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Born Free

Fri 27 May 2011 8:42am GMT / 4:42am EDT / 1:42am PDT
BusinessOnline

Age of Conan joins a growing list of freemium MMOs - a wise move, or a desperate one?

This week, Funcom's Age of Conan became the latest MMORPG to embrace the free-to-play, or freemium, business model. From this summer, the game's basic content - a fairly expansive experience in itself - will be available for free, with expanded content and various items purchasable for a price. The existing subscription model will also remain available, satisfying current users - but it's fairly clear where Funcom sees the game's future growth prospects.

In the massively multiplayer sphere, freemium - a horrible crime against the English language, but arguably a more accurate term than free-to-play - has emerged as the rival business model to subscription gaming. Originally adopted by Asian MMO operators, most notably those in South Korea, the model has more recently been embraced by several major western firms - to the extent that it's now being retrofitted to existing subscription-based titles, like Age of Conan.

There's an inevitable temptation, when a company makes a move like this, to interpret it as a sign of failure. Age of Conan is a game which has unquestionably underperformed expectations, its commercial prospects damaged immensely by an underwhelming and very buggy experience at launch, which the company took far too long to repair. Dogged by the resulting negative perceptions and criticism, recovery has been slow and halting despite vast quality improvements in subsequent years. As such, the game's detractors will no doubt be quick to characterise the shift to freemium as a final, desperate throw of the dice.

If the decision to shift an MMO from subscription to freemium is inarguably enabled by underperformance, that doesn't mean it's an act of desperation

Their argument is strengthened by a simple reality - if Age of Conan were doing very well from subscription revenue, this move wouldn't even be considered. The game's not in good company in this regard - the other high-profile freemium move that's ongoing right now is APB, the game whose disastrous commercial and critical failure sank developer RealTime Worlds.

Successful games don't make this kind of transition.There's no evidence of Blizzard moving World of Warcraft to a freemium model any time soon. When a goose is laying golden eggs, you certainly don't kill it, but you're also pretty unlikely to start feeding it something different or put it into a new shed - it might lay more eggs, but what if it stops entirely?

Yet even if the decision to shift an MMO from subscription to freemium is inarguably enabled by underperformance, that doesn't mean it's an act of desperation - and it certainly doesn't mean it's a mistake.

The experience of Lord of the Rings Online is a particularly interesting tale in this regard. LOTRO, unlike Age of Conan, enjoyed broad critical adulation from the outset and maintained a healthy subscriber base, even if it was never likely to give Blizzard any sleepless nights. Yet Turbine decided to turn the game over to a freemium model - and later reported that they'd trebled their revenues in the process.

LOTRO is hardly an isolated example, either. In fact, Funcom themselves have experience with this kind of transition - having done it before with Anarchy Online, way back in 2004. The move to freemium is credited with guaranteeing AO's long-term future, essentially taking a game which was widely perceived as commercially doomed and reinvigorating it to the point where it has now managed to become one of the longest-lived games in the genre.

Why does freemium work so effectively? Some of the benefits are very obvious. It breaks down barriers to entry, by allowing players to experience the game without making a financial commitment. Even offering a month's free play time doesn't have quite the same impact on players - those playing a free month are aware that a financial commitment is expected of them shortly, which makes them less likely to engage fully with the game and more likely to be hyper-critical of any failings. A free month is a test drive, a demo; a freemium game is something players can engage with in the knowledge that they can keep playing and won't be forced to pay at any point.

Freeing the player from financial commitment offers a number of other side benefits which make the game much more attractive. It means that cash-strapped players don't necessarily have to pay for the game each month - they can buy stuff in months when they're a little more flush, but can keep playing for free at other times. That's not just appealing to younger players, students and so on; it's also appealing to those who already have financial commitments to other game subscriptions, and don't want to increase that burden.

What that means is that a freemium game can survive, and even prosper, even in a market where there's already a huge, subscription-based game effectively monopolising the lion's share of the player base. It's no coincidence that that's exactly what the MMO market looks like right now. Subscription based games are essentially trying to wrestle players away from World of Warcraft (or other subscription rivals, but primarily WoW), or asking them to pay a second monthly subscription - which is pretty unlikely. Freemium games can coexist side by side even with an 800 pound gorilla like WoW, letting players engage casually at first and later invest as much, or as little, time and money as they'd like.

