A Simple Model of Cosmetics and Why They’re Hard to Sustain

Exactly as Valve planned it

In Six common mistakes when moving to live-service games and free-to-play, Ben Cousins argues that cosmetic-only monetization is a mistake:

The games that make billions from cosmetic-only economies typically only succeed because of the sheer numbers of players. On a per-user basis they actually have very poor monetization, relative to games that use more aggressive methods. This is because for a multiplayer game that is built from the ground-up to be about dominating other players, the proportion of the audience who are interested in self-expression via cosmetics is rather small.

He’s right. Traditional HD developers choose cosmetics because there are no core design implications. Cosmetics can be layered into nearly any game at any stage of production. But for it to “work” massive scale is needed and even then it’s risky. It’s no wonder that very few mobile games in the top 100 grossing that use cosmetics only monetization. But I also think Ben misidentifies the challenge of cosmetics. They are certainly not about self-expression (at least the successful ones). In fact, Ben is right: male-centric multiplayer games are about domination but this is why cosmetics are viable.

Ironically enough, this is best summed up by piece on “cam girl” economics:

Men want a few things, and probably one of the biggest is winning a competition.

You see, you’re not just trying to get a guy to pay you – you’re trying to get a guy to pay you in front of a bunch of other guys. This is a super key. A man wants to feel attention from an attractive women on him, and this is made even more satisfying when it’s to the exclusion of those around him. He is showing off his power by buying your happiness.

High-level cosmetics in multiplayer games often signal domination whether or not the cosmetic is attached to skill. Apex is particularly effective at this. Consider low and high level banners:

Signal and domination comes in all shapes and sizes

The stat tracker element directly shows a player’s time commitment to the game. We can also see the more exotic colors and shapes communicating danger. Sort of like the poisonous dart frogs: cute, but deadly.

Poison Dart Frogs are killer at PvP

And finisher animations are particularly humminating since both the player performing the finisher and the one being finished must watch.

Lots of prominence or {P_j} as we’ll see!

None of this should be particularly surprising, we are political beings after all.

While these might be good observations, we need a falsifiable hypothesis of cosmetics. This allow us to make more predictive statements about how a new cosmetic will or will not sell. And to an economist this means a model!

The Model

Consider a basic model of cosmetic demand:

$$D_i = (C_i{_j} -\mu{_j})P_jT_j$$

Where:

\(\bullet\) \(Di\) is demand for the \(i\)th cosmetic \(\\\) \(\bullet\) \((C_i{_j} -\mu{_j})\) is the level of differentiation of the cosmetic from the average cosmetic in circulation at that given cosmetic vector \(j\). Just think of \(j\) as any customizable “slot”. This benchmarks the cosmetic against its closest comparables in the same way you wouldn’t benchmark a goalie against a midfielder. \(\\\) \(\bullet\) \(P_j\) is the prominence of the cosmetic vector or how “featured” the cosmetic is in-game (a watch versus an entire costume) \(\\\) \(\bullet\) \(T_j\) is the amount of time the cosmetic vector is featured on screen, both for the owner and others \(\\\) There’s a lot to tease out of this model, but much of it is beyond the scope of this post. Let’s instead focus in on the inflation problem or what’s suggested by \((C_i{_j} -\mu{_j})\).
\(\\\) There are two elements: the cosmetics level of the game and player’s individual cosmetics level. Let’s imagine a player starting a game at time \(t_1\) and with cosmetic \(C_1\). During this period, the player derives a certain amount of cosmetic utility, \(u_1\). After earning a level, a player may unlock a higher rarity cosmetic (\(C_2\)) and choose to equip it. They move to \(u_2\) at \(t_2\) as a result.

Player Cosmetic Utility Choice Model: Getting a Better Cosmetic

Now, let’s consider what happens when a player unlocks another cosmetic (\(C_3\)), but this time the cosmetic is of lower rarity. Because \(u_2\) > \(u_3\) the player does not equip it.

Player Cosmetic Utility Choice Model: Getting a Worse Cosmetic

Players are benchmarking a given cosmetic against the currently equipped cosmetic in the same slot. Overtime players earn/purchase cosmetics that give them higher and higher utility. This makes it harder and harder to sell cosmetics – each one must make the player better off then the one before it. Every player in the game is going through this journey, and as such the average cosmetic level rises, just as we modeled in \(\mu{_j}\). And when this rises differentiation falls and with it quantity demanded. That’s a long winded way of saying that cosmetic inflation hurts monetization.

Horizontal or Vertical Progression

Progression is a powerful toolkit, even for cosmetics. One way to combat the inflation problem is essentially print more money. And by this I mean introduce higher and higher rarity. Riot, for example, introduced Ultimate II skins (3250 RP).

Bold to publicly publish this as it sets a mandate, but also ensures trust and protects value.

Alternatively, the horizontal way to attack this problem is to add cosmetic vectors. Dota 2 has mastered this with things like chat lines and ping cosmetics as customizable vectors. Of course, this too will face challenges are players collect more and more items in the given cosmetic vector.

Cosmetics are a hard road to follow and inflation is always chasing developers. It’s important to think carefully about mitigation strategies and how to grow cosmetic vectors overtime as you would any other element of a live-service.

3 Replies to “A Simple Model of Cosmetics and Why They’re Hard to Sustain”

  1. Lovely article!

    Do you think it would be viable to include in the model an interaction term with other players?

    Since players are permanently exposed to other players, what today is a cool unique skin tomorrow might be “that skin that everyone has”. At that moment, when a new skins are released they automatically have a value that distinguish you from the status quo. Its full value is a combination from how it compares to the previous skin in the same slot, but also on how it compares to the rest of the skins that players were using till that moment.

    Would love to hear your thoughts on this.

    1. Definitely, but I’d argue that’s captured in the subtraction of the average term.

      “Every player in the game is going through this journey, and as such the average cosmetic level rises, just as we modeled in \(\mu{_j}\). And when this rises differentiation falls and with it quantity demanded. That’s a long winded way of saying that cosmetic inflation hurts monetization.”

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