Comments for Business models for digital goods: video games (free-to-play games) Freemium / Premium: The economic system of video-games - Jonathan JEDRASIAK 10 September 2019 Comment awaiting moderation. Virgil Whittemore 2 September 2019 Comment awaiting moderation. Margaux Hermant 27 April 2016 Free-to-play games has become an increasingly way to make money for the video game developers. It implies that gamers can chose either to play for free with a fully functional game or to pay for an upgraded version. It is this latter version that make the model sustainable and profitable. This so-called freemium concept is responsible of a key change…Read moreFree-to-play games has become an increasingly way to make money for the video game developers. It implies that gamers can chose either to play for free with a fully functional game or to pay for an upgraded version. It is this latter version that make the model sustainable and profitable. This so-called freemium concept is responsible of a key change in the business models of the industry. Many games can be took as examples of the success of this model. There are lots of profitable and popular games that are based on the free-to-play model. In this sense, it seems that free-to-play games may lead to high profits coming from a bunch of players. Yet, it may not be the case if the the developers do not succeed in turning some users into premium users. (1) And even if this model currently seems to work very well , it has also raised some criticism. (2) Many of them are related to the aggressive monetization that it sometimes implies and in wich extent paying for the upgrated version gives a competing advantage to those players. We can ask ourselves whether freemium strategies are more fitted for well established game developers or rather for new entrants in the industry. We could think that it is more interesting for this latest group as they do not have any fans yet. In this sense, making the game free to access will certainly attract a lot of gamers and some of them will pay for the upgraded version latter. But we could think the other way around : by setting the game free, the game developers already established will be able to attract the non-consumers and thus, to expand their user base. What’s interesting to notice is the fact that it’s not the same for game developers to design a F2P game or to design a game relying on traditional business model. In traditional games, the only concern of designers is to entertain the gamers whereas in F2P model, they have to work on both the entertainment and the monetization. (3) In fact, with the F2P model, this monetization stage is at the end of the process. For consumers, it is optional to pay. (4) References (1) http://gamerant.com/free-to-play-games-profits-statistics/ (2) http://www.digra.org/wp-content/uploads/digital-library/nordicdigra2014_submission_8.pdf (3) http://www.gamasutra.com/view/feature/6552/the_design_of_freetoplay_games_.php?print=1 (4) http://poseidon01.ssrn.com/delivery.php?ID=698078116086093103085093105102081096030023066052042011074116103014073068004020109026016061018004029042019072115117074088093066027080023029039097064008117030029089019001081121079064002025085115084031112006075092000098112092018011096087028028113005106&EXT=pdf Show less Reply Julien De Mesmaeker 27 April 2016 It is certain that free-to-play games have a bright future to come. Indeed, developers take advantage on the tremendous development of online playing and smartphones (that allow people to be in permanent touch with the game) to attract as many consumers as possible and thus increase the user base. When users of paying games will prospect for different games, will…Read moreIt is certain that free-to-play games have a bright future to come. Indeed, developers take advantage on the tremendous development of online playing and smartphones (that allow people to be in permanent touch with the game) to attract as many consumers as possible and thus increase the user base. When users of paying games will prospect for different games, will read articles to know about them to balance whether it is or not worth to pay for and will finally compare all possible prices, free-to-play games’ users won’t bother with all these “pre-consumption” steps and avoid many search costs. It actually takes much less efforts (and money) for users to try a free game than investigating in buying or not a paying one. Thereby, free-to-pay games will quite easily achieve a consumer base and people will first experiment the game –freely-, attract others to play with them and in best scenario (for game developers) being addict. Then, these convinced players won’t mind much on paying few euros to upgrade their experience and beat others, as they didn’t have to pay nothing at the beginning. More they will play, more they will have incentives to spend more money on the games, when with paying games they pay what we could call an “entry cost” and won’t care afterwards. By taking down the barrier of entry, many consumers of free-to-play games try out the game, and even if many of them won’t come back it stills exist a few of them (called “whales”) that will ensure the revenue of the game. It represents only 0.22% of consumers that are responsible of 46% of the revenues. (1) Another important thing to point out is that free-to-play games don’t have to worry about video games piracy that is growing more and more these last years (2). However, despite all these positive aspects of free-to-play gaming, it is not that simple and negative points exist as well. In fact, not every game would survive in a free-to-play model like Diablo III demonstrates very well. As shown in an article (3), “Diablo III created an f2p mentality for a game that was never f2p to begin with, […]”. Indeed, a community was already existing thanks to the previous Diablo games and adopting a free-to-play model had many more impacts than just changing the pricing of the game. Actually, it completely changed the way players deal with the game, as before everyone had to collect gold (the root of the game) for many hours, when it is now much easier by allowing them to pay few euros to get some. The perception of the game changed as well, regular players accusing the developers to make it free but with much less content and a weaker experience of gaming. It could be noted that this problem appears also now in paying games with DLC, but it is another discussion. To conclude, I would say that free-to-play games are a part of the future of the video game industry as more and more developers choose that strategy, but paying games will –and always will- exist in an important number. It can be explained by the fact that changing the pricing of a game isn’t a simple financial change but a real disruption in the gaming experience. Making a game free-to-play or paying is a choice that defines the game itself. (1) http://gamerant.com/free-to-play-games-profits-statistics/ (2) http://gearnuke.com/video-game-piracy-rise-will-cost-industry-much-makes/# (3) http://www.tor.com/2013/08/09/gaming-roundup-whats-wrong-with-free-to-play/ Show less Reply Jérémy Gandin 27 April 2016 As we can see, the video game has taken a place as a screen entertainment such as series/films for video gamers “PC games are so popular they can also make money from live events. Live gaming competitions have become huge: over 32M people watched the League of Legends (ed: which is a free-to-play game) championship this year, almost double the…Read moreAs we can see, the video game has taken a place as a screen entertainment such as series/films for video gamers “PC games are so popular they can also make money from live events. Live gaming competitions have become huge: over 32M people watched the League of Legends (ed: which is a free-to-play game) championship this year, almost double the number of people who watched the NBA finals.” (1) Moreover, we can see that this business model works. Indeed, according to this article, free-to-play MMOs generated more than half of all PC gaming revenues in 2015 ($17 billion) and the list of top 10 PC games by revenue was also prevail by free-to-play titles, with games like League of Legends and World of Tanks or Asian games like CrossFire and Dungeon Fighter Online. (2) Games that are free-to-play such as League of Legends and Dota 2 expends their activity in an entertainment and ESport market with live events such as World championship that take place in stadiums and are broadcast online. (3) The free-to-play strategy influenced game as a service approach and gave another vision of the way the industry sells content. It even also influenced some other pay-to-play titles that incorporated microtransactions in their model. (4) Most of the website I read say that, in the future, free-to-play games won’t vanish or take the place of other games. It is more likely that the business models will live alongside with the others waiting for another business model to appear. In my opinion, free-to-play game are strong in the way that they retain players and make them addicted by proposing always new contents. I don’t think they will disappear. Finally, a point we didn’t talk in this article is the growing mobile application market on Android and Apple. Lots of application have the same business strategy model as the F2P: freemium. Indeed, you have a free access (such as the famous “Candy Crush” by King) to the application but can also buy premium content in order to progressing faster in the game or buy for hiding the ads. We can also call those free mobile application “ad-driven games” As this article says, they talk about new technologies in the video game industry such as Virtual reality. In general, the developments costs of new games or new consoles costs millions. We may wonder whether the free-to-play model will have its place in Next-gen hardware, such as VR headsets, and software, such as cloud-based services? (or new independent games working with console platforms and other communities) (5) It is even said that console game developers will provide more support for free-to play games an example is the “Smite” F2P game that is already available on Xbox One. (6) (1) https://medium.com/software-is-eating-the-world/lessons-from-the-pc-video-game-industry-3350bb7713de#.mb9dw0tu6 (2) http://arstechnica.com/gaming/2016/01/dont-look-now-but-the-pc-is-the-worlds-biggest-gaming-platform/ (3) http://www.tweaktown.com/articles/7150/free-play-gaming-sustainable-ecosystem/index.html (4) https://newzoo.com/insights/articles/putting-the-video-back-into-video-games-how-games-are-shaping-the-future-of-broadcast-and-digital-media/ (5) http://www.investopedia.com/articles/investing/053115/how-video-game-industry-changing.asp (6) http://www.internap.com/2014/12/01/top-five-online-gaming-industry-trends-2015/ Show less Reply Van Lil Thomas 27 April 2016 The question which is appealing to us is to know whether free-to-play is the future of the video game industry or not. Indeed, there are some factors that can influence positively and some that can influence negatively the success of a freemium strategy in the video game industry. In order to answer this question, I will describe these different…Read moreThe question which is appealing to us is to know whether free-to-play is the future of the video game industry or not. Indeed, there are some factors that can influence positively and some that can influence negatively the success of a freemium strategy in the video game industry. In order to answer this question, I will describe these different factors. In particular, factors that are not described in the article. In