Volume #1 Issue 3 August 1987
One of the well-established rules of thumb of the high-tech biz dictates that a company should spend about 10% of its revenues on R&D. Now, R&D is not just blue-sky research; it’s all of the costs involved in putting together a product for the marketplace. Thus, the programming effort for any new product, no matter how pedestrian, is considered R&D. Same goes for the artwork, the preparation of the manual, and so forth.
The games biz, at first glance, seems to equal or exceed the requirements of this rule of thumb. Typical royalties for the designer-programmer alone typically fall into the range 10%-15% of net revenues. All of the other development costs must be added to the designer’s royalty. Thus, it would seem that the games industry is aggressively investing a hefty chunk of its revenues into R&D. One would think that the games industry probably invests about 15% of its revenues into R&D. This would in turn suggest a fast-moving, technically vigorous industry.
There’s a catch, and it involves the common practice of porting games onto other machines. It is no accident that all of the successful publishers have become very efficient at rapidly porting their products onto a number of different machines. From the publisher’s point of view, porting can make a marginal game profitable. From the author’s point of view, porting is often a way to squeeze additional income out of a design. From the customer’s point of view, porting makes available a wider selection of game designs. Everybody wins. That’s why the practice is so common.
But there is a catch: Money spent on porting counts as R&D money, but it doesn’t really advance the industry the way that R&D spending normally advances an industry.
Look at it this way: right now the industry seems to spend about 15% of its revenues on R&D, but about half of that, I would guess, goes into porting projects rather than original designs. Thus, the true figure for R&D, the "honest R&D" figure, is probably closer to 7.5%. This is a very low figure for a high-tech industry, and it suggests an industry that is stagnant, slow to come up with innovations, backward. Sound like anybody you know?
What should we do about the problem? I certainly don’t suggest that we give up porting; that would make matters worse! Porting increases the profitability of otherwise marginal games, making it easier for publishers to pursue innovative and risky new ideas. Publishers would make less money and authors would make less money that’s not what we want!
I think that the problem arises because there are just too many different machines out there. Right now there are six different machines supported by games publishers: C64, IBM, Apple II, Macintosh, Amiga, and Atari. If we could shave this figure down, porting costs would be lowered. Of course, this is not a decision that designers and publishers can make. Customers decide what machines to buy, and we play an indirect role by deciding what machines to support.
The good news is, this problem will go away with time. The C64 and the Apple II are obsolete and will be shrivel away by the end of the decade. The Amiga and the Atari have had two years to establish themselves, and it is now obvious that, while they won’t die anytime soon, neither will they threaten the iron grip held on the industry by IBM and Macintosh. While the Amiga and Atari continue to sell, their sales rate is much less than that of the PC-clones or the Mac, and so the gap in installed base between the two front-runners and the two hopefuls continues to widen. Thus, I think that within five years we will see a convergence onto the IBM and Macintosh as the standards of the industry.
This won’t solve our problems. We will lose some flexibility and some freedom when there are fewer machines out there. But it will increase the percentage of R&D money that goes to truly original work, and that can only help the vitality of our industry.