Do Indies have Competetive Advantage?

[Michael S. Miller]

In the Indie Effects on Existing Industry thread, Walt said:

One more shady practice can be added to Cruciel's list: Sell your product for below cost to drive competitors out of business. Which at least under some circumstances is considered an unfair business practice and is even occasionally illegal.

[snip]

And if one further describes pricing so that the profits, even over the long term, are extremely unlikely to ever compensate the publisher for the time spent developing the product, as "underpricing," well, then, it's clear that most of the indies are bound to burn in hell for their sins.

and the thread, which was very lively, ground to a screeching halt. If I read Walt right, he's calling attention to the fact that indie games don't pay for labor. First question for discussion: Is it true that indie games do not pay for labor?

I'd say "Yes." The written portion of most indie-games is done free of charge, at least those I'm familiar with. Isn't that what creator ownership is all about? I mean, do any of you pay yourselves explicitly for your labor (I don't mean profits, I mean before profits)?

I know that most indies pay for art, but there was even a thread a while back about making your own art, so that isn't even a given.

I guess the second question for discussion is: Does this lack of labor cost (if it exists) constitute a competitive advantage?

On the one hand, I remember from a long-ago international economics class that industrialized nations tend to have a high-cost of labor, but a low-cost of capital. This is covered in the previous thread's discussion of how the advance of technology has made indie publishing possible. However, as most games I've seen are made 1st world countries, it seems that indies are getting out of paying the biggest portion of the bill with their free-labor cost.

However, I don't think this is a significant competitive advantage, as I don't think that most game purchasing decisions are based primarily on cost. I don't really have any hard data to back this up with, but I get the impression from the buying patterns of gamers I know (see the recent
What do YOU buy? Why? thread, where price is seldom listed), and the impression that I've seen too many asides along the lines of "Sorry I haven't bought your $5 game, but I've got bills to pay. BTW, my copy of Nobilis is gorgeous."

Now, Walt also implied (okay, stated with qualifiers) that this could constitute an unfair advantage. Third question: Is this competitive advantage (if it exists) an unfair one?

Like most things, I can see both sides of this issue. If a mechanic wins the lottery, but likes fixing cars, so he decides to only charge for parts from then on, is that unfair? I'm not sure. I've pushed my paltry knowledge of economics to its limits. What does everyone else think?

[Tim C Koppang]

I'd say "no" to the unfair advantage question.  I mean really.  Indie designers can't afford to hire a staff, and in a lot of cases freelancers are out of the question too.  Don't pay for labor?  Ok, not literally, but they still take the time to write the game--and so they are spending a great deal of time (valuable stuff that time) creating the game.  That's time that they could be spending on other stuff (like an hourly job) that's guaranteed to make them money.  And then you have to look at the market for indie games.  It's not as big as a lot of people tend to think.  If an indie game created here on the Forge makes it to the chat boards on rpg.net we all think it's huge deal.  But really, there's almost no advertising going on.  If the game is carried in a brick & mortar game store it's a rarity.  And let's face it--as great as the Internet is at bringing people together, I still think that physical presence is a strong contender.

These are all things working against the indie game designer, and I'm sure there's more.  So any kind of advantage that cheap production costs award quickly fades.

[Ron Edwards]

Hi Michael,

I guess I'm confused about your interpretation of "competition." For what, exactly?

End-use customers?
Access to distributors' orders?
Retailers?
Profit per se?
Market share?

None of these are the same thing, and no single one of them automatically grants the others.

Just to clarify my position, I don't consider D&D3E and Sorcerer to be competing in any way, shape, or form.

Best,
Ron

[JSDiamond]

Ron: IMO Michael meant a blanket of "all of the above."  

Michael: I think that while it is undeniable that much of indie rpgs are produced pro bono, it's too general a statement to say that it's all free.  So my answer is "NO" it is not free.  I'm not talking about time spent.  Just that it's been my experience that most indies do pay for art.  Also, I believe that people like myself (for example) are an oddity even in indie circles, because I really did everything myself (writing, art, and even printing, binding and mailing).    