the first time I will describe the positive elements and secondly the negative elements. First, an element which can have a positive influence is the fact that the premium contents can be obtained by microtransactions, it means little by little. Thanks to that, the clients pays almost all their willingness to pay because it is a menu pricing as said in the article and they can approach their maximum easier than if there was a small amount of offers. They can buy little by little until they reach (almost) their maximum willingness to pay. In addition to this, the free-to-play games are generally free thanks to the advertising present in the game. Especially for the games on smartphones and tablets. This advertising remunerates the producers in addition to the sales of premium contents. It is a huge source of remuneration. Moreover, it is possible to make advertising for other games of your company if you have ones. It is not rare to see that, for example Zynga with its games FarmVille, FrontierVille, CityVille, … It should be noted that they ask also sometimes to play another game of the company to gain something in the current game. Moreover, we can say that these kind of games play on the feeling of the players. They try to force the customers to buy and they can do it by playing on the impulses purchases for example. A real concrete example is present in the game Team Fortress 2, in this game when you get killed by another player, you see what the weapon of your opponent was. So it can create the envy to purchase this weapon to be stronger and kill the others like your opponent. Of course, generally these weapons are payables in real money. Another example can be the fact that some equipment, weapons, design are only available for a small period like the Halloween skins available only during 1 week for instance. (1) Furthermore, thanks to the big data the companies have now new possibilities to collect information on the way we like to play games, what kind of games, … When we play a free-to-play game we help the companies to create an online database of who we are and of course they can sell these data’s to other companies and so earn even more money. In addition to this, they can also know more precisely what we want and so develop the appropriate games and earn more money too. It is overall the case for the games on Facebook. (2) Finally, as written in the article, a key element for the free-to-play game’s producers is the conversion rate. A trick used by some companies to raise this rate is to “hire” influencers. For example, in the game FIFA of EA Sports we can buy packs to obtain cards of players to play FIFA Ultimate Team (a special way of playing). We can buy these packs by using money of the game or real money. What FIFA does is that they offer some special/rare cards and credits to some Youtubers. They do that surely to give the envy to the viewers of these Youtubers to buy packs too in order to obtain the special cards. Let’s now move to the bad elements. Firstly, a thing that we can observe currently is that there is still a demand for non-free games. Some games only have an offline part and so it is not possible to make it free but there is still a large demand for some games. It means that this kind of games are not dead and we can imagine that it would stay the same in the future. So the free-to-play game are not the only games of the future. Moreover, some non-free games sell complement elements like for example FIFA with Ultimate Team. So it means that it is no mandatory to make the games free to sell premium complements and earn money. Of course, it works only for well-established games like FIFA. Lastly, a huge disadvantage of the freemium games are the fact that sometimes it becomes “pay-to-win” games because they offer equipment, weapons, boost that are too powerful and you have to pay to win. It is something that can have an enormous impact on the players. It can discourages some players to play because they know perfectly that it is not possible to be the best without spending money. Therefore, the producers need to pay attention to this point to avoid losing too many customers. In conclusion, we can observe that there are plenty of interesting aspects for the free-to-play/freemium games. So it is surely why there are so many games like that in our current society and that it works. However, we cannot be sure that it would stay the same in the future. References: (1) http://www.gamesindustry.biz/articles/2012-08-25-how-to-monetize-of-free-to-play-games (2) http://toucharcade.com/2015/09/16/we-own-you-confessions-of-a-free-to-play-producer/ Show less Reply Tombal Martin 27 April 2016 The free-to-play gaming model is becoming more and more present today thanks to the advent of the I-pad and the Iphone. Many people are playing small free to play games on their smartphones and tablets (Clash of Clans, Age of Kings, …), and the community of this kind of games is becoming larger every day. Whatever some people might say, free…Read moreThe free-to-play gaming model is becoming more and more present today thanks to the advent of the I-pad and the Iphone. Many people are playing small free to play games on their smartphones and tablets (Clash of Clans, Age of Kings, …), and the community of this kind of games is becoming larger every day. Whatever some people might say, free to play have some indisputable advantages. Players that are playing the game on their own, without facing other players usually have a good playing experience. In a freemium model, the difficulty for the non-paying users is to face paying users, not the non-player character (NPC). The NPC’s will of course be easier to beat for paying users, but will still be in the reach of free players, allowing them to enjoy a good gaming time. The pay-to-entertain model is a lot more powerful than we might think at first sight. It allows every gamers to enjoy the same experience, and does not frustrate any non-paying users. Here only gaming skills will make the difference. So why would people pay only for aesthetical features? Because usually those features are not expensive at all, and because the players did not pay for the game in the first place, they usually are ready to help the developers by buying those accessories. It also helps makes their experience funnier, and helps them to stand out “physically” in the game. Finally some companies use the free to play model until a certain level of play. For example World of Warcraft (Blizzard), is free until level 20 (out of 90). It allows gamers to test the game with the same content as paying users and enjoy the game up to a certain point. Once they have reached level 20 if they want to keep on playing they will have to pay. Because we know that testing is today an important feature, in most of products, free to play can with this kind of use be really helpful because it does not frustrate the gamer, by making him face very strong paying players, but he will still have to pay in the end if he wants to enjoy full gaming experience. So it seems like free to play has a bright future ahead of him. However it is, according to me, not true for every free to play model. I have identified 4 models, and tried to predict how the future is going to be for those models. First, the pay-to-win system. We usually find this model on Iphone and Ipad games as for example Clash of Clans. Here, the idea is the more you buy the strongest you get. Spending real money will help you grow faster, unlock special powers, etc. All of this in order to become the strongest player. The problem with this model is that it seems like it never ends, and players could spend tremendous amount of money without even noticing it, just in order to win. Non-paying or small paying users will quickly see that, if they do not start opening their wallets, they don’t stand a chance, so they will usually just withdraw of the game. In the long term, only a few players will stay on the game, the network effect will be then so small than everybody will leave the game. The second model is the free-to-play with subscription. In this kind of game (for example : Star Wars The Old Republic from EA), there are two kinds of players. The non-paying user can enjoy a great gaming experience with almost all of the content available for him. The subscribed player has access to all the content, and there are no other differentiation between subscribed players. For the free users, only some restrictions in term of money and equipment are present. The restrictions does not interfere with the stand alone experience. It will only starts being limiting in what is called the end game content. The end game content is the part of the game, when the player has reached the maximum level. Than he starts to try to unlock the best pieces of equipment to make his character better. The problem for non-paying users is that usually those kind of equipment are in the restricted area, meaning there is almost no end game content for them. Still I believe this model can work in the future because it does not create frustration among the gamers community. The third model is almost like the previous one except, that given the right amount of time, the whole content is available for non-subscripted players. What I mean here, is that all the players will have access to the whole game, except it will go much faster for paying user than for non-paying users. Paying players will have an advantage on the short term, because they will progress faster, but with time, they will get caught up by non-subscripted users. I find this model really interesting and promising, because, you will have two kind of players. First the people who don’t really have a lot of time to play, but still want to enjoy full experience. Those will pay the subscription in order to enjoy maximum gaming experience in a short amount of time. Second the people who have the time to play a lot. Those will not pay the subscription and will take the time need to catch up with the others. An example of this kind of model is The Lord of the Rings online (Warner Bros game). Finally, the purely aesthetical model. I already discussed it earlier. It has for me a lot of potential, because, gamers can enjoy a full gaming experience without having to spend a penny. But in order to help the developers, and because it is not that expensive, they will buy some aesthetical features. Show less Reply Paul Belleflamme 27 April 2016 Nice comparison of different models. Quévy Victor 27 April 2016 The freemium games invade more and more the market and the success is skyrockets. As a proof of this, a statistic : a mere 0.23% of free-to-play game players are responsible for 60% of all in-app gaming revenue, according to a report produced by mobile marketing specialists SwrvAnd moreover (1). Moreover this concept is had been expanded to other…Read moreThe freemium games invade more and more the market and the success is skyrockets. As a proof of this, a statistic : a mere 0.23% of free-to-play game players are responsible for 60% of all in-app gaming revenue, according to a report produced by mobile marketing specialists SwrvAnd moreover (1). Moreover this concept is had been expanded to other goods. Indeed, it becomes more and more usual to propose a free service and charge fees if the consumer wants to access to the next level and some companies use this strategy : linkedin, dropbox, hulu and so on. The consumers will be tempted to try the game because it is free so many consumers will try the game. And more there are consumers more they will enjoy the game and more they will be ready to pay for it. Freemium games make