That leads on to the less obvious but perhaps even more powerful aspect of the freemium offering - the fact that it lets players decide how much they want to pay for the game based on how engaged they are with it. In a subscription game, players essentially pay the same amount of money regardless of whether they raid six nights a week with their guild and spend hours each day crafting or completing daily quests - or just log on for a couple of hours on a Sunday afternoon to meander through story quests on a months-long road to the top level.

WoW's very success should be driving other developers to recognise freemium as a sensible option for their games from the word go

Freemium games change this model to one where casual players generally don't pay anything, or make only small, occasional payments - but those who are deeply involved with the game pay for new content as it appears, and probably keep themselves topped up on premium items as well. It's tough to strike a balance, of course - you don't want a situation where people can basically pay their way to having a character that's better than everyone else - but the ability to cultivate "whales" among your audience, high-paying consumers who make up a decent percentage of your revenue base, is a major benefit.

Failures of that balancing act lead to the most common criticisms of freemium. It's tempting, from a business perspective, to make the premium items as powerful as possible so that more and more people will buy them - but if they actually make a huge impact on the game balance, casual players will be discouraged by the obvious imbalance, and more dedicated players will come to see such items as a resented tax rather than a welcome option.

Such balance problems are most likely to emerge, of course, if you're retrofitting the freemium business model onto a game that was never designed for it. That's arguably one of the things which many western MMO developers have failed to understand - that the business model and the game design aren't separate things, or at least, that they shouldn't be. They're tightly related to one another, and should be developed side by side. How a player pays for the game is a core part of his interaction with that game, and forms a major element of his thinking with regard to the game - an element that needs to be understood and respected in the game design from day one.

It's entirely possible to carry out a successful retrofit - LOTRO and Anarchy Online stand as good examples of cases where this has been carried out. Yet they both beg an essential question; if this is, as seems likely, the ultimate destiny of a great many MMOs, why don't developers grasp the nettle and build their games to a freemium business model from the outset? Why the reluctance to embrace this model, the determination to stick with the boxed game and monthly subscription business model which has worked wonderfully for World of Warcraft but crippled most other games that have followed in its footsteps?

Indeed, it's WoW's very success that should be driving other developers to recognise freemium as a sensible option for their games from the word go - and rather than simply accepting that success, it's also an interesting mental exercise to wonder how much money Blizzard could be making if they, too, used freemium. They won't; WoW has too much to lose, and Blizzard's willingness to take creative risks with the game is unlikely to be matched by an appetite for fundamental changes to the commercial structure behind its success. But considering the number of potential "whales" in the WoW playerbase, it's highly possible that WoW could be an even more profitable game if it left behind the subscription model.

Retrofits for games such as Age of Conan, LOTRO and perhaps even APB are a good idea, and if executed well, can turn around the fortunes of a game. In future, though, it would be nice to see less retrofits and a lot more thought being given to a long-term freemium future for MMOs, right from the outset of each new project.

12 Comments

It is, perhaps, a matter of semantics but "freemium" by most web dictionary definitions is simply the offer of a free service for which optional premium features are available. The erroneous assumption in this article is that freemium = microtransactions in the MMOG market. It therefore ignores a large swath of MMOGs that use the freemium subscription model such as RuneScape, Tibia, Club Penguin and dozens of other titles, many aimed at younger kids. Based on our MMOG database, there are 79 freemium subscription MMOGs in the west, including many doing extremely well commercially. They are, admitedly, dwarfed by the number of freemium microtransaction MMOGs (326) and those using hybrid freemium subscription and microtransaction models (a further 75). What is true is that non-freemium (subscription or other) MMOGs now represent a tiny % of the total volume of MMOGs in the West, a number that continues to diminish rapidly.

Posted:3 years ago

#1

Mario Rizzo WW Studios, Head of Free-to-Play, Ubisoft

4 0 0.0
Nice article, Rob. Agree I’d like to see more games in the west developed with F2P in mind from the beginning.
@ Nick, also agree that the article did not closely examine the “velvet rope” micro-subscription part of persistent games. I did want to query your definition of freemium in re: to MMO game development. My experience with these titles is that they tend to monetize differently. Games like Runescape tend to primarily gate game content from users (i.e. you only get x quests if you are not premium). More of the eastern models which I see popping into the western games nowadays tend to gate progression (i.e. it takes 10 hours of gameplay to earn this new sword but you can pay to cut that down to 5).
As an investor do you put these game types in the same category or do you separate them? My assumption with the article is that was where Rob was drawing the line but perhaps I am wrong, Rob?
For me personally, I always think of freemium as monetizing convenience. I would be pretty mad if Apple charged me for utilizing the ITunes software but am happy to buy songs out of convenience from them while I use it.

