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

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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