thus advertising but don’t spend money for it. Indeed the monthly subscription fees typically charged are proving to be a more sustainable source of revenue than the advertising model prevalent among online firms in the early 2000s. (2). When you buy a video game (in general around 60$) you will make research before because it is expensive, and once you buy it is too late : you play or not but you forget the price. This is the opposite for play-for-free games : you don’t make research at first, you try the game and after you will always be tempting to spend money. Some people can spend thousands of dollars just to purchase new champions, skins and influence-points boots (3). Why ? Because the second factor the most important after the money is the time. As said in the article, you will spend money to improve your character if the game had been launched for many years in order to compete with the best players of the platform almost directly. But you will spend money too also if you like to play with friends who play more than you. The reason is that you will not have the time to be as good as them but you have the money and you will be tempted to spend it. The firms transform a finite good (time) into an almost infinite good (money). But if the game is a solo game ? I am not sure that people will pay to be better because all is a matter of competition and play at the same level as your friends. Another important factor is the frustration. If you are frustrated with one thing, if you can’t do something, there will always be a way : spend money. In order to achieve this purpose, the developers invest a big part of the revenues obtained by the micropayments in the game. This way, the game will be more and more enjoyable and the consumers could decrease the frustrations (4). I think it could be a problem for the people who want to improve their self naturally and who will be frustrated to lose against people who “buy their success”. The consumers that can go as far as they want, the possibility to play without pay a penny, the possibility to model the game as you want are really good things for the consumer. But there is also a negative point : when you become a premium player, you will pay and automatically, the firm has access to your private data and in such a way, the firms owns you. Indeed they will know where you live, what you like to buy and so on. That presents a problem in matter of life privacy (5). In conclusion I think the future of the freemium games will be growing up for many years because if people spend money, they are happy and if they are happy they will continue to play. But some people will not accept to lose because they have less money and this success will be available only for a certain category of games. Moreover the developers have to be mindful of different things. Firstly, they have to be sure that things people can buy have a lot of value in order to avoid frustrations. Secondly, they have to provide a long-term game because if people spend hundreds of dollars they expect to enjoy the game many years. Thirdly, they have to provide a real plus for the premium users but not neglect the free users because they are important for the strategy as explained in the article. Finally, the people will try the game without making any research because it is free and some people have planned to play a few just to test the game. So the game must be enjoyable directly and must be easy to pick up and play in order to persuade the consumer as fast as possible. (1) http://www.businessofapps.com/60-of-of-free-to-play-gaming-revenue-comes-from-just-0-23-of-players/ (2) https://hbr.org/2014/05/making-freemium-work (3) http://uk.businessinsider.com/redditors-explain-how-they-spent-thousands-of-dollars-league-of-legends-2015-3?r=US&IR=T (4) http://uk.businessinsider.com/sean-plott-explains-why-he-thinks-freemium-games-are-the-best-business-model-for-both-players-and-developers-2015-3?r=US&IR=T (5) http://www.digitaltrends.com/gaming/freemium-games-exposed/ Show less Reply Dirk Auer 26 April 2016 In her original post, Mrs. Scholz highlights two broad strategies that video game companies can use in order to successfully monetize “free-to-play” games. The first is to use a “freemium” strategy (i.e. price discrimination) to draw low value users who generate positive network effects and high value users who purchase content (and also generate network effects). The second is to…Read moreIn her original post, Mrs. Scholz highlights two broad strategies that video game companies can use in order to successfully monetize “free-to-play” games. The first is to use a “freemium” strategy (i.e. price discrimination) to draw low value users who generate positive network effects and high value users who purchase content (and also generate network effects). The second is to sell games “as a service”, which notably serves to avoid the Coase conjecture. In my post, I would like to add two further strategies, both of which stem from the works of the late Ronald Coase (whom Mrs. Scholz mentioned in her post). These considerations apply to both “free-to-play” games and the regular kind. The first strategy is to use rapid product cycles in order to limit the Coase conjecture. In his seminal paper , Coase highlighted three methods to avoid competitive constraints faced by a durable good monopolist. The first two are leasing (one example of this are “video games as a service” which Mrs. Scholz mentioned in her post) and contracts (writing a contract whereby the seller is bound to its initial price). Coase also suggested a third solution: make the good less durable! This latter strategy is a mainstay of the video games industry. Take FIFA, every year a new version is released. Sometimes EA  even sells a second version of the game during World/European cups . For consumers, buying the new version is the only way to have up-to-date teams and players, and the most cutting-edge graphics. FIFA is not alone. Other video game franchises also release a new version of their games on an annual or biennial basis. This is notably the case for games such as Call of Duty ; the Grand Theft Auto franchise (during its peak in the early-mid 2000s) ; and most sports games. These rapid cycles also allow consumers to form expectations about video game pricing. They know from previous years that the price of games will only decrease slightly before the new generation of games is released. Accordingly, they agree to pay the high initial price. Because of this, developers may not find it profitable to set much lower prices after a game has been released. Indeed, doing so could increase the Coase conjecture problem going forward (knowing that prices may decrease substantially in the second period, buyers may not be willing to pay the first period price). As a result, the video game industry’s short release cycles tend to limit Coase conjecture problems. Another factor also tends to limit the Coase conjecture problem in the video game industry – even for those games with much longer release cycles. Video games are cultural goods which often have a relatively short shelf-life. After a while, games become less relevant, their graphics become outdated, and their gameplay innovations are implemented in newer games. The upshot is that most gamers might not be willing to postpone their purchases in order to obtain lower prices. The second strategy is to use what Coase referred to as “payolas” in order to generate additional revenue . Payolas refer to the practice of paying undisclosed sums in order to induce someone to promote/endorse a product . In the radio industry, this historically took the form of music producers paying radio DJs to play music – these were referred to as “plugs” . In the film industry, movie studios often derive significant revenue from product placements . In the video games industry, this could take two very distinct forms: first, game producers might receive payments to promote various products in their games. Alternatively, they might pay critics to give them favorable ratings . Here, I shall focus on the former case. Video games seem to offer an incredibly fertile ground for product placements. This is notably due to the ever-improving graphics of games, which allow for much more detailed/accurate product representations than was previously the case. But do such payments actually occur in practice and, if so, do they represent a significant revenue stream for firms? Games like FIFA display a substantial number of brands in-game. How much revenue this generates is anyone’s guess. EA’s annual reports offer some hints. In 2015, EA generated $362 million of its $4,5 billion revenue from advertising and subscriptions . Though this may not seem like much, it represents a 40% increase compared to the previous year; whereas total revenue only increased by 26% . At an industry-wide level, in-game advertising is also booming. It went from $34 million in 2004 to an estimated $7.2 Billion in 2016 . The upshot, is that in-game advertising probably represents a significant revenue stream for game companies and should continue to do so in the future. This might be encouraged by the imminent transition to Virtual Reality headsets which should make games even more immersive . To summarize, I would add two potential strategies for video game companies (in addition to those highlighted by Mrs. Scholz). First, video game producers can use rapid release cycles to mitigate the Coase conjecture. Second, producers can increasingly generate revenue from additional streams such as advertising. Both these strategies were foreshadowed by the works of Ronald Coase. It is a testament to his vision that Coase’s research is so relevant to the 21st century industry that is video games.  Ronald H Coase, Durability and monopoly, 15 JL & ECON., 143-149 (1972).  EA stands for Electronic Arts; the company that produces the FIFA franchise.  See https://en.wikipedia.org/wiki/FIFA_(video_game_series)  See https://en.wikipedia.org/wiki/Call_of_Duty  See https://en.wikipedia.org/wiki/Grand_Theft_Auto_(series)  Ronald H Coase, Payola in radio and television broadcasting, JOURNAL OF LAW AND ECONOMICS, 269-328 (1979).  I use payola and product placement indistinctly. Though they may face different legal treatment, they seem virtually indistinguishable from an economic standpoint: in both cases you pay someone to tacitly promote your product.  See the Ronald Coase, 1979, for a historical account of such practices. These practices are often referred to in HBO’s new TV series: Vinyl. See http://www.imdb.com/title/tt3186130/.  See notably KERRY SEGRAVE, PRODUCT PLACEMENT IN HOLLYWOOD FILMS: A HISTORY (McFarland. 2004).  This issue was recently highlighted in a Venturebeat article. See http://venturebeat.com/2011/06/24/payola-and-metacritic-in-the-gaming-press/  See Electronic Arts’ 2015 annual report, p. 35, available at http://investor.ea.com/secfiling.cfm?filingID=712515-15-33. The annual report does not mention how this revenue was split between advertising and subscriptions.  Ibid. The same trend also existed in previous years. See Electronic Arts’ 2014 annual report, p. 39, available at http://investor.ea.com/secfiling.cfm?filingID=712515-14-24.  See https://en.wikipedia.org/wiki/In-game_advertising and http://www.forbes.com/sites/insertcoin/2011/09/14/analyst-says-video-game-advertising-will-double-by-2016/#7217112a295f. I could not find overall industry revenue against which to compare the advertising revenue. Though it seems unlikely that overall industry revenue would have grown as fast as the advertising revenue.  