Demos are an increasingly popular tool to promote games. You give players some time to play with a free download, limited by time, features, or content, and then hope you've teased them enough to convert to a sale.

Why not? After all, bandwidth costs are low (if not negligible) and players will then be able to see what you are selling them and get a taste of the game.

Which may be the problem.

A Digression on the Music Industry

If you look at the music industry, the online revolution has changed how music is purchased. The most important change is not that people are buying (or pirating) online, but that they are no longer buying albums, but singles. This single change is likely for a huge portion of the loss of revenue for the music industry. After all, in the "old" days, if you wanted a song, you bought the album of 10 to 15 songs for $10 to $20 (a nice, but bundled, deal). Now, if you want a song, you buy it, probably for $0.99 or at most $1.29. If the "album" is good, you may only buy 3 or 4 songs that you really like... and you have made $4 to $5 in purchases...

A huge haircut for the industry that could account for a large part of its revenue losses without any piracy at all.

End Digression

For the game industry, we have a different problem. A large number of players abandon games. Often after playing only an hour or so. They do so for a number of reasons: they don't like the game, they don't like the controls, they get stuck, or they are "satisfied" with the experience and ready to move on to something else.

A mini version of Peggle came with my purchase of the Orange Box. I played through the levels and never felt the need to purchase the game. Conversely, I picked up a copy of Titan Quest and totally hated the controls and quit after playing an hour or so.

Demos give all of these players a free way to "complete" their game experience.

And don't even provide as much money for the game company as a single does for a music publisher.

The goal is to maximize revenue.

If we build a simple model, we can see what the problem is:

Our revenues are based on the Number of People Purchasing the Game (NumPurch) times the price of the game (GamePrice).

Rev = NumPurch*GamePrice

We have 2 choices. We can not give away a demo or we can provide one.

The value of the Demo is the increased number of games purchased:

DemRev = AddNumPurch*GamePrice

However, there are also some people who would have purchased the game at risk without the demo who, if a demo is available, try the demo and choose not to purchase the game:

DemRev = (AddNumPurch-Defectors)*GamePrice


And, of course, demos aren't really free. You still have to pay something to distribute them.

DemRev = (AddNumPurch-Defectors)*GamePrice - (NumDemos)*DistCost

If you have a good game that draws the players in with the demo and drives them on to purchase the rest of the game, you are in good shape. However, demos are often arbitrary initial slices of games. They are not designed as seducers, but are simply the initial "piece" of the game. If you read game reviews, you will often hear about games that "really pick up" after the first 5 or 6 hours.

Does your demo even get to this content?

If not, you've lost a sale.

Now, lets consider piracy.

Pirate copies of a game (assuming no DRM or code tweeks that, if a pirate copy is detected damage game play) can only result in additional revenues.... and may be better for a game company than demos.

Why?

Players can play the entire game and may decide that the game is "worth purchasing" (hey, the pirates say this all the time).

One "nice" feature of pirates, is that you aren't paying for distribution. So, any revenues you get from pirates who convert to legitimate sales will be revenue in your pocket. If they don't like the game, there is no additional cost. The only lost revenue is from players who would have bought the game if it was not pirated at your full price... a number that appears to be pretty small, based on the very few studies in this area (and certainly reflected by the lack of investment in anti-piracy by gaming firms).

AddPirateRev = AddPirateNumPurch*GamePrice

(Game companies could almost certainly include code in the games that would allow them to track Pirate-to-Sale conversions)

Nagware + Piracy may be better than Demos

Conceptually, game publishers would do better by selling demos and using the demo price as a full discount towards the full purchase of the game.

Episodic games revisited.

An episodic model may work better for the game industry (at least in the PC space) as publishers can lower the initial acquisition cost and then allow players to purchase increments of content or the entire game later with different discount models (or no discount model). This may also have a real impact on fighting piracy if it is combined with an easy distribution and sales process - the power of Apple's App Store is that it is so easy to buy and install apps... ease of use is key.