To the second question: Is it a benefit to do things by saving money, cutting corners and using whatever resources are available?  Does it give indies [us] an edge? (Here I'm assuming you mean an edge vs. the big boys in the marketplace) My answer is again, "NO".  The indie way of doing things is also the punk-rawk child of necessity.  If it gives me (you or anyone else) an 'edge' in the marketplace I'd say that's a cherry, -it's not something by design.
               
There is no 'unfair advantage' at work here, because there is no advantage.  There IS personal satisfaction, confidence, ownership, creative freedom and integrity.  But those things are not 'of the marketplace' per se.

[Michael S. Miller]

To begin with, my grasp of economics is old, sketchy, threadbare and largely theoretical, even moreso early in the morning. I think I meant competition for any of the items Ron stated. I was thrusting mainly toward profits: Since indies have lower fixed costs, they reach "profitable" status sooner than a professional production. (By "professional" I mean someone who makes their living by producing games.)

What I seem to have overlooked is that profit is pretty meaningless, as it is not the goal of indie game production, existing mainly to finance further production. I could smarmily ask, "Would Adept Press be in the black if its costs included a paycheck to Ron?" but that would be missing the point. The "no paycheck to Ron" is a fundamental assumption in the way the business is set up, not something extraneous that can be dissected away.

I confess that I posted this with an agenda in mind. The behavior of the Effects on Industry thread struck me as odd. Three pages of posts in less than 30 hours -- then Walt posts what looks like a legitimate line of inquiry into something "bad" we indies might be exploiting -- and then the silence was deafening. Aren't we supposed to probe our weaknesses here as much as our strenghths? I was hoping to get some discussion going on this issue, but I forgot that I'm not particularly skilled at deep analysis, particularly in economics/business, and have sort of bungled it.

Does anyone see this a potential weakness of the indie designers, even in our arguments with the "big guys" or am I just misperceiving that insecurity killed this thread when it actually died of natural causes?

[Le Joueur]

Let me take a stab at that one.

"Does anyone see this a potential weakness of the indie designers?"

Sure, experience and target.

Experience:

The "big guys" wouldn't

be "big guys" if they didn't have some concept of 'what sells.'  We're talking about success as volume of product moved.  So far, of what I've seen, each indie publishes 'what they love,' not 'what sells.'  That means each sale has 'more value' (other than money) to the indie publisher, but also that these sales 'fail' on 'gross volume' comparisons with the "big guys."[/list:u]
Target:

Who do the indie publisher target as a market?  Surprisingly, I'd say they target the product itself; they make their 'dream product.'  The "big guys" look for market share (or something); basically, I'd say their target is whatever will make them "big guys," simply put.[/list:u][/list:u]I'd say that the whole question is inherently flawed; "big guys" only become so because whatever they did 'made them big,' sometimes that is not even intentional.

For example, I'm pretty sure that early on Wizards of the Coast were just as indie as anyone reading this; I mean they wanted to publish a game

supplement that allowed you to tie several products together from different companies (that is both a copyright dubious proposition and historically more idealistic than successful).  Then they produced a hit card game; did they create the card game because they knew or wanted "big guy" status or success?  From what I heard it was an attempt to generate income to cover for legal bills; anyway the exact truth is beside my point.  Until they had a hit, they were as indie as it comes, after they could afford market-experienced people, analysts, and everything that one could get that support being the "big guy."  (Aside from any question of if they had these talents already.)

See, when I read the title of this thread, I had to laugh.  So it seemed as if you were asking if 'not paying the talent' was advantage.  Well, if one "big buy" did it and the others didn't, it would be an advantage, because they are competing in the same arena, 'being "big guys."'  Ron rightly pointed out comparing an indie who doesn't pay their talent to a "big guy" who does doesn't work; their goals differ, their metric of success is different, their need for reputation is different.