See notably http://www.ign.com/articles/2016/02/08/11-most-anticipated-vr-games-of-2016. Show less Reply Paul Belleflamme 27 April 2016 Excellent! Guiot Bertrand 25 April 2016 Introduction Free-to-play games business is changing the game industry. Since their development, users meet « freemium » games everywhere – whether on mobile devices or on video and computer games. As an example, freemium games and their in-app purchases account for about 70-80% of the $10 billion or more in iOS revenue each year. (1) Initially, the first freemium games were…Read moreIntroduction Free-to-play games business is changing the game industry. Since their development, users meet « freemium » games everywhere – whether on mobile devices or on video and computer games. As an example, freemium games and their in-app purchases account for about 70-80% of the $10 billion or more in iOS revenue each year. (1) Initially, the first freemium games were often much lower quality than traditional games. However, and due to its quick grown, Free-to-play game has quickly grown in quality as developers recognized its ability to produce revenue. I think personally that the use of freemium business model is one of the best one as price discrimination model (separation between gamers who have a very low (or zero) willingness to pay and those who are willing to spend their money on in order to get some premium content). Success story I noticed different factors of success by reading this article and several on the net. I’m going to explain here which I think are the key ones. The success story of freemium games is based on the use of transactions called « microtransactions ». Let’s take League of Legends as example. Micropayments allow gamers to create their unique and personal gaming experience: it does so through its micropayments to buy champions (new characters) and skins (new color schemes or appearances of a champion). Spending money just adds customization to the experience, it’s a benefit that many players are more than willing to do. But on the other hand, any person can play League of Legends endlessy without spending a dime. Others factors lead freemium games to success: – The double network effect (as explained by Mrs Scholz in this article). In one hand, the direct one which implies that it is more enjoyable for users to play a game with a larger gamer community. It also creates a competitive spirit for gamers who buy more and more premium content to be the more competitive. On the other hand, we find the indirect network effect where the large user base gives video game developers stronger incentives to develop additional premium content. – The « Flow Theory » factor. This one is defined as « the feeling of being fully immersed in a game not knowing how much time has passed ». Instead of spending money up front, the currency gamers are spending is their time. « Flow theory can be defined as a state of positive immersion in an activity. Its components are full absorption in that activity, clear goals, a high degree of concentration, and a distorted sense of time ». (2) – Huge switching costs. In fact, after having spent so much time in a game and after having customised their game for a long time, gamers are less likely to switch to another competing game. What’s going next ? Developers have to keep in mind that the video game industry evolves overtime. Active now for a decade in the industry, freemium games have to be updated regularly in order to fit with gamers’ preferences. Moreover, even if your game is able to get its moment on the storefront it can be a struggle to effectively monetize once it’s installed. In order to resolve this, developers have to be aware that gamers are now educated in the subtleties of freemium games and they won’t be as easily duped or soothed into parting with their money. Furthermore, different players are showing the weaknesses and inadequacies of such game models. It’s the case of South Park, the famous American tv-show, that famously skewered the concept of freemium games as a « money grab that preys on addicts and leads to boring games. » (3) As a conclusion and in my opinion, I think that freemium games’ developers should care about the fact that the success of freemium games is due to users initially came to play for free. They should keep on offering the main content for free and not too much as microtransactions in order to keep a high userbase and conversion rate. Monetize their games can pass through a higher use of in-game ads. In fact, a new category of « view-to-play » games (« broadly accessible gameplay with a natural integration and rewarding ad-based monetisation ») (4) is coming in front of the industry. However, they have to keep in mind that these ads need to be presented in a way that keep both users and advertisers happy. References (1) http://uk.businessinsider.com/sean-plott-explains-why-he-thinks-freemium-games-are-the-best-business-model-for-both-players-and-developers-2015-3?r=US&IR=T (2) http://www.gamesindustry.biz/articles/2012-08-25-how-to-monetize-of-free-to-play-games (3) http://mashable.com/2014/11/06/south-park-freemium-games/#X_OxrA7NVEq8 (4) http://www.gamesindustry.biz/articles/2015-07-28-how-intelligent-in-game-ads-can-change-free-to-play http://electronics.howstuffworks.com/free-to-play-games-make-money.htm https://gigaom.com/2013/12/20/2013-was-the-year-of-freemium-games-but-2014-may-not-be/ http://gamerant.com/free-to-play-games-changing-gaming-industry/ http://www.wired.co.uk/news/archive/2012-03/29/free-to-play-lessons http://www.develop-online.net/news/candy-crush-creator-free-to-play-is-not-a-sustainable-business-model-on-vr/0219111 http://www.digitaltrends.com/gaming/freemium-games-exposed/ http://www.developereconomics.com/freemium-apps-killing-game-developers/ http://www.geek.com/games/will-the-future-of-gaming-be-free-to-play-1620348/ Show less Reply Rafaël Vansteenberghe 23 April 2016 The freemium gaming model is for sure well successful today. The model has mainly gained its popularity thanks to League Of Legends (LoL). At that time (2009), the market of online video game was dominated by a few games such as Counter Strike : Source, Defense of the Ancients or the well-known -and most successful - World of Warcraft (WoW).…Read moreThe freemium gaming model is for sure well successful today. The model has mainly gained its popularity thanks to League Of Legends (LoL). At that time (2009), the market of online video game was dominated by a few games such as Counter Strike : Source, Defense of the Ancients or the well-known -and most successful – World of Warcraft (WoW). These games were all paid games (a fee was required when purchasing or monthly) and LoL was an interesting and good quality alternative for all gamers who wanted to play online with friends but could not afford a 12,50 € monthly fee for WoW, for example. We already know the success story of LoL: with 27 millions of active players every day, Riot Games has well understood what the demand of the market was at that time and how to enjoy the positive network effects by creating buzz and even organizing World Championship in stadiums that are usually dedicated to famous rock bands. A lot of free-to-play games trying to surf on this success have appeared these lasts years. Why? First of all, it is a good way for developers to fight against piracy. Indeed, if the game is free, there is no point in downloading a slightly deteriorated pirated version. Besides, producers have seen with LoL that the freemium model is actually viable (and even profitable!). They know that they will still be able to produce good-quality games with this model and LoL is not the only example of free-to-play games having graphic and gameplay qualities: SMITE, Aion, DOTA 2, … One of the most important other factors is that the free-to-play model corresponds well to today consumers’ tastes and society in general. With smartphones, tablets,… we generally enjoy playing a small video game quickly when waiting in a queue or attending a boring mathematics course and, of course, we are not ready to pay a lot for this kind of games  that we will probably forget one month later when the new ephemeral “Flappy Birds” appears. These games are the best answer to our needs and it probably slightly changes our tastes  as we get used to a “culture of free”. There are finally two other factors contributing to success of F2P. The first one is that some players are ready to pay more than they would if the game was not free. With a paid game, you will spend 50 € when acquiring or 10 € per month and enjoy it forever where players of freemium are sometimes ready to spend much more than these amounts because of the competition effects (told above in the article) or because of the addiction effects. That is the last factor: addiction. Free-to-play games are for the moment based mainly on the same gaming genres: massively multiplayer online role-playing game (MMORPG-such as Star Wars: The Old Republic), Multiplayer Online Battle Arena (MOBA-such as LoL) or puzzle games (such as Candy Crush Saga and other smartphone games). All these genres are based on very repetitive gaming schemes such as farming, “battle arena of the day” or cumulative prizes for every day connections. So, is free-to-play the future of the video game industry? As said earlier, this model is well adapted to smartphones and tablets and, in that case, the freemium model will probably subsist. However, I personally think that the model is also dependent on trends. The fact is that gamers are for the moment attracted by MOBA and MMORPG, which are online gaming genres well adapted to free-to-play. Nevertheless, we know that other game series such as The Elder Scrolls: Skyrim, The Witcher, Grand Theft Auto, FIFA,… are also well successful and are not online (except for FIFA, but it doesn’t include micro transactions). In these cases, developers cannot enjoy competition or network effects anymore and have to find revenues thanks to the old model (or a new one). Besides, these games are, in average, more expensive to develop than free MOBA or puzzles which are repetitive and so cheaper to produce, compared to the huge playing map of Skyrim for example (in this list , you can see that the most expensive games are not free-to-play, except for Star Wars : The Old Republic, which was not meant to be F2P at the beginning). Finally, another argument against freemium is that in-game purchasing requests are not always appreciated by gamers, especially when it harms the gaming experience or when it disturbs the balance between different characters in the case of pay-to-win. With these arguments, I personally think that the gaming industry and demand will in the future be split in two. The first side will answer the needs of casual and “financially weak” gamers, providing smaller games more adapted to their needs on platforms such as tablets, PC or smartphones. The other side is answering the needs of “passionate” gamers with expensive productions and its future is more blurred. These gamers have more willingness to pay than the others and will probably not replace their console for a mobile device as they are expecting excellent graphics, gameplays, … that only specially dedicated consoles can offer. However, developers will probably have to face democratization of prices because of the change of culture. So, this side of the market will probably have to focus on core business and their future will depend on the capacity of the developers to find new ways of profits in an industry where things are moving really quickly and where “F2P friendly” gaming genres such as MOBA will maybe become out of trend because of a new competitor (Online ? Platform ? Solo adventure ?), where in-game transactions are not possible. I personally think that these developers will offer cheaper but not free games in the future to better answer their customers’ expectations but still keep freedom in the gaming genre. So, we will probably see a few new business models appear in the coming years. An example of failure of F2P new business model : A few years ago, a project of new console (OUYA) was launched and its main argument was to offer an entire catalog of free games: it was so a new business model, less based on micro transactions but more on one purchase (less than 100 €), which was trying to lead the free-to-play trend to console gamers and not only pc gamers. However, the project was a huge failure  because the console was not keeping its promises of “all free gaming experience”. An example of new business model : The Steam platform has already slightly changed the business model of many games by offering cheaper (but still not free!) big production games to consumers but only by downloading. With this platform, developers have found a way to fight against piracy (unique keys and online accounts that you cannot hack, …) and to save money on hardware, CD’s or packaging. References :  http://www.riotgames.com/our-games http://www.bain.com/Images/2012-11-15%20AVIGNON%20REPORT%20Seven%20years%20age%20of%20reason.pdf  https://fr.wikipedia.org/wiki/Liste_des_jeux_vid%C3%A9o_les_plus_chers_%C3%A0_produire  http://www.jeuxvideo.com/news/456611/ouya-du-succes-a-l-oubli-histoire-d-un-echec-cubique.htm Show less Reply Paul Belleflamme 27 April 2016 Interesting! Derek Cangiano 7 April 2016 The future revenue model of video games is quite complex and one that I believe will continue to evolve overtime and eventually see a number of different monetization schemes existing, depending on the type of game and the platform that it is on. As you describe with the Coase Conjecture, I believe that online micro transactions based gaming experiences offers the…Read moreThe future revenue model of video games is quite complex and one that I believe will continue to evolve overtime and eventually see a number of different monetization schemes existing, depending on the type of game and the platform that it is on. As you describe with the Coase Conjecture, I believe that online micro transactions based gaming experiences offers the best monetization method for a specific type of online, multiple player game. Micro transactions offers the developer the closest thing to perfect price discrimination as one could hope to achieve with this sort of medium. However, this relies on both the right type of micro-transactions as well as on the right sort of game. I believe the ideal game for the Free-to-play model 1) Offers significant replay-ability to ensure players will invest lots of time into the game itself 2) Principally multiplayer in nature – this helps drive engagement in the content Examples include: Massive Online Battle Arenas (MoBAs such as League of Legends or Dota), online First Person Shooters (Team Fortress 2, Counter Strike) and Massively Multiple Online Role Playing Games (MMORPGS). The most effective Micro Transactions tend to be cosmetic only items (no effect on core gameplay) and ones that allow players to attempt to differentiate their online experience from the millions of other players. Examples include Hats in Team Fortress 2 or cosmetic armore skins in League of Legends  In addition to the ability to price discriminate, a Free to Play model has had very interesting effects on number of users and the presumed network effect that it creates. According to the founder of Valve, Gabe Newell has noted that the effect of moving to a Free-to-Play (Or dramatically reducing priced initial pricing) model for two of Valve’s older (mature) games has yielded perplexing results. When Valve decreased the price of Counter Strike (online First Person Shooter game) by 75%, they noted a 40x increase in gross revenue from sales, and then noticed still dramatically increased sales even after they ended the sale – suggesting the existence of extremely strong network effects. Even more interestingly, when they moved Team Fortress 2 (Another Online FPS game) to a free-to-play model, they noticed a 500% increase in users, opening up significant possibilities to monetize from their online market places. Valve has also been using Micro Transactions to increase community engagement. In their popular Free to Play game Dota 2, they have opened up their online micro-transactions market place to include content that has been created and voted on by the community to be added to the game. This content (in-game cosmetic items) is then purchased by players and the revenue split between Valve and the content’s creator. In this way, Valve is no longer a monopolist in providing the marketplace with in-game content, rather it is now governs the platform for players to transact with one another.  I believe the Free to Play model is non-ideal for games that do not meet the above two requirements – such as single player Role Playing games that have limited replay-ability. These games are typically played through one or twice and that tends to be the end of player’s ability to enjoy the content. This means that the traditional ~$60 price tag for the game could be appropriate on a $/hour of entertainment basis. However, games that provide many months of entertainment could be better monetized – Such as Blizzard’s Starcraft 1, which had a thriving online community for more than a decade after its initial release (and before the release of its modern sequel), however, Blizzard online managed to monetize it for its initial purchase price. I believe we are still in the very early days for the emergence of new revenue models. We still do not know how the market will change when/if more developers begin adopting the same Free-to-Play model. Overall consumer’s search cost of finding a new video game certainly lowers and provides them with much more content to enjoy – suggesting that the net effect is in favour of consumers, as the benefits to this new monetization model will likely accrue to the very best content on offer. 1)http://www.geekwire.com/2011/experiments-video-game-economics-valves-gabe-newell/ 2) http://www.dotacinema.com/news/dotanomics-the-workshop-and-market-structure 3) https://www.youtube.com/watch?v=t8QEOBgLBQU Show less Reply Paul Belleflamme 8 April 2016 Very instructive, thanks. Fionn Whelan 7 May 2015 The freemium business model is extremely apt for the video game industry, and I see it becoming increasingly prevalent. The majority of video games now offer additional in-game opportunities to purchase commodities that are either customizable or aid the gamer’s endeavours. In the immensely popular EA sports series, Madden and Fifa for example, currency can be purchased in game that…Read moreThe freemium business model is extremely apt for the video game industry, and I see it becoming increasingly prevalent. The majority of video games now offer additional in-game opportunities to purchase commodities that are either customizable or aid the gamer’s endeavours. In the immensely popular EA sports series, Madden and Fifa for example, currency can be purchased in game that allows the user to purchase players, stadiums etc. This currency can also be earned without purchase, through experience that can only be garnered by playing the game. The opportunity to purchase currency is a mutually beneficial arrangement, and is a strong function of the game, which costs roughly 60euros to buy. Another benefit of the freemium model is the large user base it commands. By setting the price at zero, all possible consumers are priced in to buying the game creating a massive target audience for advertising. In game advertisement or product placement could be sold and would be a huge source of revenue for gaming manufacturers that could eventually surpass the revenue that could have been generated by charging a price for the game. Myriam Davidovici-Nora outlines the pricing options available to video game producers and the effectiveness of each one. She specifically referencing freemium, subscription, advertisement and free-to-play as modes of revenue generation. It is my belief that a combination of these models is what will be used in the future, rather than focusing rigidly on one option. I believe a customized pricing strategy which makes the product available to the widest possible consumer base. This user base can then be specifically advertised to each individual member of that audience using information gleaned from their console and habits as well as offering in-game purchases. I believe a mix of these business models as outlined above, is the future of the video game industry and of a myriad of other industries also, in this digital age. Sources: Davidovici-Nora, Myriam, Paid and Free Digital Business Models Innovations in the Video Game Industry (June 30, 2014). Digiworld Economic Journal, No. 94, 2nd Q. 2014, p. 83. Available at SSRN:http://ssrn.com/abstract=2534022 Show less Reply Louis Rion 1 April 2015 Digital distribution is a method of selling games via the internet. This kind of distribution was first really limited, usually to Japan. One of the more prominent examples is Nintendo Satellaview. It allowed players to subscribe and connect to St. GIGA (which was the name of a defunct satellite radio company that was formed as a subsidiary of satellite television…Read moreDigital distribution is a method of selling games via the internet. This kind of distribution was first really limited, usually to Japan. One of the more prominent examples is Nintendo Satellaview. It allowed players to subscribe and connect to St. GIGA (which was the name of a defunct satellite radio company that was formed as a subsidiary of satellite television company) and download games and news updated. The games would be made available for download during a certain time and date. During that time, players could connect to the St. GIGA service to download the game and play it. Most games, once downloaded, could be played without connecting to St. GIGA. It seems that the market is not yet sufficiently convenient for the digital-only. In fact, broadband speed is not quite ready for all-digital downloads yet, as even in Britain and other obscure places, it could take several days to download a single video game. And when considering the expected size of next generation games, which could be around the 50GB mark which Blu-Ray discs offer, the online infrastructure needs to improve significantly before this is possible. Nowadays it is not a simple affair as before when you want to play a game. In fact, it becomes increasingly unusual to go to a game store, buy a game and then play it. Now many games are free up-front, but bombard players with an endless array of in-game purchases, some of which are impossible to avoid if you want to complete the game. Many freemium games often ask players to share the game via social network in order to attract more and more players and have a sufficiently large community of gamers. The goal of these games is to attract players into an endless cycle of paying for rewards that run out, leaving players with the urge to open their wallet again. Some companies are trying to find a new way of promoting games that escape the trend. Because freemium games are out of control on the App store, Apple has begun highlighting non-freemium games in a new section of the App Store, “Pay Once & Play”. The company describes the section as “great games with no in-app purchases”. In-App purchase lets you