Posted:3 years ago

#2

Rob Fahey Columnist, GamesIndustry.biz

76 190 2.5
I left games like Runescape and Club Penguin out of the article for the simple reason that they were outside the scope of the point I wanted to make - specifically addressing the question of the "core" MMORPGs which have started out subscription-based and ended up making the (somewhat painful and work-intensive) transition to freemium. I often get the impression that there's a certain sense among developers and publishers alike that subscription MMOs are a "cut above" the freemium titles, and want to position their titles in that bracket - a risky and expensive proposition.

With regard to freemium subscriptions, there's clearly a market for this, as evidenced by the success of a number of titles using the model - and it's worth noting that Conan is effectively going down this route by continuing to offer a subscription model alongside the microtransaction model. However, as Nick notes, the microtransaction model is more popular among games, and I suspect that a key reason for that is that it provides benefits you don't get from freemium subscriptions - whale spenders being a major one.

Posted:3 years ago

#3
The game industry would benefit from a real analysis of the "low-cost" subscription vs. "micro-transaction" models. There is a huge benefit to recurring revenues, even at (and perhaps ESPECIALLY at) a low price in that people will continue to pay long after they no longer play. This is the entire premise of the health club industry.

The analysis should really extend to pricing in the computer game industry. We are still pricing games at the same price as when PCs were an early adapter technology and ALL software cost $50. Markets are huge, other entertainment products are typically $20 or less.

Posted:3 years ago

#4

Andrew Goodchild Studying development, Train2Game

1,254 421 0.3
Steven made some interesting points. Most subscription models I have seen were set at £8-10, too much to pay more thwn one, or to pay if you are not going to get the use. Would more have been successful at a £3 per month sub? I have also been put off paying £30 for a game I might only be able to play for a month before deciding to subscribe, yet freemium games give software for free, so why is there no middle ground where you pay a subscription but software is free to download, or free on disc with a purchase of a 3month game card? It is as if everyone thinks that becuase World of Warcraft can charge X amount, that is the price point and structure they can rightfully ask for.

Posted:3 years ago

#5

Adam Campbell Studying Games Technology, City University London

101 0 0.0
Having worked for one of the biggest MMOs on the planet, I can say f2p is definitely the way to go, with optional membership. It's simply the most profitable direction.. Subscription only based MMOs are risky and if it doesn't pay off then the MMO is unsustainable.. in contrast to the massive profits that are possible i.e. WoW.

Posted:3 years ago

#6

Nicholas Lovell Founder, Gamesbrief

211 254 1.2
Great post, Rob.

I think you are sort of asking the wrong question. There are plenty of companies that start free-to-play; they just aren't traditional games companies. Bigpoint, Gameforge, Innograme, Travian, Peak Games, Supercell. All of these companies started with free-to-play in their DNA. It's the people who are transitioning to free that are struggling.

@Steven: I think the market has spoken pretty clearly. Subscription based businesses make less revenue than free-to-play, unless they are dominant (like Warcraft, with 11.5m subscribers. The next largest subscription MMO in the West is Eve Online, with about 350,000 subs. The winner takes all). Free-to-play doesn't give you *contractually* recurring revenue, but it gives you most of the same benefits (a recurring income stream, predictablility) with the added and substantial benefit that the subscription does not cap your income potential.

Free-to-play gamers will spend tens, hundreds, even thousands of dollars a month. They can make much more money off a smaller, more passionate user base than a subscription model.

I'm not sure what further analysis you want. When every MMO is transitioning to this model, having tried the old subscription route; when companies who offer free-to-play post great numbers (Bigpoint turns over €200m with a margin of 20-30%); when investors prefer this model even to the subscription model (let alone the single product model) - it seems to me that all the research we need has already been done.

In particular, it seems to me bizarre to ask for research into an *old* model.

Posted:3 years ago

#7

Quinn Sullivan Student

2 0 0.0
Great Article I would love to see some of the future MMO's to come have the F2P business model.

Posted:3 years ago

#8

Rob Stevens Managing Director, Strangelands Ltd.

3 0 0.0
In my opinion, the question is posed of the wrong people. Is it really *developers* that make this decision? I'd hoped that Nick, opening these comments as a games investor, would give us a more financial view on why we keep working to this model. Given the potentially phenomenal cost of development surely it is investors who decide how things proceed? A developer just wants the money to make their game, and they’ll modify their design if need be to get the investment they require.