See that's the pitfall of not paying your talent; you'll never be a "big guy" that way.  Who wants to work for a company that doesn't pay?  That's where the undercapitalization topic arose.  This is the root of what Walt was talking about that 'killed the thread.'  Basically, talking about 'product dumping' as competition is pretty heavy economic theory; I don't think insecurity killed the thread, more a lack of knowledge.  I mean I was looking forward to a discussion of 'product dumping' - something you can do with a well-funded organization - used in this field.  I was also half expecting a discussion of 'shelf wars.'

Many people I have read attribute the 'Japanese boom' in electronics in the eighties (was it then?) to product dumping (and others to exchange rates, but I digress).  What they supposedly did was sell product below cost until it bankrupts their competition (or close to that).  The 'cola wars' is about shelf space; you produce 'Prink' soda and get it stocked.  Now you add Diet Prink, Caffeine Free Prink, Diet Caffeine Free Prink, Cherry Prink, Diet Cherry Prink, Prink with Lemon, Fire Engine Prink, and so on; each time the vendor, whom you sometimes have a 'shelf contract' with, has to 'make more space' for your product.  Ten years ago (or so) I saw TSR doing this with the "Complete Guide..." series; I mean who could afford not to stock 'the whole line' of TSR products?

Did either of these conversations get going after what Walt posted?  No.  Why?  Probably because the audience is indie publishers and I speculate their goals aren't about being "big guys."  'Producting Dumping' and 'shelf wars' are just not 'on the radar' of someone who dreams of presenting 'the perfect game.'  (I mean, let's be honest, that's what we're doing here, isn't it?)  I can see how Walt was responding indirectly to an apparent phantom complaint about indies, as a whole, having some success in 'shelf wars.'

And that's at the heart of the real issue, isn't it?  Theoretically, both indies and "big guys" can be successful, on their different terms, in the same market.  The only requirement is that the market is big enough to support the current number of "big guys."  (I believe that a sudden absence of indies wouldn't give the "big guys" bigger shares of the market, I think most of that money would leave the market.)  Indies come and go, having I believe, a 'expanding effect' on the market; the "big guys" hew towards what is proven successful, but indies explore, potentially opening up new venues however briefly.

See, the different goals means that, even if the result the indies have by not paying their talent, is parallel to 'product dumping,' the lack of quantity and follow through (being 'not intentional') renders it ineffectual according the purposes of 'product dumping.'  A "big guy" who is wiped out by this effect and whines about it being 'product dumping' had a weak company anyway and weren't willing to admit their own weaknesses.  I can't see the indies 'being bad' as you and Walt put it, any more than deer who overpopulate during a time of lavish food and reduced predation.

No, what 'dooms' the indies is the fact that they aren't using "big guy" criteria of success, so 'as "big guys"' they fail, just as those deer overpopulate and starve.  Our only 'weakness' is that we don't use "big guy" metrics.

Not that I am an economist.

Fang Langford

[Bob McNamee]

It strikes me that this is similar to the Homebrewers of the early 90's who became brewpub owners or microbrewers in the beer world.
They really didn't impact the bottom lines of the 'big boy' breweries, but they did start a mini-revolution around quality beers and more adventurous styles. Even the big boys benefitted from the expanded pallette of the microbrewers consumers.

[Walt Freitag]

Please keep in mind that the quotes of mine that started this thread, in their original context, were clearly labeled as a devil's advocate position. I don't personally believe that indies are doing anything "wrong" or unethical, but I wanted to point out that issues of fair and unfair competition are complex and have not been addressed or resolved in our (U.S.) law or society in any coherent way. Therefore I can understand why others would have a different view and, when self-interest is at stake, would defend it vigorously.

