The history of the roleplaying game industry in general, and the Dungeons and Dragons game in particular, serves as an interesting case study in the relative benefits of openness in business models.
History often presents us with valuable lessons. Sometimes, those lessons come from unexpected directions, as in the case of the roleplaying game (RPG) industry in general, and the Dungeons and Dragons (D&D) product lines within that industry in particular. Believe it or not, this industry's history has a lot to teach those of us who develop, support, or sell software professionally. This is because, when it comes to a lot of the particulars of development and marketing, the RPG and software industries are more alike than different. They both depend on knowledge workers and creative developers, they both involve attempting to make money off of works that can essentially be copied and distributed for free in today's Internet-connected world, and they are both governed by copyright law.
Hang in there. For these lessons to have their full impact, we need to start with selected details of the history of the RPG industry and the D&D game lines.
In the beginning
Back in the 1970s, a newly popular form of entertainment arose, plagued by controversy that (perhaps ironically) served to raise widespread awareness and form the foundation for a whole new industry. This form of entertainment was the Roleplaying Game, or RPG.
The RPG, in this context, is not a computer game, nor is it a console game, though many computer and console gamers may immediately think of such things when they hear the letters "RPG" uttered or see them in print. In fact, these RPGs dating back to the '70s are in many respects the forerunners of CRPGs, or Computer/Console RPGs. CRPGs would probably have been developed much later, and had a very different term than "roleplaying" applied to them, if not for the advent of RPGs in the more traditional sense. For convenience's sake, take RPG to mean the traditional form for the span of this discussion; CRPG will be used on the rare occasion we need a term for the electronic gaming genre.
The vanguard of the RPG market was the result of a process of evolution from tactical wargaming with miniatures and rulers to a more immersive pastime where players each assume the responsibility for guiding the choices and actions of one single character, as though collaborating on a book wherein each writer only writes the actions and dialog for a single major character. Of course, one of the players in particular, called a Dungeon Master (DM) in the case of this one game that first crawled out of the swamps of tactical wargaming onto dry land to learn how to breathe air, had responsibility for "writing" the story of a meta-character of sorts: the world in which those major characters went about their daily lives, where lesser characters are parts of that world. In more general usage, the somewhat generic term Gamemaster (GM) came into being, with additional terms such as "Referee" and "Storyteller" being invented as part of the branding of various other games.
This primordial RPG was Dungeons and Dragons, and it essentially owned the RPG market until the early 1990s. Gamers would sit around a table eating pizza or cheese puffs and drinking their favorite sugary carbonated beverages, with "character sheets" consisting of litanies of statistics such as "Strength" and "Intelligence" in front of them, describing their characters' intended actions and rolling dice to determine (with the help of those statistics) the successes and failures of those attempts. The GM would mediate, and -- more importantly -- come up with plotlines and circumstances in which the player characters (PCs) would find themselves embroiled, narrating the actions of monsters, traps, and nonplayer characters (NPCs, basically extras and supporting actors) while rolling dice to determine the successes and failures of the actions attempted by these representatives of the world in which the PCs lived.
In the '80s, competing roleplaying games began to appear, grabbing a little bit of market for themselves, but D&D was easily the most widely known, widely loved, and widely played RPG in all of its manifestations, passing through a few printing editions as well as a distinct product line bifurcation with the first edition of Advanced Dungeons and Dragons (the first edition henceforth referred to as 1E) -- primarily "advanced" in the complexity of the system. None of these supposedly competing games seemed to have any particular negative effect on D&D's market, probably because they were treated more as things that people also played than as things that people played instead. With only rare exceptions, everybody kept coming back to D&D, no matter what RPGs they played when the urge struck. D&D was iconic and ubiquitous. It was The Standard.
The company that owned the D&D trademarks and sold these games was TSR. Originally, the company was called Tactical Studies Rules, and TSR was a handy abbreviation, but in time the name changed to TSR Hobbies, and the phrase "Tactical Studies Rules" became nothing but a historical footnote. TSR was a hobby company run by hobbyists, though investors (members of the Blume family) crowded into the board of directors and usurped that control to a significant extent. Though the D&D game lines remained popular, a dominating presence in the RPG industry, as the company approached the mid-1980s it began to suffer financial difficulties under the leadership of the Blumes. Where Dave Arneson and Gary Gygax were in some ways very much the RPG equivalents of Steve Wozniak and Steve Jobs, respectively, the Blumes were a much more traditionally business-oriented force within the company, which proved troublesome for the leading, even founding, publisher in the industry.
