Points Mean Prizes

Almost all of you, I'm sure, have experienced the odd disconnection from currency that comes in your first few days abroad. The money in your hand doesn't feel real, its value impossible to quantify on a meaningful level - mathematically, you know that your home currency converts into the local paper in a relatively fixed ratio, but handing over ten dollars for something just doesn't carry the same mental significance as paying seven pounds back home.

This psychological problem is exacerbated further when you start trading in a currency that's not just different by a few percentage points (realistically, a US Dollar, a Euro and a Sterling Pound are all of roughly similar value, generally not worth more than 50% more or less than the other), but is actually different by an order of magnitude. Asian currencies such as the Yen, the Yuan and the Won are incredibly tough for an American or European to get an intuitive sense of - you know, of course, how many places to move the decimal and roughly how much to divide or multiply by, but the simple act of handing over currency feels more like a trade in a childhood game of Monopoly than an actual financial transaction.

This isn't new information, or a revelation. Our close attachment to currency has been understood for many years - it's exploited by unscrupulous traders at airports, for example, who know that they can charge more because visitors won't grasp how much they're paying. It was a strong public argument for the introduction of the Euro across much of Europe early in the past decade; ironically, the same deep attachment to currency has also been used by the unified currency's detractors to keep it away from Britain.

So I think it's fair to say that this is a line of thinking which would, at the very least, have been familiar to Microsoft when it decided that content purchases on Xbox Live would not carry price tags in local currencies - instead effectively creating its own currency, the Microsoft Point, to which you must convert your cash before you can buy anything.

It's worth bearing that in mind when reading this week's rather defensive comments to G4TV from US Xbox executive Aaron Greenberg regarding points, which start out by stating bluntly that "we never intended to mislead people".

Corporate PR is a funny business, and I often wonder to what extent people like Greenberg grit their teeth as they're forced to paint solid, well-considered (albeit not terribly consumer friendly) business strategies as unfortunate accidents, depicting their undoubtedly thoughtful and well-informed decision makers as hapless slapstick bunglers, accidentally knocking over fragile jars and then grinning sheepishly when mountains of cash pour out of them.

While a corporate PR man would undoubtedly suck at his teeth with displeasure and say something along the lines of "well, I think mislead is a very strong word..." at this juncture, the reality is that - unless they really are a load of hapless buffoons, in which case the success of the Xbox 360 is a miracle not unlike actually persuading a room full of monkeys to type out Hamlet - the Microsoft Point's raison d'etre is exactly that. It exists to obfuscate pricing, achieving exactly what foreign currencies do for tourists - items in the shop are easily comparable with one another, but the psychological link with what things cost and the value of money back home is snapped.

If that were not the case, why would the conversion rates to Points be so utterly obscure? For a thousand points - a fairly reasonable sum, which will buy you a pretty decent Xbox Live Arcade game - customers in the USA pay $12.50, those in Britain pay £8.50 and Eurozone customers pay €12.00. If you're in Japan, you pay ¥1480; in India, Rs680. Euro customers are the only ones paying a round figure, and even that's a slightly awkward one. Now consider that most things on Xbox Live are priced at 400, 800 or 1200 points, not a thousand - quick, off the top of your head, what's 800 points in your local currency? No? I didn't think so - and nor did Microsoft.

I don't mean to particularly lay into Microsoft over this issue, not least because, in spite of how hostile to the consumer this system is, the reality is that Points have worked well and probably helped to fuel the growth in digital content sales. However, Greenberg's other comment on the matter deserves a little scrutiny. He defends Points by arguing that in a sense, they're more transparent, because they allow pricing to be the same everywhere in the world - "something that's 200 points is 200 points everywhere around the world".

This is a statement which is every bit as true as it is meaningless. Yes, exactly the same Points price tag is used around the world - but of course, since Points don't cost the same amount in every territory (they're usually more expensive in Europe and Japan than in North America, for example), that number is an almost entirely arbitrary one. Having the same number "200" on a piece of content in North America and Europe is meaningless if the underlying, local currency price differs vastly - which it often does. If anything, Greenberg's comment here is an example of exactly how Microsoft Points are designed to mislead consumers - by creating an artificial layer which creates an illusion of international price parity, while simultaneously hiding real cost.

While Microsoft's intentions in this regard may rankle, however, there's no doubt but that Points have been a clever and useful business strategy. As well as obfuscating pricing and encouraging people to spend more by disconnecting from local currency, the slightly odd bundles in which they're sold (in the UK, point cards come in units such as 500 and 2100, for example) often don't match up with any of the content prices on the store - ensuring that consumers end up with a small balance of points after they've bought whatever they want. Since there's no way to cash out your points, this balance acts as an encouragement for future purchases - or simply as extra bottom line for Microsoft, should you choose never to use it.

Clever? Absolutely. Helpful for the development of digital content sales? Almost certainly. Unscrupulous? Make up your own mind, but it's fairly hard to escape this conclusion - and it's worth pointing out, of course, that while I have focused on Microsoft as a result of Greenberg's comments, exactly the same logic underlies Nintendo's points system, with all of the same implications.

This is, of course, another area in which competition is essential to keeping consumers' desires at the top of the industry agenda. Sony has rocked the boat by using real-world prices in all of its online endeavors on the PS3, and of course, the world's biggest storefront for digital content, the iTunes store, also posts real-world prices rather than using Points. Consumers unquestionably prefer this, and the defensive tone of Greenberg's comments suggests that they've been making this preference known to Microsoft rather strongly of late. Points have served Microsoft well, and it's unlikely that they will disappear entirely, but once a firm so reliant on consumer goodwill has to start rolling out corporate newspeak to defend its strategy, it's inevitable that something will have to change. As such, it wouldn't be surprising to see a simple way to view local currency price equivalents on Xbox Live Marketplace turning up in a future software update - at which point we can all shudder a little to think how much real world money we've handed over in Microsoft's online bazaar, wantonly spending with all the gusto of a tourist bearing a fistful of brightly coloured local Monopoly money.