Of course homebrewers without time constraints have an advantage in creating quality products. Traditionally they've also had disadvantages in access to production tools and marketing channels. That's still the case, but it's changing. I don't think it's changed as much as some people think, but it might have changed just enough to make more visible a niche that was once extremely rare. Gaining the ability to deliver professional-quality presentation and packaging of goods and services used to pretty much require "giving up the day job" and thereby giving up the advantages of subsidies put into the work (even if only to cover one's cost of living overhead) from another career. Not so likely to be so nowadays.

Is this a bad thing? I don't think so. Consumers and the hobby certainly benefit. (Consumers unwittingly buying inferior amateur product would be a problem, but someone would have to convince me that this has actually happened.) But if I drew a paycheck from a publishing company and faced unfavorable critical comparisons between a work that I had to finish with a four-week deadline and a similarly-themed one that someone had put three years of loving attention into, I'd have to have the objectivity of a stone not to feel otherwise.

- Walt

[clehrich]

The only place I can see this competition being unfair would be if they disobeyed the law to sell their products.  I don't know anything about tax law, so I don't know whether the income you receive from selling games is supposed to be taxed differently, nor when you're supposed to charge sales tax, but then I don't sell games at all at the moment.  But I do think that if a game figures, "Hey, I'm an Indie, they'll never catch me anyway and the Internet is free," that does start to run into unfair competition questions.

[contracycle]

I cannot see how this can be remotely unfair; like most small business owners, their labour time is not ACCOUNTED but still exists.

Wanna solve the "problem" on your balance sheet?  Declare yourself, the owner, to be an employee; every month "pay" yourself your "agreed" wage.  Assets = Owners Equity + Liabilities; thus, owners equity drops as your liability (wages) increases.  But, you don't care, becuase the "wages" and the "OE" are going into the same pocket.

The fact that, most of the time, the owner/writers hours are not expressly accounted doesn't mean they didn't exist any more than a mom-n-pop corner store has an unfair competitive advantage over a supermarket because they stack their own shelves.

[Walt Freitag]

This isn't that crucial an issue to understand, but I'd like to try to get it across coherenly.

Of course the labor exists. That's the whole point.

The issue is that the business a whole is being subsidized. How that subsidy appears in the accounting is irrelevant. It can appear as someone working without pay, such as the owner. Or the owner can pay himself a wage out the business' equity, in which case -- if the business is not making enough income to cover the wage as well as its other costs, which was the assumption we started with -- the subsidy appears in the form of other costs being covered by non-business assets (probably the "wage" that the company already paid the owner, now donated back to the company to pay for the next printing or something).

Subsidized businesses have a competitive advantage over unsubsidized businesses. There's no reasonable question about that; the real question is whether or not the advantage is unfair in any given instance. A lot of businesses are subsidized in a lot of ways for a lot of reasons, and many of these cases raise issues of fair competition. For instance, governments routinely argue (and worse) with one another about unfair competition by businesses subsidized by foreign governments.

The line between subsidy and investment can be blurry, which is a worry to investors. (They want their investment to create an eventual return in profits or equity, not to be subsidizing the steady-state continuation of an unprofitable business. Hence, the dot-com bust.) That's why "startup capital" is easier to obtain from investors than so-called "working capital" which can begin looking like a subsidy unless what's being worked on promises big future returns. (Dot-com-era joke: "We sell every item at a loss, but we'll make it up on volume.") The simple difference between a subsidy and an investment is the expectation of getting a return. In business terms, the warm glow of satisfaction doesn't count as such, though it can be what makes continuing a subsidized busness personally worthwhile for the owner.

- Walt

[Ron Edwards]

Hi there,

I'm still confused, and now I see the "hobby/business" false issue creeping in too.

Let's take Adept Press. It runs at a profit, in terms of expenses covering the cost of new projects, and it has to, or I'll shut it down.

That is, if I'm not mistaken, business at its most basic and incontrovertible form. There's no subsidy. No money gets pumped into it from anywhere except sales.