sell a variety of items directly within your free or paid app, including premium content, virtual goods, and subscriptions. “Pay Once & Play” are games that charge players once upfront, and then never bug them for more money again. Personally, I think it’s great that Apple has chosen to highlight developers whose games don’t constantly nag players to pay more money to win. I think it’s a good sign as it shows an interest in promoting quality game experiences that don’t follow typical freemium trends. http://vgsales.wikia.com/wiki/Digital_distribution http://en.wikipedia.org/wiki/St.GIGA http://pocketfullofapps.com/2015/02/14/pay-once-and-play-apple-highlights-games-with-no-in-app-purchases.html https://developer.apple.com/in-app-purchase/ http://pocketfullofapps.com/2015/02/23/effects-of-dlc-and-freemium-micro-transactions.html Show less Reply Zhiyi Wang 1 April 2015 Freemium is here to stay. In fact, it's probably the future of video games. Freemium game, a combination of free and premium, stands for a business model that provides a game to players free of charge, but charges a premium fee for special features, powers, or content. When the freemium model first rose to prominence in the US (it has long…Read moreFreemium is here to stay. In fact, it’s probably the future of video games. Freemium game, a combination of free and premium, stands for a business model that provides a game to players free of charge, but charges a premium fee for special features, powers, or content. When the freemium model first rose to prominence in the US (it has long been a staple in South Korea and the rest of Asia), most saw it as a way to earn some money from casual players. Although users can download the games for free, they mostly like to spend more money on freemium games than on the episodic games. Statistics show that Freemium games have an average lifespan of less than a year. There are big reasons why mobile games are short-lived: the monetization strategy is pre-packaged & has trouble adapting; game relies on the App Store for feedback & help; company spends entire budget on product development & user acquisition. Freemium certainly has its detractors, and there are enough examples of free-to-play done poorly, but when done right, the model at its best, opens a lot of doors. It lets players lacking in skill or time see as much of a game as those with the time and ability to master it. It tears down access barriers to your game, and at the same time, incentivizes players that connect with it and want to play more. It even gives independent developers another avenue to create a game without a big publisher or budget. Free-to-play may not be for every game, but it can spell great opportunity for the right developers when implemented http://www.ign.com/articles/2012/07/20/the-dark-future-of-freemium-games-and-how-we-can-avoid-it https://www.helpshift.com/blog/freemium-games-fail/ Show less Reply Ignace de Bruyn 31 March 2015 The world of video games was once reserved for stay-at-home customers, often called « NERD », due to their intensive playing hours. Today, the video games world attracts crowds with a new concept: the free-to-play. People thought it would be only a temporary trend but it turned out to be a real success. The success of the F2P can be explained…Read moreThe world of video games was once reserved for stay-at-home customers, often called « NERD », due to their intensive playing hours. Today, the video games world attracts crowds with a new concept: the free-to-play. People thought it would be only a temporary trend but it turned out to be a real success. The success of the F2P can be explained through different ways. Firstly, due to its simple and effective business model this category of games has its advantage in its graphic simplicity and his intuitive game-play. Secondly, there is an expansion in the number of end users as the mobile terminal owners are still increasing. Indeed, the emergence of new markets (Brazil, Russia, China…), which could be seen as « low-priority » markets for the console industry, are actually very attractive for the online social gaming industry. Moreover, the game is no longer considered as a product but more as a service. Gaming is now evolving on daily basis and game makers have to adapt their freemium strategy based on consumer behaviour and the trend. The mobile phone gaming industry appears to be one of the most successful arenas for freemium pricing strategies, as human competitive nature overcomes reason. Therefore, consumers impulsively purchase those extra in-game bonuses and credits. I believe that the market for large titles is reserved to a specific niche of gamers. This niche contains consumers who are willing to put time and money into the games. A casual player has less desire or lacks skills to embark in such an adventure. Therefore, the free-to-play doesn’t seem to be made for this kind of gamers but a mix of them can be interesting. Indeed it is always possible to know the request of your customers in order to maximize margins depending on the intensity of their needs and their tolerance regarding the price. For example: a premium service for large titles with a pay-to-play service. In conclusion, we can say that the F2P created a democratization of gaming. It succeeded to pass from a value economy based on high prices with a tight market to a volume market that brings together large numbers of end users for a small fee. Sources: http://www.lefigaro.fr/secteur/high-tech/2013/08/09/01007-20130809ARTFIG00383-l-empire-sucre-de-candy-crush.php http://www.schole.fr/les-nouveaux-modeles-economiques-du-jeu-video-2/ http://www.gamasutra.com/view/feature/134959/the_design_of_freetoplay_games_.php?print=1 https://docs.google.com/presentation/d/1ymerdC2_nvvqxSd4hXKhd208qF6uKceQELb3SIdYVfg/edit?pli=1#slide=id.g3477d6aeb_0141 http://www.alpa-consulting.com/knowledge/447 Show less Reply Ariane Martens 31 March 2015 This comment will be split in two parts. Firstly, I would like to develop the assumption that free-to-play and episodic games might be business models avoiding the problematic of digital piracy and the potential impacts of this kind of business models on their customers. Afterwards, I will try to assess the potential use of such business models in other industries…Read moreThis comment will be split in two parts. Firstly, I would like to develop the assumption that free-to-play and episodic games might be business models avoiding the problematic of digital piracy and the potential impacts of this kind of business models on their customers. Afterwards, I will try to assess the potential use of such business models in other industries such as the movie industry and the music industry. According to me, the concepts of free-to-play and episodic games are inherent to digital piracy. For the simple reason that game developers were the first to see the flaws in the established business models of the digital world. Moreover, optimists would like to believe that the content downloaded illegally would have decreased with the emergence of Netflix, Spotify and iTunes. However, the opposite is true as a research of NetNames pointed out in 2013 (“They found that absolute infringing bandwidth increased by 160 per cent from 2010 to 2012 and the absolute number of users seeking infringing content increased by 10 percent from 2011 to 2013”). Even more disturbing is the fact that most of the illegal downloads originate from developed countries where these legal options (Netflix, Spotify and iTunes) are available. There are types of piracy ecosystems used worldwide: BitTorrent, Video Streaming and Cyberlockers. Why do people still prefer to download illegally although legal options are provided? Habit, cheaper, appealing ads,… Nevertheless, the introduction of freemium games and episodic games changed the deal because game developers took into account that people will always find ways to download freely. On the one hand, in the case of freemium games, the industry decided to trigger players’ consuming behaviour by offering ‘scandalous’ promotions during the games. That’s how they succeed in making people trade real money for game money. This matter was even brought into spotlights by South Park, the American controversial tv-show, in the episode named ‘Freemium isn’t free’. This satire denounces a plot in which the video gamer seller targets the persons who suffer from addictions. As the monetization strategies related to this business model are based on impulse purchases and flow theory (“It’s that feeling of being fully immersed in a game not knowing how much time has passed. Flow theory can be defined as a state of positive immersion in an activity. Its components are full absorption in that activity, clear goals, a high degree of concentration, and a distorted sense of time”). South Park got maybe the red herring behind these economic concepts. On the other hand, most gamers were not particularly thrilled by the changes appearing in the video game industry but had to adapt and accept it if they wanted to keep playing. They compare the market as it is now to a dismembered Mona Lisa (see: http://nuskool.com/learn/lesson/economics-downloadable-content/). In a nutshell before 2000, when customers bought a game they got everything and if the game developer wanted to improve its games, he had to offer an expansion. Afterwards came the downloadable content (DLC) (as I see it, it is quite similar to episodic games because you can whether decide to buy just a part of the game or its entirety). It is funny because for 15 years ago if a game developer decided to sell episodic games, players would have boycotted the game, i.e. customers are not the kings in the video game industry anymore. Finally, these business models ‘saved’ partially the video game industry from digital privacy but other industry still struggle to find solutions. As we can see in the media, the movie industry invests more and more in marketing solutions, huge promoting events and uses Netflix to share its movies and tv shows. Unfortunately, the music industry finds it more difficult to adapt totally to the digital era but this might also be due to other parameters. http://www.newrepublic.com/article/118858/digital-piracy-ruining-pop-culture https://www.youtube.com/watch?v=QFB7T1HCfk8 http://www.gamesindustry.biz/articles/2012-08-25-how-to-monetize-of-free-to-play-games http://trends.cmf-fmc.ca/blog/mobile_games_the_advantages_of_the_episodic_model https://gigaom.com/2014/05/28/file-sharing-is-alive-and-well-to-the-tune-of-300-million-users-a-month/ http://nuskool.com/learn/lesson/economics-downloadable-content/ Show less Reply Paul Belleflamme 1 April 2015 Very interesting comment. de Crombrugghe Laetitia 31 March 2015 In this post, I wanted to compare the usual freemium business model to the free-to-pay that you find back in the game industry. Freemium is an innovative business model that is emerging mostly in the web industry. Websites propose an acceptable but limited content or service for free and try to convince users to sign up for premium content which…Read moreIn this post, I wanted to compare the usual freemium business model to the free-to-pay that you find back in the game industry. Freemium is an innovative business model that is emerging mostly in the web industry. Websites propose an acceptable but limited content or service for free and try to convince users to sign up for premium content which is chargeable. We say that until 92% of the users of freemium services are using the services for free. The 8% that is left is the part of the users that contributes to the survival of company with