No, no, it's too late for that. I meant he should have priced it at $20 to start.
Imagine the entire world is just 10 people and Jonathan Blow. Jonathan Blow wants to sell his game. He also has psychic powers and he can read everyone's mind and actually knows their true inner thoughts! Wow, that's cool! After reading everyone's mind, he finds out the following things:
3 people will never buy the Witness, they wouldn't even take it for free.
3 people will pay $5
2 people will pay $20
2 people will pay $40.
These are called reservation prices. In the real world, people don't exactly know their reservation prices and reservation prices can be manipulated; for example, if you're willing to buy something for $100, you probably wouldn't turn it down for $100.05. What's your true reservation price? But in this fake world, we will pretend all people have real, concrete reservation prices and Jonathan Blow can know them.
So the total amount of money he can make on his game is 2*$40 + 2*$20 + 3*$5 = $135.
If he prices his game at $5, he will make 7*5 = $35 and every sale will happen at launch. If he prices his game at $20 to begin with, he will make $80 upfront, and $15 when he eventually drops the game, for a total of $95. If he prices his game at $40 to begin with, he will make $80 upfront, $40 when he drops it to $20, and $15 when he drops it to $5, for a total of $135. $135 is a higher number than $95. If he prices his game at $60 to begin with, he makes $0 upfront, but $135 over time as he gradually lowers the price. This is called price stratification--you get all the sales you can get for the most people are willing to pay. One note: in the real world people also value revenue stability and there's time value of money/discount factors and a variety of other mathy things going on, but let's keep it at least this simple for now.
One complication is that the price people are willing to pay changes over time. There are some people who might be willing to pay more later. Maybe one of the people who will never buy the Witness gets into gaming later, and so will be willing to buy it later. Maybe one of the cheapskates gets a gift card and now is willing to pay more. In these cases, he wants to set his price high at first because waiting actually allows him to make more than the theoretical maximum of $135. But maybe a competing developer, like Knotty Bod, releases a game called The Fitness, and because Fitness games compete with open-world 3d adventures. Say the Witness is priced at $60, but now because the Fitness is out, 1 of the $40 sales revise down the amount they're willing to pay to $15, 1 of the $20 sales goes to $5, and 1 of the $5 sales drops off entirely. Okay so now as he drops the price, he only gets $90 instead of $135. This means that he set his price too high to begin with because if he set a lower price he'd have gotten more money.
In the real world, there are lots of people, Jonathan Blow probably does not have psychic powers, and actually people themselves don't know what their reservation prices are. So yes, this example was contrived, but it was contrived to illustrate how it's possible to price "too high" but also how pricing "too high" is the right move, as well as the fear you have that it's the wrong move.
Your claim is that he's set his price too high and that he'd make a lot more money at $20. So the position here is not only that most people don't want to pay $40, but also that the people who want to pay $20 are extremely weakly attached to the game and are going to move on if it's not $20 immediately. In other words, if the game is $20 during a summer sale and put on the front page, your position is that a large portion of the target audience is going to roll their eyes and move on.
I think we can think about the kinds of factors that play into whether people move on (i.e. revise the maximum price they'd tolerate down, potentially to 0). One is what kind of attention the game gets and what kind of reputation it gets. Currently it has a 90 on metacritic, high user reviews, lots of people posting screenshots and videos, lots of people talking about it. Notwithstanding the accessibility (motion sickness and colourblindness) issues, the reception of the game seems to be quite good. If the game had very bad reception, you would expect people to revise their price down--both owners of the game ("I regret spending this much, I want to have spent less") and prospective owners ("I was going to pick it up on a $30 sale, but now I don't want to as much."). No one wants to release a bad product, but if you do release a bad product, you probably want to frontload the sales before the product's reception negatively impacts peoples' reservation prices. But this is not a bad product.
Another example of real fear is competition. Now, competition can have various levels of indirection. Like, Netflix's shows are competing with the Witness. So are McDonald's hamburgers. And let's not kid ourselves, these are real, if there was a spike in food costs people would buy fewer games. Or they'd starve, I dunno, but I suspect people need food more than games. But in a more direct way, other games compete with the Witness. The most direct competition is games that appeal to the same kind of players, that are as good or better, that are coming out in the near future. The reason for this is that games released before now are already factoring into peoples' reservation price calculations. What is coming out that's like the Witness in the near future? Not a lot. What's coming out in the near future more generally? Not a lot, to be honest, notwithstanding the assload of people who keep making "ow my wallet" threads because they pay $60 for every half-baked turd pie that pops out of a AAAAA publisher. But I basically don't think there's a lot of evidence in terms of the kinds of games coming out to make us think that people will forget about the Witness.
The two main points you've raised are the following:
1) $40 is an unusual pricepoint for games more broadly. I'm not sure why, if that's true, he wouldn't be able to drop his price as he gets data and reap the sales he wants. But I also don't think it's true. What game in the last year looks the
most like the Witness? Well, we'd want an adventure puzzle game with abstract themes and tons of content produced by a team that's big for an indie but small for a traditional AAA game. It's on consoles and PC. It's digital first but potentially going to get a retail release. I think the answer would be The Talos Principle. What did the Talos Principles launch at? $40. Has launching at $40 hurt its buzz? No. It's engaged in frequent discounting, as low as $10, and slowly picked up word of mouth. I would argue that peoples' reservation prices have actually moved up since launch because they did not have prior information about how good it is. I think Portal 2, which was $50/60, is also a point of comparison.
2) You don't want to pay $40. That's fine. There are lots of games where I want to pay about $5 for them. But how can I generalize this to other people? Well, I'd probably look at the game's sales and buzz -- we have no sales for the Witness yet (SteamSpy estimates are not yet stable), but anecdotally a ton of my friends list is playing it, a ton of people are talking about it, the GAF thread is growing quite a lot, it's getting a lot of reviews. Now this doesn't mean it wouldn't be selling more at a lower price, but there doesn't seem to be evidence that he dramatically overshot the launch price curve based on the indicators we do have. But even if he did, what reason to we have to believe the peoples' attention will move on faster than the price curve catches up?
It's definitely an interesting experiment and I'm looking forward to see if it worked, but I think concluding he screwed his entire company by launching at $40 instead of $20 is totally premature based on the kinds of considerations we'd actually use to evaluate that claim.
(I'd love any developers, publishers, or economists reading to weigh in with their thoughts both on the situation in general and the relative priorities in the game industry in terms of revenue maximization by price stratification versus frontloading sales).
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