But it's not my career or job, which is to say, there's no paycheck for me.

I call it a business, non-vanity press. There's no "vanity" involved, which is to say, no continuing to pour good money into a black hole (which is how I define "vanity press"). There's no "hobby" in the same sense, which is to say, profit is the central concern (which is how I define non-hobby vs. hobby).

I would really appreciate a concrete example of what the thread is about that explains how I'm (a) competing with another company, and for what; and (b) at any advantage or disadvantage in that competition.

Best,
Ron

[clehrich]

Ron,

Sounds like Walt is the expert here, but let me see if I understand; Walt, if I totally misunderstand, please say so --- I'm trying to learn.

Concrete example:
Take Adept Press.  This is a business operating at a profit "in terms of expenses covering the cost of new projects," but it does not pay an additional salary to its employees at whatever level (i.e. you).  Thus it is a subsidized business, because something of value (here, labor) is entering the equation without remuneration.

Adept has a competitive advantage over any non-subsidized business seeking market-share within the same market.  For example, let's assume (I don't know) that WhiteWolf operates unsubsidized, i.e. must make a profit "in terms of expenses covering the cost of new project" and also pay its employees.  It essentially has to make more per project in order to stay afloat than does Adept.

Now is Adept competing with WhiteWolf?  Depends how you look at it.  If you figure that an RPG hobbyist has effectively a limited sum devoted to new purchases within the hobby market, then anything spent on Adept products limits the amount spent on WhiteWolf products.  I think this is usually what's meant by "competition" in this sense.

So if Adept competes at an advantage, because it is subsidized, then is that advantage unfair?  This is not the same thing as simply having an advantage.  To take an extreme example, the Federal Courts determined that Microsoft does indeed have monopoly power (i.e. competes with a very strong advantage), but then eventually decided that they had not misused this power.

Given that Adept has minimal market-share, and equally minimal leverage power over the market as such, I don't think the simple fact that there is an advantage makes anything unfair.  I think most Indie folks would agree.

But this is a personal opinion, not a "done deal" set in stone.  For example, suppose you encourage Forge readers to buy Sorcerer (which in a sense you do, implicitly).  Could it be argued that within this particular sector of the market, you have an unfair advantage, because you can advertise free of charge but WhiteWolf is prevented from doing so?

And so on.

I suspect we all agree that Indies don't have an unfair advantage.  But it's not a ludicrous idea.

[Valamir]

There was actually an interesting article in the WSJ last week or so about Chinese chain restaurants and how no chain has managed to dominate chinese food the way chains have come to dominate other cuisines.  

The issue boiled down to 2 things.  1 of which was skill with a wok which is apparently very difficult and expensive to train people in the numbers required to staff chains.  But the other was that most of the "mom and pop" chinese restaurants are staffed by family who work longer, harder and cheaper than any chain relying on employees could do.

How is that relevant?  Well it strikes me as essentially the same as running a gaming company where the principal isn't being paid.

But is this really unique to indie publishing?  Ok, so Ron admits that he isn't taking a livable wage out of Adept...how many "big game companies" pay a livable wage.  Isn't it true that the vast majority of people in this business (who aren't independently wealthy anyway) have day jobs.

How many individuals total in the entire industry actually make a living doing nothing but industry related activity?

[Ron Edwards]

Hi there,

I have a very hard time understanding the lack of a paycheck as a subsidy. I understand it as an economic feature that has consequences; calling it a subsidy sounds very off-kilter to me and I'd like to hear that from a bona fide economist dude before (no pun intended) buying it.

To my knowledge, the vast majority of RPG companies are subsidized in the more concrete sense of actual cash flowing in constantly from other sources, usually a day-job or, very commonly, a spouse's job. Most of what people call the Big Companies are heavily subsidized by relatives' startup funds, which go to quite a few things like convention costs, print costs, freelancer writing costs, art costs, and more.

Best,
Ron