Between 1984 and 1985, a quick series of upsets occurred within TSR:
- Gygax managed to get the Blumes removed from the board of directors.
- The Blumes sold their shares in the company to Lorraine Williams, the company manager.
- Williams forced Gygax out of the company.
TSR co-founder Don Kaye passed away in 1975 (incidentally paving the way for the Blumes to get involved). Arneson had left TSR in the 1976. With Gygax out as of 1985, none of the three people most instrumental in bringing D&D to the public had any kind of control over the product line any longer, and Lorraine Williams ran the company. Following the ousting of the Blumes and the eventual settling of affairs, the company prospered for several years, becoming not only the big fish of a fairly small RPG industry pond, but actually ascending to become the leading games company in North America.
It seemed TSR had emerged from its period of growing pains stronger than ever under the guidance of Williams, notoriously dismissive of gamers who she reputedly considered something of an inferior life form. In fact, it was widely rumored that Williams actually forbade the playing of D&D within the company -- a policy that would be very odd, considering it would effectively eliminate any ability the company had to internally playtest game designs.
The resurgence in company success would prove less durable than many hoped, and the seeds of its end were sown by the very policies Williams planted when she began her campaign to change how the business operated.
Survival of the fittest
Around 1990, a somewhat different type of roleplaying game was beginning to flourish. While Games Workshop passed TSR among leading games companies with the successes of its Warhammer tactical wargames, and not long after that Wizards of the Coast (WotC) did so with its wildly successful Magic: The Gathering collectible card game, TSR was even surpassed in its core competency when White Wolf achieved massive (for the RPG industry) success with its Storytelling game system.
To some extent presaging the development of the d20 System about a decade later, the Storytelling system was not a single game like AD&D, nor was it a generic system published as a stand-alone product intended to be tweaked and applied to various genres at gamers' whims. Instead, it was a mechanical basis on which a series of specific games were based. This series of games was originally marketed under the very vague term "Gothic-Punk Milieu", then later unified under a more direct marketing term, "World of Darkness".
These World of Darkness (WoD) games published by White Wolf provided a wide range of gaming experiences within a single assumed setting, with rules compatible across the different games so they could be mixed, matched, and combined fairly seamlessly. In addition to capitalizing on the popularity of genres traditionally ignored by mainstream RPG companies and thus drawing huge influxes of new customers to the RPG hobby, the Storytelling system games set in the World of Darkness also drew many gamers away from D&D for extended periods of time. This was the first time D&D had faced such a competitive alternative that actually began beating the game that embodied RPGs in the minds of pretty much everyone who had heard of the entertainment form -- beating it at its own game, if you will excuse the pun.
Some of D&D's problems flowed from the way that TSR under Williams had become so transparently focused on sales volume and profit figures that it actually began to inspire widespread resentment amongst its own, previously loyal customer base. The development of AD&D 2nd Edition (2E) produced a very playable game that was well-designed in its own right, but its image was substantially gentled compared to its predecessor to make it more "family friendly", and its timing -- beginning development in 1987 -- struck many gamers as a tasteless statement of disapproval from the company Gygax started for the Gygaxian legacy. Bad timing factored into things, too, because the actual release year of 2E coincided with the release of the first Storytelling system game, Vampire: the Masquerade. As many converts to Linux in the last few years can tell you, any time two companies release something new at the same time, and one of them is the market leader whose new product represents substantial changes in the way things worked with the previous product, there is bound to be a bit of a drain of customer base from the market leader to its competitor.
Increasingly desperate attempts to recapture its position as the undisputed market leader followed, including the release of the Dragon Dice collectible dice game (trying to copy the successes of WotC), tripling the product volume for hardcover fiction publication in one year, and pushing out new game line products intended to inspire people to invest more money on a more regular basis. This was Williams' legacy, as most gamers remember it: ill-fated attempts to diversify the product line coupled with product churn. In time, TSR overextended itself to the point where some product failures ate up all of TSR's cash reserves and left it unable to even print more of its successful products to generate revenue.
