Why “Magic: the Gathering” is Doomed: Lessons from the Business Theory of Disruption

Twenty years ago, when I was young and beautiful, I picked up a wrapped pack of cards in a computer games store, and read for the first time the tag “Magic: the Gathering”. That was the beginning of my long-time romance with the collectible card game. I imported the game to Israel, translated the rules leaflet to Hebrew for my friends, and went on to play semi-professionally for twenty years, up to the point when I became the Israeli champion. The game has pretty much shaped my years as a teenager, and has helped me make friends and meet interesting people from all over the world.

That is why it’s so sad to me to see the state of the game right now, and realize that it is almost certainly doomed to fail in the long run.

 

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Magic: The Gathering. The game that has bankrupt thousands of parents.

 

The Rise and Decline of Magic the Gathering

Make no mistake: Magic the Gathering (just Magic in short) is still the top dog among collectible card games in the physical world. According to a report released in 2014, the annual revenue from Magic has grown by 182% between 2009 and 2014, reaching a total value of around $250 million a year. That’s a lot of money, to be sure.

The only problem is that Hearthstone, a digital card game released in the beginning of 2014, has reached annual revenues of around $240 million, in less than two years. I will not be surprised to see the numbers growing even larger that in the future.

This is a bizarre situation. Wizards of the Coast (WotC), the company behind Magic, had twenty years to take the game online and turn it into a success. They failed miserably, and their meager attempts at became a target for scorn and ridicule from players worldwide. While WotC did create an online platform to play Magic on, there were plenty of complaints: for starters, playing was extremely costly since the virtual card packs generally cost the same as packs in the physical world. An evening of playing a draft – a small tournament with only eight players – would’ve cost each player around ten dollars, and would’ve required a time investment of up to four straight hours, much of it wasted in waiting for the other players in the tournament to finish their matches with each other and move on to the next round.

These issues meant that Magic Online was mostly reserved for the top players, who had the money and the willingness to spend it on the game. WotC was aware of the disgruntlement about the state of things, but chose to do nothing – after all, it had no real contenders in the physical or the digital market. What did it have to fear? It had no real reason to change. In fact, the only smart decision WotC managers could take was NOT to take a risk and try to change the online experience, but to keep on making money – and lots of it – from a game that functioned well enough. And they could continue doing so until their business was rudely and abruptly disrupted.

 

The Business Theory of Disruption

The theory of disruption was originally conceived by Harvard Business School professor Clayton M. Christensen, and described in his best-selling book The Innovator’s Dilemma. Christensen has followed the evolution of several industries, particularly hard drives, but also including metalworking, retail stores and tractors. He found out that in each sector, the managers supported research and development, but all that R&D produced only two general kinds of innovations: sustaining innovations and disruptive ones.

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The sustaining innovations were generally those that the customers asked for: increasing hard drive storage capacity, or making data retrieval faster. They led to obvious improvements, which brought immediate and clear benefit to the company in a competitive market.

The disruptive innovations, on the other hand, were those that completely changed the picture, and actually had a good potential to cost the company money in the short-term. Furthermore, the customers saw little value in them, and so the managers saw no advantage in pursuing these innovations. The company-employed engineers who came up with the ideas for disruptive innovations simply couldn’t find support for them in the company.

A good example for the process of disruption is that of the hard drive industry, a few years before the transition from 8-inch drives to 5.25-inch drives occurred. A quick look at the following parameters of the two contenders, back in 1981, explains immediately why managers in the 8-inch drive manufacturing companies were wary of switching over to the 5.25-inch drive market. The 5.25-inch drives were simply inefficient, and lost the competition with 8-inch drives in almost every parameter, except for their size! And while size is obviously important, the computer market at the time consisted mainly of “minicomputers” – computers that cost ~$25,000, and were the size of a small refrigerator. At that size, the physical volume of the hard drives was simply irrelevant.

Attribute 8-Inch Drives (Minicomputer Market) 5.25-Inch Drives (Desktop Computer Market)
Capacity (megabytes) 60 10
Physical volume (cubic inches) 566 150
Weight (pounds) 21 6
Access time (milliseconds) 30 160
Cost per megabyte $50 $200
Unit cost $3,000 $2,000

The table has been copied from the book The Innovator’s Dilemma by Clayton M. Christensen.

And so, 8-inch drive companies continued to focus on 8-inch drives, while a few renegade engineers opened new companies and worked hard on developing better 5.25-inch drives. In a few years, the 5.25-inch drives were just as efficient as the 8-inch drives, and a new market formed: that of the personal desktop computer. Suddenly, every computer maker in the market needed 5.25-inch drives.

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One of the first minicomputers. On display at the Vienna Technical Museum. Image found on Wikipedia.

Now, the 8-inch drive company managers were far from stupid or ignorant. When they saw that there was a market for 5.25-inch drives, they decided to leap on the opportunity as well, and develop their own 5.25-inch drives. Sadly, they were too late. They discovered that it takes time and effort to become acquainted with the demands of the new market, to adapt their manufacturing machinery and to change the entire company’s workflow in order to produce and supply computer makers with 5.25 drives. They joined the competition far too late, and even though they were the leviathans of the industry just ten years ago, they soon sunk to the bottom and were driven out of business.

