Amazon.com’s launch of its new App store has met with mixed reviews (not to mention some legal challenges concerning the name).  It obviously sets up a clash of the titans, as Amazon attempts to become for Droid-based devices what Apple is for anything that begins with the letter “i.”  Amazon’s App Store (and let’s continue to call it while the trademark infringement allegations wend their weary way through the media and the courts) could, potentially, be a boon for game developers in particular, in the same way that Apple’s App Store has been.  The relatively low barriers to entry in terms of designing for smart phones in particular (barriers that are, however, increasing in size as developers are also expected to leverage their games for multiple versions of operating systems and different device scales (iPhone and iPad, for example) have been a big draw for new developers and a means to get some new voices into the gaming marketplace.

There have, of course, been some well-publicized problems with Apple’s App Store.  Developers have complained about the long lead times to get content approved, the sometimes arbitrary criteria being used to approve some games and reject others, and an inconsistent approach to the entire issue of in-app purchases.  However it appears that Amazon’s version of the App store may be creating an even bigger set of problems through its extremely restrictive pricing and compensation policies.  Recently the International Game Developer’s Association circulated an open letter to all its members describing their concerns.  Amazon’s policies, and five potential problematic scenarios for developers, are described by the IGDA as follows:

Many journalists have noted the unusual nature of Amazon’s current store terms, but little has been said about the potential implications of those terms. In brief: Amazon reserves the right to control the price of your games, as well as the right to pay you “the greater of 70% of the purchase price or 20% of the List Price.” While many other retailers, both physical and digital, also exert control over the price of products in their markets, we are not aware of any otherretailer having a formal policy of paying a supplier just 20% of the supplier’s minimum list price without the supplier’s permission.

Furthermore, Amazon dictates that developers cannot set their list price above the lowest list price “available or previously available on any Similar Service.” In other words, if you want to sell your content anywhere else, you cannot prevent Amazon from slashing the price of your game by setting a high list price. And if you ever conduct even a temporary price promotion in another market, you must permanently lower your list price in Amazon’s market.

These Amazon policies could have far reaching effects on game developers. The IGDA has identified five potentially problematic scenarios in particular:

1) Amazon steeply discounts a large chunk of its Appstore catalog (imagine: “our top 100-rated games are all 75% off!”). Some developers will probably win in this scenario, but some developers — most likely, those near the bottom of the list — will lose, not gaining enough sales to offset the loss in revenue per sale. Amazon benefits the most, because it captures all the customer goodwill generated by such a promotion.

2) By requiring all developers to guarantee Amazon a minimum list price that matches the lowest price on any other market, Amazon has presented developers with a stark choice: abandon Amazon’s market or agree never to give another distributor an exclusive promotional window.

3) Other digital markets that compete with Amazon (both existing markets and markets yet-to-be-created) may feel compelled to duplicate Amazon’s terms, and perhaps even adopt more severe terms in an effort to compete effectively with Amazon. In essence, we’re looking at a slippery slope in which a developer’s “minimum list price” ceases to be a meaningful thing.

4) Amazon steeply discounts (or makes entirely free) a game that has a well-defined, well-connected niche audience. The members of that niche audience snap up the game during the promotional period, robbing the game’s developer of a significant percentage of its total potential revenue from its core audience.

5) Amazon steeply discounts (or makes entirely free) a hit game at a time when the game is already selling extremely well. This sort of promotional activity may attract consumers away from competing markets and into Amazon’s arms. But it might actually represent a net loss for the developer, which was already doing quite well and didn’t need to firesale its game at that moment in time.

I have some mixed feelings about this.  I’ve been a big fan of the hard line that Amazon has taken with large book publishers with regard to pricing.  This has helped to drive the success of the Kindle and has, overall, ensured quite healthy book sales through Amazon for publishers.  Rising tides lifting boats and all that.  In addition, the protestations of large publishers that they are having their profits squeezed have mostly been a lot of BS.  If they were really concerned about the bottom line they should start by not offering obscene advances to celebutantes and passingly notorious politicos.  (This, of course, is why publishers jumped to sign up with the iPad.  Apple promised them more money.  That of course translates into consumers having to pay more for their books).  At the same time there is an obvious danger with this strategy and it is that Amazon becomes the online Walmart (some would say it already has) in terms of the brutal pressure it is capable of exerting on suppliers.

This, I think, is the big concern of the IGDA.  The pricing structure that Amazon is putting in place for game developers is really not about the profitability of individual titles, or even the larger category of gaming apps.  As the Advisory points out, Amazon doesn’t need these restrictive terms to do all the things that it already does (giving away free apps, etc.).  What these policies are geared toward is giving Amazon the flexibility down the road to crush any potential opposition in the Droid market through a combination of exclusivity and aggressive price warring.

In addition to being an interesting discussion of Amazon’s problematic pricing and compensation policies, this advisory from the IGDA should also be of interest to writing teachers.  It is a wonderful example of how to make a respectful but very assertive argument.  Rhetorically, it is a very savvy piece of work.  Game developers do have a lot to gain from Amazon’s app store, so the IGDA doesn’t want to alienate Amazon.  Hence this piece includes some wonderful examples of how to qualify the argument in a way that is designed not to attribute evil intent to your opposition.  As such, it is an example that is all too rare nowadays.

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