paying for premium content. I am not a gamer and it is to me a complete unknown world but if you compare the reasons of upgrading in a conventional freemium business model to the reasons of upgrading in a free-to-play, my feeling is that they are not totally the same. While businesses like Dropbox or Linked In are pure functional tools, games are entertaining. My feeling is that the business models should not be managed the same way. On IpDigit post, Eva-Maria Scholz is talking about the switching costs that gamers have when they decide to change to another title, after having invested time and money in a certain game. I am curious if we make an economic analyse of the freemium business model Skype to know if there are switching costs. My intuition is no, or at least, not as much as in the game industry. This is already a difference between both business models. Myriam Davidovici-Nora’s article confirms my feeling with stating that some gamers will become addict to the game. Next to that, the preferences of the gamers are changing all along the game. Proposing different ways of customizing your game all along it, is thus a huge idea because there is also said in this article that the willingness to pay for virtual items if those are tailored to the preferences of the gamers. In fact, more you play, more you have chances to become addict to this game and more likely you are to pay for it. In Ben Cousin’s post, he describes how gamers are attracted by the fact that games are free. But in fact, they quickly understand that for having a pleasant gamer experience, they have to upgrade. Next to that, he mentions surveys that states that more than 50 %of the people that spend between 50 and 100$ to games, felt that they received value from this money. “They received enjoyment for their purchase”. In a last article, written by Nicholas Lovell makes the different between “true lovers” that don’t regret their purchase and “whales” that are compulsory buyers and that are not able to control them-self. “True lovers” are the people that feel that they have received value from the money they spent on the game. To conclude, my feeling is that the behaviour of paying gamers is totally different from the freemium premium service user. Thus, the success factors should logically be different, even if there are common success factors such as the big user base. SOURCES: http://www.polygon.com/2014/4/9/5597062/snobbery-and-fear-drive-ethical-criticisms-of-free-to-play-games http://www.gamesbrief.com/2011/09/whales-true-fans-and-the-ethics-of-free-to-play-games/ Kumar, V., (2014). Idea Watch: Making “freemium” work, Harvard Business Review, 27-29 Davidovici-Nora, M., (2014) Paid and Free Digital Business Models Innovations in the Video Game Industry, Digiworld Economic Journal, 94 (2), 83-102 Show less Reply Jia-Zhun Chen 31 March 2015 Firstly, I don’t think that the future of the video game industry is free-to-play. But I think that will be a big part of it. This business plan is of course really attractive as people think that it is free. But freemium games are also very dangerous for some kind of gamers. They will pay for some premium things and…Read moreFirstly, I don’t think that the future of the video game industry is free-to-play. But I think that will be a big part of it. This business plan is of course really attractive as people think that it is free. But freemium games are also very dangerous for some kind of gamers. They will pay for some premium things and think that it doesn’t really matter as the transactions are small. But small amounts will be changed into big numbers. There is for example a satirical show that describe this situation (South Park). So I think that this business plan is good for the developers but could be bad for the gamers. Several factors contribute to the appeal of a freemium strategy. Because free features are a potent marketing tool, the model allows a new venture to scale up and attract a user base without expending resources on costly ad campaigns or a traditional sales force. The user base if of course very important because even though a lot of players don’t have the incentive to pay, some of them will. And so it is obvious that more they are more the developers will have incomes. A problem with this strategy is that as it is free at first, the quality of the game might be not so good (graphics, animation, story line and player progression). Concerning the episodic games, I think that it is a good strategy. People watch more and more tv shows and so the marketing business behind that could be really important. The price should be in relation with the time you could play the game. The timing should be in relation with the tv show (like the example in the paper, The walking dead). These games can be developed on a lower budget and without as harsh of a time constraint. Lower price points for each “episode” render these games more affordable. Most publishers of Episodic content will offer a set price point for the “complete” season as well. This serves to offset a potential increase in price that might occur when buying the episodes separately. Personally, I don’t think that this concept will fight against piracy. Hackers will always find a way to hack it. Sources: http://www.ibtimes.com/something-nothing-how-videogame-industry-adapting-freemium-world-789466 https://hbr.org/2014/05/making-freemium-work http://en.wikipedia.org/wiki/Free-to-play http://www.quora.com/Why-are-freemium-games-for-Android-and-iOS-so-successful http://www.gamerheadlines.com/2015/03/telltale-games-rise-episodic-gaming/ http://www.gamespot.com/articles/telltale-and-the-value-of-episodic-content/1100-6405527/ Show less Reply Sluyters william 31 March 2015 In order to answer the questions introduced in the article, I’d like to highlight some notions. Firstly there are different kinds of devices for video games, which don’t provide the same kind of video games: The oldest are game consoles such as Xbox, Playstation, and Wii where most of the games are Pay-to-Play. Nonetheless, a few Free-to-Play are…Read moreIn order to answer the questions introduced in the article, I’d like to highlight some notions. Firstly there are different kinds of devices for video games, which don’t provide the same kind of video games: The oldest are game consoles such as Xbox, Playstation, and Wii where most of the games are Pay-to-Play. Nonetheless, a few Free-to-Play are available . (1) Actually, it seems that SONY want to ride on the wave of free-to-play video games (2)(3). The second category corresponds to the well known computer which is the most developed Platform regarding to the video games. Indeed, we can find all genres of games for computer. It’s also the device with the biggest active community of gamers. There are many Pay-to-Play games and plenty of Free-to-Play games. Lastly, the final and far from least important category is the Smartphone. Most of mobile games are Free-to-Play games. They have repetitive patterns. This support is the one with the lowest possibilities in terms of games’ creations. Here are some essential facts about the video games industry summarized by ESA (the entertainment software association) http://www.theesa.com/wp-content/uploads/2014/10/ESA_EF_2014.pdf(4) and a Gartner table of the video game market revenue http://www.gartner.com/newsroom/id/2614915(5). 1. Are free-to-play games the future of video games? Game Console As I said before there are not a lot of free-to-play on games consoles. The point is that when a customer buys a game console, he signals that he is interested in the value proposition of this console. In other words when customers buy a console they know that they will have to pay for games ( and for the genre of game) and they agree for that. A games console is also bought for one purpose (unlike the other categories): play video games that are available on that game console. Then the customer has smaller price sensitivity because he has a budget for this. It’s not always the case for computers and even less the case for Smartphones. Most of the revenue of free-to-play comes from a very small proportion of players. Then to be profitable it has to reach a large amount of people. Nonetheless I believe that it is not easy to apply that on game consoles. Firstly the community of player wouldn’t be large enough. Indeed not everyone owns a game console. Secondly I believe that the gamers’ demand of free-to-play games is not that high because they can already have free-to-play on their computer. Thirdly, in order to reach success on game consoles, a game needs to have a high value proposition which costs a lot and is not always compatible with the consumption of console gamers who have a a quick consumption of video games. Indeed the «lifespan» for a game on console is very low, gamers will play between 1 week and 1 years depending to the gameplay which is generally related to the presence of updates and online multiplayer platform. For instance: FIFA and Call of Duty (two of the most popular licence on console games) release a new game each year in order to fit the high appetite of players. I’m not sure that in one year a free-to-play-based model will be better than a pay-to-play-based model on these 2 games, which gather a large amount of players. I also believe that they are some genre of games, which fit better free-to-play model, and other that fit pay-to-play model. In my point of view, a large majority of the most popular free-to-play games of a certain value propositions are MOBA, MMORPG, digital CCG, Arcade and Puzzle which are not popular games available on game consoles. Maybe due to the fact that you can play those kind of games on your computer. These genre may be free-to-play games because they have a high longevity, online multiplayer, a simple pattern, open to all (easy to use and easy to set up) and possibility to put in place purchase. Actually these genres of video games are not usual on game consoles. It’s surely because the expectations for console video games are high in terms of graphics, scenario and gameplay. Indeed the selling point of game consoles is the «next gen» games and as far as I know there is no «next gen» game free-to-play. Nonetheless Sony announced a few weeks ago that “PS4 Free-to-Play Games will Be a Significant Part of Our Digital Business” . Thus they will maybe adapt their value proposition or to extend free-to-play to popular genres of PS4. I believe that in the future there will be both pay-to-play and free-to-play games on PS4. But the quality of free-to-play game on game consoles will be higher then for most of computer or mobile free-to-play. Indeed, since a game console is bought for gaming, game console could have a bad reputation for proposing bad free-to-play game. Then the supply of free-to-play game will be limited to good quality games with a high value proposition. Computer I believe that most of the games will be Free-to-Play. The situation is not the same as for the game consoles. Indeed, most of the people have a computer and not especially for gaming. We can consider that there is higher price sensitivity for video games on computers than on consoles. It’s one of the main reasons why free-to-play is more popular on computers than on consoles. The second reason is that most of the revenue of free-to-play games comes from a minority of players and that you need a large amount of player to make profits with the game. According to this, it’s possible to reach enough people on computer, which is not that evident on consoles. Indeed in order to reach a large amount of people free-to-play have to be compatible on most of the