Free has emerged as a dominant method for generating revenue from digital games, but it is only the beginning...
Gone are the days when the free-to-play, pay-to-progress business model marked a bold new frontier for game developers. Today it is very much a norm in the mobile and online spaces, and revenue generation through in-game transactions is an established way to turn a newly releaed product into a breadwinner.
Releases such as Tiny Tower, meanwhile, have proved that free-to-play games can charm the tech industries’ trendsetting hegemony.
And according to market research firm Distimo, while only four per cent of titles in the iOS App Store feature an in-app purchasing business model, 72 per cent of revenue generated in that market comes from consumers paying for in-app items.
The waters of free-to-play have not completely settled, however. While different payment platforms and new monetisation mechanics jostle for developer’s attention, free has a long way to go in the console space, and in-game advertising models still offer viable alternatives.
Distribution platforms like Steam, OnLive and Facebook all have their own proprietary systems for making cash from digital content, while the average selling price of games on app stores is tumbling.
“Free-to-play is a very innovative model but is really the first step in a line of finding interesting ways of monetising games,” says Games Analytics CEO Chris Wright.
“People like to be given the choice on how to play and what to spend money on. As games become increasingly service based it will be the service that is valuable, game developers will need to entertain their customers and build games that they want.”
That considered, studios hoping to thrive will also need to respect players, giving them a range of options and incentivising them to keep playing.
Aggressive monetisation seen in compulsion loop games like Tiny Tower can be off-putting to many players, and rigid in-game purchasing mechanics can limit the credibility and creativity of even the most well-intended titles.
That need to remain flexible may see hybrid models emerge combining elements from subscription, freemium and upfront payment approaches, meaning there is still plenty of life in the traditional ‘premium model’.
“Free-to-play with in-app-purchasing is here to stay, but success lies in the balancing and the implementation of details that increase player retention and morale at a time where many publishers ravage their respective communities by monetising too aggressively,” suggests Michael Schade, CEO of Galaxy on Fire 2 HD studio Fishlabs.
“Personally, I feel that premium won’t go away anytime soon,” he adds.
“In my opinion it is more than a mere business model, but a core feature that differentiates your product from the vast majority of free-to-play titles.”
Despite this, Schade concedes that it will be necessary to look for ways to redefine the premium proposition in the future.
“So far, the term premium has been strongly associated with the pay-per-download model,” says the Fishlabs boss. “But for the future it might also make sense to look outside the box and combine the premium model with certain aspects of the current free-to-play market.”
Other developments in the space seek to improve the conventional free-to-play model by reducing the friction of in-game purchases. BoxPAY is a company committed to the idea that enabling mobile phone payments will define the future of free.
“One-touch billing, and in-app billing are some of the most exciting developments on the horizon, and you can already see it happening on the Android platform,”
insists BoxPAY co-founder Iain McConnon , who believes that one-click billing must replace SMS pin entry as a payment option for mobile.
“This makes the integration into the gamer user-experience almost seamless and will most certainly increase transactions and generate more revenue,” he claims.
Certainly, with the proliferation of mobile phone ownership in some of the games industry’s most promising emerging markets, solutions like that provided by BoxPAY become increasingly interesting.
Another consideration is that of the long-predicted advent of platform convergence. As the power of mobile and tablet devices knocks on the door of home consoles, and publishers of boxed games scramble to reinvent their business models, revenue models that straddle devices may emerge as the most dominant in the near future.
“A cross-platform approach to monetisation is one that we believe is – and will be – of increasing importance and have chosen to adopt ourselves,” says Projjol Banerjea, director of marketing at SponsorPay, which offers an advertising solution for the monetisation of premium content or virtual currency.
“Our goal is to make our services both easily accessible and convenient to use for our customers, regardless of domain, platform or device.”
Certainly, services like SponsorPay’s and BoxPAY’s, which offer something a bit different from the typical free-to-play model, have huge potential to adapt to a world where console games generate revenue without relying exclusively on the point-of-purchase model.
That convergence could even trigger a global standardisation of payment methods, technologies and models, as developers working on multiple platforms need a system that is workable regardless of the different OS’s.
As titles like CCP’s EVE Online expand to mobile and console, there is little doubt payment solution providers need to act fast to prevent the foundation of massively complex business models that have the potential to bewilder the consumer and developer alike.
The transition to these new methods of making money is already testing traditional developers and publishers, who have to compete with the runaway success of more youthful, agile studios such as Zynga and Mojang Specifications. The latter of which has made a fortune from charging an upfront fee for an unfinished product.