WotC, a competitor in the games space in general that siphoned away a lot of money that might have otherwise gone to TSR even if it was not a direct competitor in the RPG industry itself, was home to a number of long-time D&D fans. Recognizing the trouble in which TSR found itself, and the bleak future before the D&D product lines, WotC decided to rescue D&D from the implosion of TSR and bought the company. WotC gave TSR employees the opportunity to relocate from TSR's home in Lake Geneva, WI to WotC's in Renton, WA, then closed the Lake Geneva offices. It was the end of an era -- in retrospect, the second era of D&D, where the first was the era of RPGs by hobbyists and for hobbyists, and the second was that of RPGs by corporate product policy for profits. The new era was a dramatic return to focusing on the hobbyists.
The era of open gaming
New owner Wizards of the Coast printed more D&D product line materials under the TSR imprint for a while, but it had dramatic plans shaping up. In 2000, it unified the divergent D&D game lines with the release of what it called D&D 3rd Edition (3E), obviously following the edition numbering of the AD&D line but jettisoning the "advanced" part of that name. It differed from 2E substantially in terms of the basic game mechanics. It still used the twenty-sided die (d20) as its primary conflict resolution tool; in fact, it unified more of the game mechanics under the use of the d20. Character creation became substantially more sophisticated, as did character advancement over time, with innumerable options for combining the race and class categories of character types, skill selection, and a whole new set of character customization choices called "Feats".
While some problems arose from this new approach, including significant increases in the amount of paperwork GMs must track when dealing with high level NPCs, the proliferation of character customization options was ultimately well received. Many of the changes drew on the lessons of innovative RPG development from smaller publishers and independent designers, while still adhering to much of the flavor gamers had come to expect and appreciate about the iconic D&D system. The changes turned off quite a few old school gamers in the Gygaxian tradition, but others who had drifted away because of similar perceived deficiencies in 2E as compared with 1E came back to current products with 3E. All told, the result would likely have been roughly equivalent to that of 2E publication in its early years despite the much more diversified competing RPG industry since those days.
Most RPG customers did not even notice the most innovative change in the way D&D was built and distributed, however: licensing. Because licensing is something that flies well under the radar of most consumers, the effects of the licensing changes for 3E were largely unrealized by customers even as they strongly influenced the way customers approached the hobby. While other games were "published" in one form or another with open content licensing before the release of 3E in 2000, such games were a drop in the bucket, and did not count among the games that most gamers could even identify. White Wolf, Games Workshop, TSR, West End Games, Chaosium, Game Designers' Workshop, FASA, Palladium Books, Steve Jackson Games, R. Talsorian Games, and other imprints that had become well-known names in the RPG industry were all publishing games under standard copyright enforcement business models. In the heyday of Lorraine Williams' management of TSR, in fact, third-party publishers producing materials for D&D under the legal doctrine of fair use were targeted by legal threats claiming copyright infringement. More than that, purely fan-based materials received similar threats as Williams' TSR tried to assiduously "protect" what would ultimately become a doomed business model.
WotC published 3E as normal, but also provided the core system and game mechanics from select expansion books under the terms of the Open Game License (OGL). Rather than sue third party publishers and fans producing materials for copyright infringement, WotC provided a framework for publishing such materials and profiting to the extent of their ability if they so desired, with legal guarantees of freedom from copyright infringement intimidation tactics. The result was a widespread growth of the D&D industry that pushed it back to the fore, to the point that the entire RPG industry outside of D&D was maybe equivalent in size to the D&D industry itself. Far from being one whole RPG industry of which D&D was the biggest part, it was as though there were now two parallel industries, D&D and the rest of the RPGs in the world.
The biggest reason for this change in the balance of power was probably the simple fact of the proliferation of third-party expansion books for the newly branded d20 System. Publishers could apply the d20 System logo to their products if they met certain requirements such as referring customers to the D&D core rulebooks published by WotC for the most basic rules matters and ensuring that new rules maintained compatibility with the system. Coupling d20 System branding with custom modifications of the system distributed under the terms of the OGL resulted in a winning combination for a number of small publishers, at least for a few years. Unfortunately, mismanagement and poor design of business models -- to say nothing of poor product design as well in some cases -- sealed the fate of many of these small publishers. For WotC's D&D line, however, as well as for a select few third party publishers who handled their businesses well, mutually beneficial product compatibility helped ensure the dramatic rescue of the D&D brand.
