I’ve written before about how value chain barriers are dropping, enabling a more product to reach consumers than ever before.  While a boon for consumers (setting aside for the moment the noise/discovery problem), this is a challenge for content creators:  more product means more competition, driving down prices and unit sales.  So the value of content is falling.

But it’s also rising.  Lower barriers make it feasible to bring niche products to market that couldn’t be justified in the past.  And consumers will pay extraordinary amounts for products that address a niche they find compelling.  The evidence for this is all around us, from low budget CCGs (e.g. the now defunct Warstorm) to high budget strategy games (e.g. League of Legends), and it’s been happening for years.

We’re talking about products that generate $50 – $100 per paying user.  Per month.  Do the math and ask yourself how small a niche you can serve and what it will cost to build the product.  You don’t need to spend millions like League of Legends, or even hundreds of thousands like Warstorm.  There are countless underserved niches out there just begging for a product.

I’ve been posting a lot of recently about value creation in games.  Most of my attention has been on the engagement side of this equation, but for today’s post I’d like to talk about the relationship between friction reduction and engagement.

First, friction reduction (a.k.a. accessibility) is not in an inverse relationship with engagement.  In fact, they’re highly complementary, since advances in friction reduction reduce the barrier to entry, increasing the viability of more experimental products.

Second, I’d argue there’s been an amazing amount of innovation on the friction side the past 20 years.  So much that there’s been little incentive to innovate on the engagement side.  I’m not saying engagement innovation has slowed – it has probably increased as well, just not at the same pace as advancements in friction reduction.  But when reducing friction is improving product value so dramatically, why bother taking any risks in engagement?

Looking for evidence?  I give you the last decade’s increase in cloning as exhibit A.  The friction reduction benefits are so strong that companies won’t even risk changing the numerical values in the game (see the Yeti Town clone of Triple Town).

I expect this is cyclical.  Friction reduction will eventually run out of steam in our current ecosystem and likely commoditize to the point where it’s simply not a differentiating factor, at which point more attention will shift back to engagement innovation.  But in the meantime I think the engagement piece is underserved, and there’s an opportunity there.

I do have some concern that over the long haul we, as an industry, will lose some of our expertise in engagement innovation if an entire generation of game designers grows up in a world based largely on friction innovation.  We’re not there yet, but I find it striking how many folks don’t know there difference between the two.

There are only two parts of the content value chain you cannot remove:  the content creator and content consumer.  That’s a paraphrase of an unknown journalist from the June 5, 2008 issue of the Economist who said:

“Publishing has only two indispensable participants:  authors and readers.  As with music, any technology that brings these two groups closer makes the whole industry more efficient– but hurts those who benefit from the distance between them.”

So if you want to play in the space between, you need to provide some value in reducing one or more of the following four barriers:

• Existence.  How difficult is it to actually create the product?  Am I coding in assembly or can I just use Flash?
• Discovery.  How does a consumer find out about the product?  Banner ads, google keywords or the social graph?
• Delivery.  How does the consumer get the product?  Do I have to drive down to the mall or can I just download it?
• Commercialization.  How does the content creator monetize the product?  Do I have to pay $20 or can I try it for free and pay for stuff in smaller chunks later?

We use talent and money to overcome these barriers.  In recent years, there’s been a tremendous decline across the board in all of them.  Modern development tools and increased hardware power have put a huge dent in the existence barrier.  Delivery friction is virtually zero given modern bandwidth costs.   Commercialization is almost plug-n-play.  Even discovery has been dramatically improved with the advent of Facebook’s viral channels.

As these barriers drop, a number of interesting things happen:

• Lower barriers mean lower capital requirements to bring a product to fruition.
• Lower capital requirements mean the volume of product that makes it over these hurdles increases substantially.
• More product means more competition, driving down prices.
• More product also means more niche products that address previously underserved interests.  These products can charge a premium over mainstream content.
• The closer these value chain barriers get to zero, the more they commoditize and become hyper-efficient.
• The more they commoditize, the more the costs start to backload, further reducing capital requirements for the content creator.
• As capital requirements drop, the sources of capital change and their influence over the content creation process falls.

There’s a bit of a feedback loop here.  If more products make it over the transom the discovery barrier goes up, for example.  And when a company has an effective monopoly over one solution (e.g. Facebook’s discovery advantage) they can intentionally raise barriers in other parts of the value chain, so long as the net gain is still positive for content creators.