There are challenges too, however, for the new school of digital content developers, who are all faced with walking the hair-thin line of balanced in-game monetisation.
“The technology that allows such steps forward can also have potential difficulties,” warns Jonathan Mabey of ecommerce platform holder Gate2Shop.
“In a way, innovations take care of themselves, because that’s creative and human nature.
“However, the payment technology has to work in the end, and that needs constant attention, especially risk management and fraud prevention. We need to find the balance between the best flexibility for a player, while maintaining the prudence and security expected from us by the vendor.”
In the wake of widely reported events like the PSN hacking scandal that shook consumer confidence, the issues Mabey touches on are increasingly important, not least because the developers themselves can become as much a victim as the consumers.
“We advise our customers to make sure they don’t internalise sensitive processes like storing payment data,” offers Martin Ott, chief executive of payment system and digital wallet specialist Skrill.
“The recent attacks have highlighted that a lot of hackers target gaming companies in particular, due to their active large databases. While developers and publishers can’t really stop themselves from being targeted they can make sure that hackers come out empty handed.”
And, if that weren’t enough to worry about, there is also the significant matter of consumer fraud, and before that, the very real problem of making any money at all.
“One of the biggest challenges of the free-to-play model in games is the lack of initial investment from the user resulting in high attrition,” asserts Banerjea.
“When paired with the vast number of options available in the market, it presents a formidable challenge to developers and publishers who are consistently battling to either secure user attention or to retain it. The big hurdle is to secure sufficiently high investment from the user – either monetary or temporal or emotional, or a combination of these – to prevent him or her from moving on to another game.”
Yet despite the challenges, the potential is huge. As new platforms and models emerge, the market today may be unrecognisable in the next decade.
As the kinds of games played evolves, so does the way those games make money. If there is a general consensus between those at the heart of the payments sector and the developers looking at new ways of generating profits, it is that diversity and flexibility is key. The more ways to pay and play means a far greater opportunity for success, both critically and commercially.
The onus of revenue generation still falls on games developers, despite the current range of payment service providers and monetisation models on offer these days.
That means a delicate balancing of creativity and business nous, and the confidence to contradict the most popular business models.
“Think of ways to reach out to as many players as possible and how to convert non-paying members of your community into paying members over time,” offers Fishlabs CEO Michael Schade. “But also think different.
“Free-to-play with in-app-purchase might not be an equally successful solution for all developers alike. Before you blindly copy your competitor’s business model, your team should take the time to analyse your IPs and evaluate their chances on the market.”
Schade suggests that in certain cases it might even make sense to do the opposite of what your competition does.
“Take Fishlabs, for example. Despite the fact that most other titles are either released in the 99 cent category right away or leave the premium price range rather quickly, we have been able to offer Galaxy on Fire 2 on the App Store for $9.99 over a period of almost one year. And the game is still very popular and gaining good profits.”
Free, it would seem, is far from the be all and end all of new game monetisation models.
“It's often suggested that running a profitable virtual currency game is about employing clandestine physiological tricks to extract money from players – that they're nothing more than a Skinner Box with credit card details.
“Coming from product game developers this is hypocrisy. Games have always been judged on their ability to encourage return play, from the arcades to the 100-plus hour RPG. We as an industry have, intentionally or otherwise, evolved to build complex systems of effort and reward which, like a film, a book or any other artwork, invoke emotions that keep us engaged with them. When they don't do that, they have failed.
“What virtual currency and freemium models change is who pays and how much they pay. No longer is everyone splashing £40 for games that they don't finish. Instead the deal is that the game is free forever, but you can progress a lot quicker or get a nice hat if you pay a few quid. The game is the marketing for the virtual currency product.
“The big fans who play and love the game, pay big bucks and bring more players to the party. Those that think your games suck, leave with a full wallet. If those paying players are fully aware of their spend and aren't children, that seems a better deal for all.”
When Facebook made its ‘Credits’ virtual currency mandatory for developers in July, it proved a controversial decision.
Ultimately, it guaranteed Facebook 30 per cent of all the revenues of the games that offered the likes of microtransactions on the all-powerful social network.
What’s more, it muscled out proprietary or external payment systems.
Still, the revenue split is more generous than that offered by OnLive which takes a 40 per cent cut, and provides studios with a payment backend maintained by one of the world’s largest and most established online outfits. It also arguably encourages players who have the universal Facebook Credits in their wallet to look to games beyond the chart-toppers produced by Zynga and its closest rivals.