Another part of the recipe for success was the fact that the core game designers were not just employees slaving away at game development to serve corporate interests. Many of them (like new era game design legend Monte Cook), in fact, were not only personally invested in the new system; they were True Believers in the rightness and benefits of open game development. Intent on making its niche grow, however, WotC (now owned by Hasbro) essentially began directly competing with third party publishers by marketing niche expansion books. In some cases, the WotC books were superior to similar third party products; in others, the opposite was true. The result was growing troubles in the implicit partnership between WotC and the publishers that produced competing works. In an effort to differentiate their products from the WotC products that were eating into their markets, some of these publishers (e.g. Crafty Games and Green Ronin Publishing) started producing their own variations on the d20 System for fantasy RPGs, diluting the core game market for WotC in an attempt to remain solvent in the face of an invasion of the niches WotC had created for them by WotC itself.
Eventually, the Hasbro/WotC conglomerate chose to try to move out of the d20 System business by producing D&D 4th Edition (4E). It used game mechanics fundamentally incompatible with the 3E d20 System mechanics, and it was released under the new Game System License (GSL) with terms that, to some extent like the OGL, seemed superficially to encourage third-party support of the game line by producing expansion books. Close examination of the GSL showed it was something of a bait-and-switch, however, opening the door for third party publishers but then shutting it behind them and filling the room with water. Amongst its terms were a requirement for publishers to abandon any support of d20 System compatible product lines under the same imprint as GSL product lines; claims of power to pretty much retroactively alter the terms of the GSL at any time; and an assertion of the right to use anything anyone else published under the terms of the GSL with modifications under the WotC imprint with full WotC copyright control over the new materials, without even having to make the new materials available under the GSL. Leading up to this, any vocal OGL supporters amongst the 3E designers were quietly pushed out of the company.
In short, the GSL was an invitation for publishers to produce new ideas for WotC and, subsequently, get shut down by WotC's legal team to ensure there would be no competition. In addition to all this, 4E represented such a distinct departure from anything in previous editions that while it drew in new players in Massively Multiplayer Online Roleplaying Game (MMORPG) markets and managed to at least temporarily harness the buying power of a lot of 3E gamers, a huge separation of the D&D market into three distinct markets was created. One was the old school, "grognard" market that preferred D&D editions prior to 3E, often the older the better; another was the d20 System market, a mix of people who started with 3E and liked it there and those who passed through two, three, even four or so major D&D product line upheavals and found 3E the best so far in a steady improvement lifecycle; and the 4E gamers, who found its tactical complexity and balance superior to anything that came before and prioritized that higher than other aspects of the D&D game that had previously been at least equal partners with the tactical aspects since the original D&D emerged from the Chainmail miniatures game in the '70s.
One of the most fateful choices Hasbro/WotC made was to cut loose Paizo Publishing, the company that had for several years been WotC's publishing partner for the Dragon and Dungeon magazines. No longer having license to publish its previous core product lines, Paizo -- which had developed a strong reputation for quality adventure development and production value -- faced a choice: reinvent itself or go out of business. Unsurprisingly, it chose the former, and became an independent game company. Toward that end, Paizo announced it would begin development of its own core RPG product, the Pathfinder Roleplaying Game (PRPG) based on the open game content that made up the d20 System's core.
While the announcement of upcoming 4E was made more than half a year before Paizo's announcement of PRPG, WotC kept its cards close to the chest, maintaining largely impenetrable veils of secrecy around most of its 4E plans. By contrast, Paizo released three Alpha Test editions of PRPG for free, plus one Beta Test edition, over the course of the next year and a half. This process made the most of the Open Game License, turning Paizo's fanbase and potential customer base into playtesters and, to some extent, co-designers of the system. Finally, at GenCon (a gaming convention) in August 2009, both 4E and PRPG were released to the public. Both games sold well in first printings and, in fact, Paizo's first printing of PRPG was effectively sold out (in pre-orders and copies set aside for game stores and GenCon) about two weeks before the release date. The second printing was sold out a few months later.
