return of mid-tier games – Indies and AA games with more limited scopes may see a resurgence as backlash grows against ever-expanding live service worlds.
- New genres and business models – Successful experiments like free-to-play fighter Multiversus and co-op shooter Ready or Not may further expand the diversity in gaming.
Gaming is maturing as an industry and art form. While live services enabled growth, companies must grapple with both economic and artistic concerns to create sustainable, fulfilling experiences. Players want both great games and sensible monetization. There remains much room for innovation in balancing the two.