Facebook insists that its Credits have been conceived to help developers generate revenue and allow them to focus their energy on creating games.
“With over 1,000 games and apps and over 500 developers globally using Facebook Credits, they provide the easiest way for people to buy virtual goods and services on Facebook,” a spokesperson for the social networking giant told Develop.
“Credits provide people with a familiar and consistent payment experience and a trusted place to store payment information.”
The social network is today investing in new ways to pay for and earn Credits, giving developers additional methods to increase their revenue and become successful in the online space.
“This means developers can focus on what they do best – building great games and applications,” insisted the spokesperson.
Facebook Credits certainly have their fans in the developer community. French studio Kobojo has seen a 20 per cent revenue increase after implementing Facebook Credits across its games Pyramidville, Goobox and RobotZ among others.
The developer now courts the attention of more than four million monthly active users and has made around $7.75 million to date. That success, according to Facebook, is a reflection of the potential of its Credits system.
BoxPAY is a global company whose platform offers video game developers a self-service mobile payments solution, which promises to deliver a user friendly experience to those that adopt it.
“We offer game developers the ability to charge customers for digital goods, currency, and content through their mobile phone bill, instead of a credit card,” explains BoxPAY co-founder Iain McConnon.
“To begin billing using BoxPAY, a developer simply has to copy the code we provide into their webpage. This creates a payment widget which customers can use to purchase items using only a mobile phone.”
Game developers can sign-up to BoxPAY and begin billing their global customer base on the same day. Consumers, meanwhile, only require ten seconds to complete a transaction, and the only information a user has to provide is a mobile phone number.
“BoxPAY has taken mobile billing a step further and opened up this technology to the masses,” insists McConnon of its potential.
Presented as a democratic solution available to almost any developer active in today’s games industry, the BoxPAY platform also offers in-depth reporting and analytics, where a developer can track its transactions in real-time.
SponsorPay provides developers with an alternative solution to monetising through ‘traditional’ micropayments. In essence, its technology delivers an advertising solution for revenue generation via premium content or virtual currency.
“We enable users of social networks, virtual worlds, mobile apps as well as online games and services to earn virtual currency or access to premium content through participation in targeted advertising offers,” says Sponsorpay’s Director of Marketing Projjol Banerjea.
The most significant difference between SponsorPay’s approach and that of its contemporaries is that the company’s products are targeted at non-paying users, such as those customers who are reluctant to part with real money for virtual goods or premium services.
“We make it possible for publishers to monetise these users who form the dominant percentage of their customer base – usually between 90 and 98 per cent for the average freemium approach – and convert them to paying users,” reveals Banerjea about its advantages.
SponsorPay’s latest product BrandEngage allows the presentation of targeted video and interactive content within the game environment and has been designed to improve user engagement.
As one of Europe's largest online payment systems providers, Skrill is also among the world's largest independent digital wallet providers, and has more than twenty million account holders.
“The digital wallet enables any customer to make online payments conveniently and securely without revealing personal financial data, as well as send and receive money online cost-effectively simply by using an email address,” says chief executive Martin Ott.
Skrill’s worldwide payment network offers businesses access to direct payment processing via over 100 payment options in more than 200 countries and territories through just one integration. That, says its creators, brings a clear time and cost-saving advantage to all merchants wishing to expand their operations throughout the world.
“Our global payment options and the simple one-contract-one-shop integration have been cited as the main reason why a lot of our biggest gaming customers switch from their existing payment providers,” suggests Ott.
Skrill, which recently secured a deal with MineCraft outfit Mojang Specifications, also believes its platform is as applicable to smaller studios looking to widen their global reach as it is for large-scale operations with a wealth of experience.
While not a payment platform provider, Games Analytics still offers a service that could prove extremely useful to those exploring new ways
of generating revenues for them games without adopting the traditional model of payment at initial point of purchase.
In effect it is a complete analytics platform that allows web, social, mobile and online PC developers and publishers to understand player behaviour through data driven insight. Games Analytics purports to improve player satisfaction, revenue, retention and virality.
“We collect and analyse millions of data events within each game to allow games publishers to make informed decisions that will optimise the success of their online games,” explains Games Analytics CEO Chris Wright.
“We also use a number of techniques including behavioural segmentation and predictive modelling to get a much better understanding of how players are using the game on an individual player basis. The key is to treat players as unique individuals and not look at the mass as an amorphous lump.”
The company believes its sweet spot is the free-to-play model, which it says has the best opportunity to monetise the player and many interesting ways of interacting with the playing community.