Since then, Paizo has continued to involve customer feedback in its design process, with central employees and game designers at Paizo regularly interacting with customers in its discussion forum, occasional beta test releases of free PDFs containing content in development for upcoming books, and game material development contests that encourage customers to cross the line to becoming professional RPG developers. This involvement of the community surrounding the game has created an intensely loyal, interested customer base, but it has also contributed to cheaper and better game material development that better targets the needs and desires of Paizo's customers. In short, Paizo has made use of the benefits of an open development model, similar to the way open source software is developed, in ways that WotC never did. WotC seemed largely content to at first reap the rewards of third-party support for its core products without ever interacting with those publishers and, later, to blame those publishers for flagging sales. Paizo has, instead, invited third party publishers to contribute to the greater body of PRPG materials without trying to directly compete with those products, and invited customers to participate in the development of core products.
One of the early major selling points for PRPG was the fact that, though it set out to improve on the d20 System in a lot of ways, it was also designed to be essentially compatible with expansion books. As a result, anyone with two dozen expansion books on their shelves for 3E could probably make use of them, effectively unchanged, with PRPG. Adoption was also encouraged by the online availability of the PRD, or Pathfinder Reference Document, which was a presentation of the PRPG core rules minus a lot of the padding and explication of the PRPG Core Rulebook, available entirely under the terms of the OGL. This in some respects mirrored the early 3E days presentation of OGL materials in what WotC had called the System Reference Document (SRD), but rather than being released in MS Excel and CSV files lacking some of the core mechanics for character creation, the PRD was offered in an easily digestible, directly usable form that offered easy online reference.
Increasingly since then, various game stores have found that Paizo's PRPG products sell better than WotC's D&D 4E products. Somewhere in the Hasbro and WotC offices, it was decided that PDFs of D&D products would no longer be sold; meanwhile, PRPG PDFs have done brisk business. Judging by the performance of a local game store, minor setting books for PRPG have been difficult to keep in stock, while 4E books have had their shelf space reduced to make room for other games.
There are now rumors, based on WotC publishing schedule changes and some of the marketing direction coming from the company, that suggest 4E may be on its way to yet another new edition intended to recapture lost market share. An alternative interpretation of these events might simply be that there is some question as to whether Hasbro/WotC will want to keep publishing the core D&D product line in any form at all. One key piece of information that has observers' hackles up is the fact that the RPG developer staff at WotC has been significantly downsized recently. Of course, it is also possible that the core game product line will be primarily put into maintenance mode, generating (hopefully) steady but unspectacular profits, limping along on life support until someone decides it has been going on long enough to change policy at some undecided future point. It is also possible that there were simply some scheduling and personnel changes that do not mean much different at all in terms of product strategy. It seems that only time or a tell-all memo leak will tell.
Especially with the advent and proliferation of technologies that make copying and distributing digital media essentially free, the history of D&D has a few lessons to teach us.
- Treating customers well, as partners in one's business model rather than as wheat to be reaped, creates a strong, loyal customer base. Doing the opposite hurts business. This is especially the case in hobby industries where people have a deep interest in how things work.
- Allowing third party product developers and customers to modify and redistribute the core capabilities of one's product line under relatively permissive licensing terms can, when properly positioned, prove a tremendous boon to business success.
- Maintaining a closed product ecosystem can ensure dominance over an industry, or at least a market niche, for years. Eventually, however, competitive interests will likely arise that can create survival threatening problems for one's business model.
- Deprecating the value of the core competency of one's business is a good way to annoy customers and undercut one's own strength in the market. The problem is only compounded when simultaneously diversifying product lines to focus on others' successful models. In short, it is better to focus on improving what one does best than to try to stake one's success on the ability to compete with someone else in a realm where that competitor is already dominant.
- Once one introduces open development into one's market and product line, trying to take it back is more likely to destroy any dominant positioning one held in that market than to strengthen it.
These lessons effectively mirror some of those that appear in Steven Levy's book Hackers, among other records of real-world software development over the years. The more such examples arise in the future in other industries, the more we are likely to find that the benefits of openness in business models and creative product development are universal, and not only particular to software.