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Why free-to-play won't eliminate paid games

Why free-to-play won't eliminate paid games

Wed 21 May 2014 9:04pm GMT / 5:04pm EDT / 2:04pm PDT
BusinessFree-to-Play

The reality is that many game designs don't lend themselves to free-to-play monetization

Many executives in the game industry, seeing the relentless march of free-to-play games in mobile gaming, have opined that free-to-play is going to take over the entire game industry. In this utopian vision, all games are free on all platforms, removing that pesky price barrier that keeps people from trying all those wondrous games. Billions of people could be playing and some portion will cheerfully pay something, and the profits will flow in and we'll all live happily ever after.

And then the industry woke up. Or, at least, it's stirring in its sleep, as the realities of the game industry intrude upon this dream. Free-to-play is a very successful business model for some - who can argue with the success of the top mobile games like Clash of Clans or Candy Crush Saga, or social games like Zynga Poker and FarmVille, or online games like World of Tanks and League of Legends? These games have made billions of dollars with high profit margins, and every single one of them is available for free. There's no worries about piracy - in fact, piracy is just a marketing tool, if anyone bothered with it for these games.

The reality is that while free-to-play is a very successful business model, it's not the only business model that's succeeding these days. Not all games lend themselves to the business model, and not all developers are prepared to deal with the issues involved. Some platforms are less suited to free-to-play games, and there's evidence to suggest that paid games are making a comeback on mobile. Some developers have complained about the model in very public ways. Free-to-play is a fine hammer, but not every game is a nail.

Free-to-play games are a relatively recent innovation, at least as a highly successful business model. While there have been free games online for decades, they weren't major revenue sources (mostly indie efforts or games used as a way to attract people to a web site). When it came to free-to-play games as a major revenue engine, that was an Asian invention. Free-to-play games succeeded in South Korea and China because they matched the market, both in terms of the platforms and the market's desire to pay in small amounts along the way, rather than a large lump sum up front.

"Doesn't it seem reasonable that if Nintendo ever produced a high-quality Mario or Zelda game for a smartphone that they could charge $6.99 or $9.99 for it, and get millions of people to buy it?"

Facebook was the early innovator here, before mobile games. Facebook's broad demographic reach and easy viral marketing initially, combined with no fees being paid to the platform, catapulted Zynga and other social game companies into rapid growth. Of course, the social game market on Facebook has faded since its prime, but there's still good money to be made there.

The online game market in general has become a free-to-play powerhouse. Shining examples of free-to-play on PC are strategy games: League of Legends, DOTA 2, World of Tanks, and most MMORPGs these days. Still, you'll note that pay-up-front games on PC are still a very viable market, with games like Diablo III showing just how much money can be made even with premium pricing.

Mobile games went from premium pricing, with early games priced at $5 or more, quickly down the price scale. When Apple introduced in-app purchasing, the F2P concept took off. Now mobile games are 90 percent F2P, and the top ones generate as much as a million dollars a day. Recently, though, we've seen some mobile games buck the trend and make considerable money at a premium price. Fireproof Games' franchise The Room has sold more than 5.4 million copies on mobile at a $4.99 price, and it keeps on selling. The poster child for premium games on mobile is, of course, Minecraft, with over 15 million copies sold on mobile at $6.99.

The reality is that many game designs don't lend themselves to free-to-play monetization. Virtual items in story-centered games like Telltale's Walking Dead series would be ridiculous. Balance is a difficult issue for virtual items in many games, particularly as the variations of items multiply. Blizzard's massive problems with the Auction House in Diablo III show that.

Console games have dabbled in F2P, yet so far the business model shows no signs of the rapid takeover that occurred on mobile. Gamers still seem happy to pay a large sum of money up front in order to get a great game experience. There's some grumbling about downloadable content, but mostly that occurs if it seems the game didn't provide enough value by itself. That generally comes down to value for money - if players feel the initial purchase price provided plenty of value, they will be happy to see additional content at a fair additional price.

Ultimately the availability of games via digital distribution means freedom of business model choice to developers. When games were only sold in a retail store, they had to be priced to cover the costs of manufacture and shipping and distribution. Digital distribution changes that equation. You may still have to pay a digital store owner their 30 percent share, but larger publishers own their own stores. So games can be priced at any level. We're already seeing a wide range of prices in the console stores, and this will continue. Sure, the epic titles can command $60, but maybe that fascinating two-hour experience is only worth $9.99. Ultimately, it comes down to making sure you've given the customer a great game value for the price they've paid.

Yes, it's a marketing challenge to convince gamers to shell out $4.99 for a mobile game. But any mobile game is a marketing challenge these days, regardless of the price. Marketing games is harder than ever just because of the sheer volume of games available on so many platforms. Free-to-play doesn't solve that problem. Before development starts on a game, the business model and marketing issues should be considered just as much as other core design issues. Premium pricing should be on the table as part of the discussion when development is considered.

Free-to-play may yet become a more important part of the console game market, and it may even dominate one day (though that seems a very distant possibility). Yet even on mobile, where free-to-play is the dominant business model, there's still plenty of life left in paid games. When you think about premium brands, a premium price seems logical. Doesn't it seem reasonable that if Nintendo ever produced a high-quality Mario or Zelda game for a smartphone that they could charge $6.99 or $9.99 for it, and get millions of people to buy it?

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7 Comments

Alex Bunch
Proof Reader

94 106 1.1
So this is pretty much exactly the same article that was in Edge magazine a few months back?