What happened to the engineers who drove forward the 5.25-inch drives revolution, you may ask? They became CEOs of the new 5.25-inch drive manufacturing companies. A few years later, when their own young engineers came to them and suggested that they invest in developing the new and faulty 3.5-inch drives, they decided that there was no market for this invention right now, no demand for it, and that it’s too inefficient anyway.

Care to guess what happened next? Ten years later, the 3.5-inch drives took over, portable computers utilizing them were everywhere, and the 5.25-inch drive companies crumbled away.

That is the essence of disruption: decisions that make sense in the present, are clearly incorrect in the long term, when markets change. Companies that relax and only invest in sustaining innovations instead of trying to radically change their products and reshape the markets themselves, are doomed to fail. In Peter Diamandis words –

“If you aren’t disrupting yourself, someone else is.”

Now that you understand the basics of the Theory of Disruption, let’s see how it applies to Magic.

 

Magic and Disruption

Wizards of the Coast has been making almost exclusively sustaining improvements over the last twenty years: its talented R&D team focused almost exclusively on releasing new expansions with new cards and new playing mechanics. WotC also tried to disrupt themselves once by creating the Magic Online platform, but failed to support and nurture this disruptive innovation. The online platform remained mainly as an outdated relic – a relic that made money, to be sure, but was slowly becoming irrelevant in the online world of collectible card games.

In the last five years, many other collectible card games reared their heads online, including minor successes like Shadow Era (200,000 players, ~$156,000 annual revenue) and Urban Rivals (estimated ~$140,000 annual revenue). Each of the above made discoveries in the online world: they realized that players need to be offered cards for free, that they need to be lured to play every day, and that the free-to-play model can still prove profitable since the company’s costs are close to zero: the firm doesn’t need to physically print new cards or to distribute them to retailers. But these upstarts were still so small that WotC could afford to effectively ignore them. They didn’t pose a real threat to Magic.

Then Hearthstone burst into existence in 2014, and everything changed.

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Hearthstone’s developers took the best traits of Magic and combined it with all the insights the online gaming industry has developed over recent years. They made the game essentially free to play to attract a large number of players, understanding that their revenues would come from the small fraction of players who spent some money on the game. They minimized time waste by setting a time limit on every player’s turn, and by establishing a rule that players can only act during their own turn (so there’s no need to wait for the other player’s response after every move). They even broke down the Magic draft tournaments of eight people, and made it so that every player who drafted a deck can now play against any other player who drafted a deck at any time. There’s no time waste in Hearthstone – just games to play and fun to be had.

WotC was still deep asleep at that time. In July 2014, Magic brand manager Liz Lamb-Ferro told GamesBeat that –

“If you’re looking for just that immediate face-to-face, back-and-forth action-based game with not a lot of depth to it, then you can find that. … But if you want the extras … then you’re eventually going to find your way to Magic.”

Lamb-Ferro was right – Hearthstone IS a simpler game – but that simplicity streamlines gameplay, and thus makes the game more rapid and enjoyable to many players. And even if we were to accept that Hearthstone does not attract veteran players who “want the extras” (actually, it does), WotC should have realized that other online collectible card games would soon combine Magic’s sophistication with Hearthstone’s mechanisms for streamlining gameplay. And indeed, in 2014 a new game – SolForge – has taken all of the strengths of Hearthstone, while adding a mechanic of card transformation (each card transforming into three different versions of itself) that could only have been possible in card games played online. SolForge doesn’t even have a physical version and could never have one, and the game is already costing Magic a few more veteran players.

This is the point when WotC began realizing that they’re falling far behind the curve. And so, in the middle of 2015 they have released Duels of the Planeswalkers 2016. I won’t even bother detailing all the infuriating problems with the game. Suffice it to say that it has garnered more negative reviews than positive ones, and made clear that WotC were still lagging far behind their competitors in their understanding of the virtual world, user experience, and what players actually want. In short, WotC found themselves in the position of the 8-inch drive manufacturers, realizing suddenly that the market has changed under their noses in less than two years.

 

What Could WotC do?

The sad truth is that WotC can probably do nothing right now to fix Magic. The firm can continue churning out sustaining improvements – new expansions and new exciting cards – but it will find itself hard pressed to take over the digital landscape. Magic is a game that was designed for the physical world, and not for the current frenzied pace of the virtual collectible card games. Magic simply isn’t suitable for the new market, unless WotC changes the rules so much that it’s no longer the same game.

Could WotC change the rules in such a dramatic fashion? Yes, but at a great cost. The company could recreate the game online with new cards and rules, but it would have to invest time and effort in relearning the workings of the virtual world and creating a new platform for the revised Magic. Unfortunately, it’s not clear that WotC will have time to do that with Hearthstone, SolForge and a horde of other card games snarling at its heels. The future of Magic online does not look bright, to say the least.

Does that mean Magic the Gathering will vanish completely? Probably not. The Magic brand is still strong everywhere except for the virtual world, which means that in the next five years the game will remain in existence mostly in the physical world, where it will bring much joy to children in school breaks, and much money to the pockets of WotC. During these five years, WotC will have the opportunity to rethink and recreate the game for the next big market: virtual and augmented reality. If the firm succeeds in that front, it’s possible that Magic will be reinvented for the new-new market. If it fails and elects to keep the game anchored only in the physical world, then Magic will slowly but surely vanish away as the market changes and new and exciting games take over the attention span of the next generation.

That’s what happens when you disregard the Theory of Disruption.

 

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