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Penny Arcade leads the way

By on July 10, 2012
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Yesterday, my Twitter feed was full of the news that Penny Arcade, the successful ad-funded business, has launched a Kickstarter campaign to remove the need for it to sell ads.

The response was pretty negative. Words like "cynical" or "crazy" were bandied about. Journalists and website executives asked why a company that had a proven, successful business model would jeopardise it by this crazy campaign.

My answer: because they’ve read The Innovator’s Dilemma.

The world is changing. The old model of media (and the web fell into it) was a mass-market model. You built big audiences and charged advertisers to access those audiences. This was terribly inefficient, but was a limitation of physical media, and digital media copied it because the participants in the value chain – ad sales, ad buying, marketing departments and so on – understood it.

The Internet has changed two big things: it has made it possible to disseminate content virtually for free (not to create it, that’s still expensive, but to distribute it); and it has made it possible to build one-to-one relationships between content creators and content consumers (or as I prefer to think of them, multipliers).

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The Penny Arcade creators have realised this. They realise that they have a passionate but niche (a big niche, but niche nevertheless) audience that loves what they do. This audience will pay, at varying price levels, for a little piece of what they love. While advertisers treat all ansviewers/readers/listeners as equal, Penny Arcade has used Kickstarter’s rewards system to offer all levels of fans an opportunity to spend money with the company depending on their level of fandom and their ability to pay.

The Kickstarter has more than 20 reward levels. Examples include:

  • Pledge $1 or more: Gabe will shout out your name as he chases a duck, there will be no ads (based on what stretch goal tier is reached), and you’ll be listed on our "Supported By" page!
  • Pledge $100 or more All previous rewards, a never-before released digital version of Penny Arcade Book 2, Epic Legends of the Magic Sword Kings, and Tycho will name your band.
  • Pledge $9,999 or more Lunch with Mike and Jerry. Just get yourself to Seattle and we’ll handle the rest.

Penny Arcade is directly exploiting the demand curve. Instead of treating all of its customers exactly equally (with impersonal advertising), it is allowing each fan to choose how much they spend, on what.

At the time of writing, less than one day in, Penny Arcade had raised $140,369 of their $250,000 goal from 2,037 backers. (Although averages are close to meaningless in a power-law world, that’s an average of around $70 per user). They are showing the future of publishing.

The criticism you are hearing? That’s publishers, journalists and ad sales types terrified that they have seen the future of the funding of content, and fear that their audiences may not love them enough to pay.

They’d better make their audience love them. Fast.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • I’d normally be against such obvious sell out tactics but you know what, they’re not forcing people to fund them and if those that do feel they are getting their money’s worth, then who really cares?

  • Sik

    You forgot another thing: a lot of users have learned to block ads, thereby rendering them 100% useless. Maybe average Joe won’t do it, but Penny Arcade visitors definitely are not average Joes and they certainly know how to block ads 😛 Looking for a different income source is probably a good idea (and in fact, the only sane option really, given you can’t trust ads at all).

    Penny Arcade is a site with quite a large fanbase though. I wonder how something like this may fare for sites that aren’t as popular (no idea). Paying for something that’s already there isn’t the same as paying to allow something that doesn’t exist to become reality. At least not in terms of perception (the former seems safer and thereby one may think it’s less likely to need funding).