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How Loot Boxes Led to Never-Ending Games (And Always-Paying Players)

November 14,2017 20:17

Looking back, Mass Effect 3 was a turning point for microtransactions in big-budget games. What was once a system for frivolous items, such as bonus character costumes and Horse Armor, had become woven into the game's structure. Other publishers have ...


Jesse Houston and his team at Bioware had honest intentions when they introduced loot boxes to Mass Effect 3 in 2012.

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The team wanted to add multiplayer to the game, and focus testing showed that players were interested, but tacking on an entirely new mode was an expensive endeavor. To help justify the development costs, Bioware allowed players to purchase randomized packs of gear that would improve their multiplayer characters, similar to what players could earn for free by grinding through matches.
"Multiplayer at the time was a very cost-heavy and very expensive thing, and we wanted to find a nice way of basically offsetting that cost in a way that felt really good for the player," says Houston, who produced Mass Effect 3 and now heads an independent studio called Phoenix Labs.
Looking back, Mass Effect 3 was a turning point for microtransactions in big-budget games. What was once a system for frivolous items, such as bonus character costumes and Horse Armor, had become woven into the game's structure. Other publishers have since followed that model, most recently in games like Electronic Arts' Star Wars Battlefront 2, Microsoft's Forza 7, and Warner Bros' Middle-earth: Shadow of War. And while Mass Effect 3's multiplayer economy caused some outcry five years ago, that was just a taste of what has now become one of gaming's most controversial topics.
What else can the past teach us about the present and future of microtransactions and loot boxes? Let's look back and find out. We reached out to Activision, Blizzard and Electronic Arts, Riot and Perfect World for comment for this story and they either declined or did not respond to the request.
From Asia OutwardYears before Bioware added loot boxes to Mass Effect 3, the model gained steam in emerging markets like China, where lower disposable income and rampant piracy of full-priced software caused the free-to-play model to flourish.
"[Players] weren't able to buy top-end PCs, they weren't able to afford all these $50 or $60 games, and that's why internet cafes were huge back then, and still are, in terms of just being able to sign on and play an online game," says Daniel Ahmad, an analyst with Niko Partners. "Piracy was also huge back in the day, and the way around that was just releasing games for free, and then putting in content that people want to buy."
Loot boxes proved especially lucrative, emerging for instance in a massive multiplayer game called ZT Online. A 2007 story in China's Southern Weekly describes how players could purchase treasure chests, which promised a chance to earn the game's best gear without grinding. It also rewarded the players who purchased the most chests, setting up a system where some players flushed their money away.
"It was effectively free-to-play with gambling mechanics in there," Ahmad says.
While free-to-play PC games flourished in Asia, similar concepts started to take root in western markets, fueled by the rise of gaming on social media sites like MySpace and Facebook, and eventually on smartphones. A VentureBeat story from early 2009 said that Zynga was making at least $50 million per year, mostly from sales of virtual goods.

