The casual games industry relies on a few types of income models for its revenue stream. One of the most prevalent business models for the casual games industry is freemium. These are free-to-play games without any upfront cost. The publisher or developer receives an income for their product through in-game purchases. For some games, these purchases don’t do anything to affect gameplay and are purely cosmetic. Other games give gameplay advantages, unlock additional content or provide other features from purchases. Thirty-eight percent of the U.S. population has played a freemium game, according to a report by the NPD Group. Here’s how freemium games work.
The Business Model
The freemium business model doesn’t make its money off of the initial purchase price, like other video game models do. Instead, it provides the basic game to consumers for free. The games are designed to encourage the users to shift from a free user to one who pays for content, either in a single instance to upgrade the game, or through multiple micro-transactions.
A developer predicts income by multiplying monthly active users, conversion rate and average revenue per paying user. The conversion rate depends on the popularity of the game, how enticing the upgrades are, and the price point of the upgrades.
Why Pay?
The freemium game model has become prevalent not because people are chomping at the bit to pay for virtual goods, but because of the low barrier of entry to gaming. With the console gaming industry, the up-front cost for a new, AAA title is $60. PC game pricing is somewhat less expensive, with an average cost of $40-$50 a game, with digital distribution services such as Steam frequently running extensive sales. However, for many people, this is still a lot of money all at once.
Instead of paying that cost up-front, freemium games allow players to get the basic game without putting any money down. You can pick up a hidden object game and enjoy the base game for free. If you really like a game, you can invest money in it. Not only does this allow a user to experience a variety of games without spending hundreds of dollars upfront, it also makes gamers more invested in the games they do spend money on.
Tech Radar reports 40 percent of freemium players end up making a purchase at some point in their casual gaming careers. The revenue from in-game purchases sits at $970 million, but is projected to be in the billions in the next three years.
The Success Rate
The success of a freemium game is measured in both short-term and long-term goals. The short-term goals are building a high active user base, increasing the conversion rate from free to paid users, and getting a good average revenue number from each paying user. The long-term goal is to keep a steady or growing amount of monthly users by increasing the stickiness of the casual game. The stickiness refers to the willingness of a player to continue playing, and hopefully spend money on, a game. New content, expansions and other features help maintain user interest in freemium games.
Have you become a paying gamer after trying a freemium game? Share your thoughts about the model in the comments.