Posted:3 months ago

#1

Tuomas Pirinen
Head of Design

9 9 1.0
Wholly agree with the article. Shoehorning business models to games that do not suit them will not work. Walking Dead is an episodic game and the model suits it perfectly, for example, while F2P suits Hearthstone or Dota2 very well, and up-front payment works for something like Last of Us the best.

Also, just a small correction. The article says "Now mobile games are 90 percent F2P, and the top ones generate as much as a million dollars a day" while actually the top games gross far more than that per day, for example: http://www.tuaw.com/2013/05/13/gungho-reports-puzzle-and-dragons-is-earning-3-75-million-a-day/

Posted:3 months ago

#2

Jason Pullara
Podcaster

28 70 2.5
Free to play and Pay to play are two different business models for two different segments of the market. You choose the business model that bests suits your type of game, and build your revenue from there.

It's patently silly to think that one business model is better and will eliminate another. That's a naive outlook on business, in general. The truth is that companies will devour companies based on their products. Consistently put out good products that are recognized by the marketplace and you'll have a far greater edge in this industry that any company that latches on to a business model as their key for success.

Ultimately it comes down to how your company is built, how well trained your executive level is, how well managed your projects are, and how talented your developers are. If you suck at any one of those levels, the market will eat you alive - just ask Zynga.

Posted:3 months ago

#3

Brian Lewis
Operations Manager

127 79 0.6
Free to Play (F2P) may be new to the gaming industry, but it is NOT a new concept. Without understanding what is actually happening here, we can end up with articles like this, that flail away at straw men.

F2P is a simple move from direct product sales, to service sales. You get the 'product' for free, then pay the service fees along the way. This is an age old business concept, which vastly predates computers.

In the computer industry, we have seen this move many times. From the IBM conversion from a hardware producer to a service provider, to the more modern changes to provide free email, and web hosting. F2P became a viable commercial prescence in the western online gaming industry in the early 2000's with front runners such as RuneScape and Maple Story. It later grew in scale with Club Penguin in 2005.

It is only now, in 2014 that it is becoming 'popular'. F2P is a hot fad for all types of gaming. It will inevitably 'win' and become a predominant element in gaming sales. However, it is never going to stop direct product sales. Different business models like this do not make the other obsolete, they simply grow the market. The market for 'free' is always going to be bigger than the market for 'paid'. However, the larger market does not always provide a better ROI, and as such, there will always be a desire for 'paid' products.

Posted:3 months ago

#4

Kevin Corti
Games industry consulting

9 8 0.9
I believe that the root cause of most of the tensions around this ongoing (some might say tedious) debate are being missed, this being that the most common forms of discovery are best-aligned to a F2P business model.

It isn't the case that F2P business models are 'bad'; they are a perfectly valid approach for getting a specific kind(s) of game into the hands of certain (very large) demographics of potential customers.

What is true is that F2P design principles lead to a restricted variety of game experiences - commonly centered around 'instant relief from grind' - and, due to the economics of mass-marketing in a competitive marketplace and the operational costs of GAAS, it also leads to a very small number of developers of these games. Hence limited consumer choice, 'frozen charts' and scores of capable games studios/developers taking to industry forums to post angst-ridden articles.

I am not belittling the woes of said developers. I find it heart-breaking every time I see a potentially great game (based on technical and creative factors) being created by a passionate, committed team but where they are either making a F2P game that will never scale (or they won't have resource to do so) or a premium game for which the likelihood of gaining meaningful consumer attention (and hence sales) is very low.

The solution isn't to bemoan F2P as a business model, F2P games/developers or the app stores. It is to find ways for well-crafted (e.g. GOOD) games that cater for a niche audience to actually find that niche audience. At present that is very very hard. Freemium is about scale; exposing your game to a huge number of potential users such that a small percentage of them become paying punters. The app stores - which shine their discovery lights on games that are attached to big numbers (installs, user ratings, daily revenue etc) are not - and cannot - be the place that a relatively small number of 'the right' users will find a niche game designed with them in mind. The stores don't have the means by which to align specific players with specific games. Their technology doesn't allow that.

I'm involved in a start-up that is setting out to solve exactly that problem. We're in stealth mode as of now but follow us on @every1playing if this subject is of interest.

Posted:3 months ago

#5

Keldon Alleyne
Handheld Developer

431 406 0.9
I think we have to be mindful of purchasing habits. It is possible that the new generation will simply form a freemium / subscription based purchasing habit, making paid purchasing approaches obsolete.

In fact, people today would rather pay with their cards or via contracts than outright buy the product. Just keep that in mind for the future.

Edited 1 times. Last edit by Keldon Alleyne on 27th May 2014 9:43am

Posted:3 months ago

#6

Paul Johnson
Managing Director / Lead code monkey

810 1,012 1.2
When having this debate, you need to firmly set your stall out and decide what formats are under discussion. I for example don't expect F2P to totally replace paid on console myself, based on nothing but gut feeling.

However on mobile it's already happened by all reasonable definitions. Paid games make next to nothing for their developers with only a very small percentage of exceptions. And that number of exceptions shrinks every time I look again at it. Do not confuse "top of the charts" with "earning plenty of money".

To put some personal data in, we're already making more money from a F2P that is much more about advertising revenue than IAP upsell. It already earns us more money than its paid version by an order of magnitude. Our future adware games won't even have paid versions to cut down on maintenance, it's that night and day.

How will this affect console? Nobody can say for sure, but there is a new breed of punter coming through now that is getting trained to expect stuff for free, at least in some places. Forget about clash of clan's monetisation, it's actually worse than that. A lot of people expect to pay exactly zero for their games now - and that pool is increasing rapidly.

Posted:3 months ago

#7

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