The 10,000 Foot View of the F2P Model in Video Games

A few days ago, the Wall Street Journal ran an interesting article regarding those situations where the Freemium model – that is, what is better known in the video game industry as Free-to-Play (F2P) – fails.

It is easy to forget that before the F2P model began its relentless march on the video game industry, the model has been aggressively pursued in a number of other markets.  From email and data storage services such as Google and Yahoo! to photo sharing services, news providers and innumerable software applications, the model has arisen in almost countless incarnations and forms, some successful, many not.

What makes a Freemium/F2P model work – or, conversely, not work – for a particular product or service?  What light can this shed on the future directions of the model in the video game industry?

Conversion
Traditionally, the conversion rate of a free user to a paying user is anecdotally around 1%.  In the game industry, the number is closer to 10% – in other words, a lot better.

One thing the game industry does particularly well is to provide a robust selection of objectively beneficial upgrades.  Many services outside the game industry have run afoul of the question of what to charge for that will be relevant to a large enough base of free users.  Additional data storage, for example, may only be relevant to a fairly small number of Google users, so it only a subsection of these users that such a purchase is even a theoretical consideration.

In contrast, in a video game it is much easier to identify definable value.  A game’s systems are by definition defined by the designers of said game.  Want people to buy X?  Make X relevant for every – or at least most – players.

(This is, in fact, one reason why I believe levels are an intrinsically poor idea for F2P games. Why buy an item at level 10 when it will become obsolete by level 20?  Such systems actually discourage players from spending money on the game, in effect reducing the potential number of paying users.  Certainly, it is possible to work around problems like this, even with a leveled system, but it is an unnecessarily more difficult design challenge.)

Scale
Freemium models that do work work because they can take advantage of the fact that digital goods have a negligible per unit cost coupled with extreme economies of scale.  In other words, digital goods don’t really cost anything to make more of once the first one has been made, and it is relatively easy to attract large numbers of users to at least try your game.

Examples outside the industry where the freemium model has had issues include products that are highly specialized and do not have mass appeal.  Specialist products – including game products – are better off with different pricing models.  The recent burst of the Kickstarter model, traditional box sales and subscription services are all models that are intrinsically more friendly to specialized products.

This means, of course, that freemium and F2P models that work probably have to possess a very broad base of appeal; niche games would be advised to approach these models cautiously.  While there is a natural attraction for a low barrier to entry, this must be balanced against the capability to recoup development costs where an economy of scale does not exist.

Conclusion
While there is no doubt that freemium/F2P models represent a novel approach to games, the relevant word remains “a”; the model has strengths, but it also has weaknesses.

Games with an intrinsically broad base of appeal, whether due to being based on popular intellectual properties or popular styles of game, are best positioned to effectively leverage freemium/F2P models.

Even that, however, is only the first step; once that decision has been made, a game must clearly identify where the value lies and how to maximize the percentage of the game’s player base who might be tempted to pay for that value.

The freemium/F2P model most definitely can work, and work well, but too often this has been achieved accidentally or by trial-and-error.  Canny developers can streamline this by understanding what a player will consider fair value and by maximizing potential customers.  Games offer an unparalleled opportunity to structure what is valuable; developers should take full advantage of this.

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