It wasn't long before traditional game publishers started to take notice. In late 2010, a manager for EA's budding free-to-play business said that microtransactions were bringing in far more revenue than in-game advertisements, and pointed to Zynga as a sign of where the industry was headed. Around the same time, Valve added microtransactions in Team Fortress 2, including standalone items and "Supply Crates" with a randomized loot inside. This was a precursor to Valve making the game free-to-play one year later. Meanwhile, massive multiplayer games such as Star Trek Online began to follow the trend, dropping subscription fees in favor of microtransactions and loot boxes.
In a 2011 interview with WNYC's Bob Garfield, Team Fortress 2 developer Robin Walker explained that the game's new free-to-play model and steady updates would create "network effects." More people would be playing the game, which in turn would make the game more enjoyable to existing players. Revenue from microtransactions would flow naturally from that model.
"If we take action one day that somehow brings another 50,000 or 100,000 people to the game, all of our existing customers just got happier. Their game literally just got better," Walker said at the time. "And so, we sort of focus on not necessarily trying to figure out how to get more money out of you specifically, but how we can use you as a valued customer to attract more customers."
Team Fortress 2 ValveWalker's comments show how major U.S. publishers were starting to internalize the big lessons from free-to-play social, mobile, and MMO gaming. It was only a matter of time before they'd apply the same tactics to games that already came at a price.
The AAA LeapAlthough Mass Effect 3 sometimes gets credit as the first packaged console game to include loot boxes, Bioware took cues from elsewhere inside EA.
For the past few years, FIFA had offered a mode called Ultimate Team, in which players would collect trading cards that they could use to build virtual clubs. Although EA initially sold Ultimate Team as an add-on to the main game, in 2010 the publisher started offering the mode for free, relying solely on card pack sales to generate revenue. That move paid off, as Ultimate Team now generates $800 million annually across EA's stable of sports games.
Jesse Houston says Bioware worked closely with the FIFA Ultimate Team crew to create a system that players might enjoy. Where Ultimate Team allowed players to trade duplicate cards, for instance, Mass Effect 3 allowed duplicates to level up existing gear.
"There was a ton of inspiration between our two teams that we passed back and forth," Houston says. "We loved the Magic card feeling, and the feeling that you're constantly getting value."
Dead Space 3 EAHouston says he left Bioware before he could see the results, but EA was clearly pleased with what it was seeing. In 2013, Dead Space 3 launched with microtransactions in its single-player campaign. This was an early example of a pay-to-win scheme in console gaming, allowing players to purchase crafting resources that they'd otherwise have to scavenge within the game. At an industry conference in February of that year, EA Chief Financial Officer Blake Jorgensen vowed even more to come.
"[W]e're building into all of our games the ability to pay for things along the way, either to get to a higher level to buy a new character, to buy a truck, a gun, whatever it might be, and consumers are enjoying and embracing that way of the business," Jorgensen said.
Despite those promises, microtransactions and loot boxes remained on the periphery of big-budget, full-priced games, seldom becoming part of the core gameplay loop. All of that changed with the latest generation of connected consoles and always-online games, which brought with them a fundamental shift in how publishers distribute new content.
Our Modern Microtransaction AgeAsk any industry analyst or expert what was the catalyst for the current wave of loot boxes and microtransactions in full-priced games, and they'll likely point to Overwatch. Whenever players level up in Blizzard's online shooter, they earn a box of four cosmetic items, selected at random. Players can also purchase additional boxes for a one-time fee.
What was novel about Overwatch wasn't the loot box system itself, but the explicit promise that came with it: Beyond the game's $60 up-front price, players would never have to pay for new maps, characters, or game modes. Every player would always own the same version of the game, whether they paid for loot boxes or not. In other words, the $60 game had finally landed on the same business model that made free-to-play games so lucrative in the late aughts.
"Games are really becoming services, where the launch of the game is just the beginning of monetization, and the big money is having a large community, a large user base, that keeps playing year after year after year," says Lewis Ward, an analyst for IDC.
On some level, this isn't a surprise. Last year, mobile game revenue eclipsed both console and PC gaming for the first time, and as Ward notes, nearly all of that revenue is driven by microtransactions on free-to-play games. But for PC and console games to follow suit, they needed to adopt the same service-oriented business model. That means dispensing with old habits like sales of additional map packs and multiplayer campaigns.
Overwatch Blizzard"There's a law of diminishing returns when you offer it that way, and if there's a multiplayer aspect to it, the pool of actual gamers gets smaller and smaller and smaller," Ward says. "If you're restricted to playing with other players that have bought that map pack, it eventually becomes a bad investment to keep putting it out."

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Some of today's controversy over loot boxes and microtransactions may stem from publishers’ failure to internalize those lessons. Middle-earth: Shadow of War, for instance, is already pitching an extensive series of paid single-player expansions alongside the loot boxes that are built into the game, and Microsoft is selling a Forza 7 Car Pass that adds new vehicles on a monthly basis. They’re adding the loot box model without the promise of continued service to go with it.
There's also a legitimate fear that free-to-play's uglier elements, such as pay-to-win schemes, will slowly creep into big-budget gaming, either creating an uneven playing field or disrespecting players' time in the process. Those concerns have ensnared EA, which is facing a backlash over loot boxes in Star Wars Battlefront 2. The company has walked back some of its loot box plans and cut the cost of paid unlocks in response, but those are band-aid measures at best.
"It makes too much money for it to stop," Ward says of the loot box model. "But it's going to naturally be rightfully viewed as a cause of potential concern by gamers, because it's a change and they don't know how it's going to work."
For his part, Jesse Houston is walking away from loot boxes entirely. Although Phoenix Labs' co-op action RPG Dauntless did include loot boxes in its closed beta, Houston says the team is currently removing them in favor of a system that lets players buy the exact gear that they need. In his mind, this creates a clearer understanding of what players are getting for their money. The problem with microtransactions in $60 games--and with loot boxes in particular--is that the value is hard to discern.
Middle-earth:Shadow of War WBIE"In the long-term, I'm betting that a clearer relationship to the content that you're purchasing will create and engender a better relationship with us as a developer and as a product," Houston says, "and therefore players will be more likely to spend again or purchase in the first place."

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