As Nicholas (who I had the please of meeting during one of he recent talks in London) points out, the subscription model gives you a predictable, recurring revenue (at least in theory). When you’re cooking your numbers for investors it is so much easier to show them a nice clean curve for return on investment when you’re talking about an expanding subscriber base; Income = users * subscription – simples (as meercats say).

WoW has been the poster child for MMORGs for years and everything seems to get compared to it. How easy is it to tell investors to ignore WoW as the modern day Eldorado, the unattainable dream?

Freemium or free-to-play must have been a nightmare sell until people started showing that it actually does the numbers and more. Even so, even now, with successful examples to paste across PowerPoint slides, how easy is it to convince an investor that they’ll get their return on investment at such-and-such a point after your game is released?

Everyone knows the boxed model isn’t ideal and that it is slowly dying, but when you launch a high risk project with other people’s money, there’s a sense of security to boxed sales that “let’s just give it away for free” doesn’t provide. You hope that some anonymous portion of the user base will make up for your “leap of faith” by buying bucket loads of virtual goods/premium content - but will they? And when?

Are there developers out there trying for freemium but only getting investment on subscriptions? Actually, that isn’t a rhetorical question – I’d really like to know.

Posted:3 years ago

#9

Nicola Searle Senior Knowledge Exchange Associate, University of Abertay Dundee

24 0 0.0
No one seems to have mentioned the elephant in the room (or perhaps gorilla in the mist) - Facebook. MMORPG lite and they are all currently freemium (f2p + microtransactions.) If microtransactions are a numbers game, then Facebook games have a promising future. The popularity of these games may also dictate the tastes of players of more traditional MMORPG in the future. It may be that consumers come to demand the freemium pricing mechanism.

Posted:3 years ago

#10

Jeffrey Kesselman CTO, Nphos

112 0 0.0
Despite all the wide eyed and gushing, but support empty, descriptions of the micro-transaction market, the facts just don't back it up.

Some facts:

(1) Peak concurrently connected users (PCCU) is the metric that drives your costs. Thats what you need to support on your back-end.

(2) F2P games are typically measured in DAU or Daily Active Users. DAU is 2 to 4 times PCCU as a rule.

(3) Only 3% of your users of an F2P/Micro-transaction game ever spend anything. The result is that an F2P game is considered successful if it generates between $3.00 and $15.00 per DAU per month, which is $6.00 to $60 per PCCU. The vast majority being in that $6.00 to $10.00 range. (Thats successful games, unsuccessful games generate far less.)

(4) By contrast, subscription games typically generate $5.00 to $15.00 per account. PCCU is reliably 5% to 10% of total accounts. That means a guaranteed income of $50.00 per PCCU on the low end to $300.00 per PCCU on the high end, with the majority actually being in the $150 - $300 range.

In other words, subscription games generate roughly ten times the income per PCCU than do micro-transaction games.

Zynga and the like build their games to use absolutely *minimal* server resources. When we built ZooKingdom our target was 10,000 CCU per server box, and only one server nox to suppor that 10,000 users. With Oregon Trail, we went to 30,000.

In contrast, MMORPGs are typically built to handle between 300 and 1,000 CCu per server box and require clusters of boxes to support a single virtual "server".

The simpel fact is that the economics don't work. The ONLY way it makes economic sense for an MMORPG to go F2P/Micro-transaction is if your subscription sales are so low that you have unused capacity on your servers. In that case, any incremental income you can get for that capacity is worth it.

But for that to be the case, you have to have fundamentally fails first as a subscription game.

The idea that you "have to' price this way is defeated by the existence proof of WoW and a few other reasonably successful subscription games (DCU it appears will be another.) You only have to price this way if you dont establish enough value to charge a subscription price.

Actually, there is even evidence that there is room for full on subscription pricing in traditionally casual spaces like mobile. See this related article:

[link url=http://www.gamesindustry.biz/articles/2011-06-01-order-and-chaos-online-makes-USD1m-in-20-days#justposted
]http://www.gamesindustry.biz/articles/20...[/link]

(Extended explanation here:
http://worldwizards.blogspot.com/2011/06... )

Additional: This just in, if you needed any further convincing...
http://massively.joystiq.com/2011/05/31/...

Edited 5 times. Last edit by Jeffrey Kesselman on 1st June 2011 10:52pm

Posted:3 years ago

#11

Nicholas Lovell Founder, Gamesbrief

211 254 1.2
In my experience, F2P games make 5x the revenue of subscription-based games, not the other way round. I need to work through your numbers in the cold light of day to work out why your conclusion and mine are so diametrically opposed.

Posted:3 years ago

#12

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