computers and then to not be too much «greedy» in terms of performances. Eventually, I believe that even if there will be a lot of free-to-play there will still be some pay-to-play games. Indeed, in my view there are genre of games that can’t reach enough necessary conditions to be free-to-play such as large number of gamers or enough gameplay. FI would be surprised to hear that games mainly based on their scenario became free-to-play. Smartphone Most of the mobile games are free-to-play. Mobile users are used to have free apps and their price sensitivity is really high. Then free-to-play model fits perfectly the mobile games market. Indeed, being free is almost a prerequisite condition to attract customers because of their very low likelihood to pay. 2. Is the concept sustainable for large titles that involve significant development costs? It’s nearly impossible to answer this question by yes or no. As highlighted before there are games that will be easier to develop under a free-to-play model while some games are not sustainable. In short, a free-to-play game will be sustainable if it reaches enough gamers, it offers the possibility to buy extra contents in game and if it stays play during a long time. As I exposed before, my opinion is that it’s not sustainable yet on games console. It’s already sustainable for some games on computer such as Dota2 and League of Legends. Free-to-play are generally poor in content at the release but through the time and if they reach success become games with a continual significant development costs in order to provide updates, patch and new content. League of Legends and Dota2 as plenty of free-to-play are actually always in development. In fact the development model is not really the same for free-to-play and pay-to-play. Pay-to-play games are generally fully developed at their release and there are sometimes additional downloadable contents but in short space of time. While free-to-play game does not require its full content to be created before its release. A large part of their content is created gradually after the game launch. Indeed most of free-to-play games have regular updates and new contents are added over time in order to retain gamers as long as possible. Secondly, as discussed before most of the pay-to-play have a really small lifespan then the content have to be already good enough to reach a large amount of player in a short time. It’s not the case for free-to-play games that create most of their value in the time by creating a large community of gamers. According to this, the value proposed by free-to-play at the release doesn’t need to be as high as for pay-to-play, which need instant success. Moreover, there is also the fact that free-to-play need to reach a very wide amount of people and then they can’t ask too much capacities of computers or Smartphone in term of data storage, graphics cards et cetera. 3. What are the factors that determine the success of a premium strategy in the video game’s industry ? Firstly, I’d like to highlight that the factors are not the same along if it’s a game, which is designed for a computer, or for a mobile because I believe that expectations are not the same for computer gamers or mobile gamers. Since there is no free-to-play game that comes to my mind when I think of game that had a large success on game consoles, I’ll skip this part. Mobile games need to provide one to 5 minutes sessions, to provide immediate satisfaction, to be designed for a long duration of play, to be immediately accessible (no registering process and so on) to be very intuitive and to provide a kind of progression by unlock new levels or new gameplay contents and to be developed for social networks or to provide interactions with friends. To know more about this I suggest you to read this article which is really detailed.(6) http://www.gamasutra.com/view/feature/134920/the_design_of_freetoplay_games_.php and (7) http://www.gamasutra.com/view/feature/134959/the_design_of_freetoplay_games_.php?print=1 On computer, game must have some characteristics such as an online multiplayer platform to create a community, player versus player sessions to create competitions and to enhance extra-content, plenty of updates and extra content available with payments to keep the game attractive, not asking for too powerful computer and a simple gameplay to reach a large amount of people. The playability of a game is really important in order to retain gamers a long time and to involve them in the game. For instance; on computer games a ranking between players can be used to create a competition, which will push players to play a lot. To increase the re-playability a game need update and new contents. Then I believe that a game should have a good balance in its business model. In other words if the players feel frustrated because they have to pay to have a good in-game experience they will not be retained. On computer game the most known free-to-play are the one with a large community of players. League of Legends , Dota2 and Hearstone have a large community and it gives them a huge advantage on other free-to-play. Indeed those communities are very involved in and around the games. This involvement create a lot of dynamism around the game with the creation of online tournaments, and offline followed by plenty of viewers on streaming platform of game such as Twitch , Millenium tv , Eclypsia et cetera. For example in 2013 for the third world championship of Leagues of legends gathered 32 millions of viewers (8)(9). But there is also well known gamers who stream every day on those platforms. Those gamers have sometimes special content designed for them and then sell it to viewers. All this free marketing enables the gamer community to be likely to buy optional content. Nonetheless those games are able to put in place other stream of revenues from advertising, broadcast rights for big event such as LCS, and merchandising of clothes and goodies. (10) As a conclusion, free-to-play business models in video games are not all well optimal. Indeed, free-to-play are quite new and with the evolution of the background of game with specialized broadcast platforms it’s hardly impossible to say if there are no other way to create value in video games. Through my comment I have tried to explain why I don’t believe that there will only be free-to-play or pay-to-play models. Video games is a complex market with a lot of possibilities and I’m pretty sure that there is not only one business model able to capture value better than other in the whole market. For example you could read the other article on Ipdigit about episodic games (11) http://www.ipdigit.eu/2015/03/business-models-for-digital-goods-video-games-episodic-games/ ** Sources ** (1) http://en.wikipedia.org/wiki/List_of_PlayStation_4_games#Free-to-play_games (2) http://www.playstationlifestyle.net/2015/03/04/ps4-free-to-play-games-to-provide-a-big-chunk-of-revenue-says-sony/ (3) http://fortune.com/2015/01/13/sony-free-play-video-games/ (4) http://www.theesa.com/wp-content/uploads/2014/10/ESA_EF_2014.pdf (5) http://www.gartner.com/newsroom/id/2614915 (6) http://www.gamasutra.com/view/feature/134920/the_design_of_freetoplay_games_.php (7) http://www.gamasutra.com/view/feature/134959/the_design_of_freetoplay_games_.php?print=1 (8) http://na.leagueoflegends.com/en/news/esports/esports-editorial/one-world-championship-32-million-viewers (9) http://www.gamespot.com/articles/league-of-legends-now-boasts-27-million-daily-players/1100-6417374/ . (10) http://na.lolesports.com/ (11) http://www.ipdigit.eu/2015/03/business-models-for-digital-goods-video-games-episodic-games/ Show less Reply Paul Belleflamme 1 April 2015 Very thorough analysis, thanks! Pamela Musu 31 March 2015 The free-to-play system is the future, even if we are losing in terms of contents. This is because game makers don’t have the know-how of bigger top player in the video game industry and generally they rely on a single hit title. Few days ago Nintendo President and CEO Satoru Iwata announced their entry in this business. They don’t want…Read moreThe free-to-play system is the future, even if we are losing in terms of contents. This is because game makers don’t have the know-how of bigger top player in the video game industry and generally they rely on a single hit title. Few days ago Nintendo President and CEO Satoru Iwata announced their entry in this business. They don’t want to quit the P2P model but they’re trying to cover a larger market offering innovative contents. He said: “Most mobile game makers who have yielded tangible business results appear to be dependent on a single hit title. For Nintendo, being able to make use of the enormous IP library that we have carefully nurtured for more than 30 years is a major strength. We would like to create several hit titles simultaneously by effectively leveraging the appeal of Nintendo IP, which many people around the world are familiar with.” Hence, I think that in the near future we will see bigger top player producing F2P games, their business is sustainable in the long term because they can share their know-how in the two segments of the market. This strategy will not be able to devalue them because they differentiate the content (of course in the F2P the value of content tends to weaken). Besides, it is also a better strategy to sustain the costs of quality contents, because they have a different stream of revenues that doesn’t depend only on one hit title. According to me, one key factor of success is the fact that you can always upload new contents making your game more appealing forcing the players to go on in their journey. So the experience is dynamic and this is one of the most value-added feature of this model. Exclusive: Nintendo CEO Reveals Plans for Smartphones, http://time.com/3748920/nintendo-mobile-games/?xid=tcoshare The true cost of free-to-play games, http://www.imore.com/true-cost-free-play Show less Reply Jean Maxime Sacré 31 March 2015 Are the freemium models the future of the gaming industry? This is a huge issue since it might transform both the approach of game developers and the experience of players. Regarding the development and the revenue structure of the games, it is evolving from a fixed price paid for the whole to a free game for which players can…Read moreAre the freemium models the future of the gaming industry? This is a huge issue since it might transform both the approach of game developers and the experience of players. Regarding the development and the revenue structure of the games, it is evolving from a fixed price paid for the whole to a free game for which players can pay to unlock extra content either useful in the game or simply personalization items. This trend is growing on a yearly basis and represents a huge part of the App Store revenues.  From an economic point of view, I think that this business models is way more meaningful since it enables a fully price discrimination. Previously, people who were willing to pay the fixed price or more bought the game at its fixed price. With the free-to-play business model, everybody can play the game and pay as much as they want. If the buyable contents are perfectly attractive, players will pay the exact amount they are willing to in order to play the game. Therefore, many people will spend more money than if it has been a fixed price. As far as the players are concerned, I think that the gaming experience of the freemium model has to be argued. On the one hand, it stimulates the development of small MMO’s mainly supported by application on mobile devices. Thereby, it creates a new way of enjoying games. These are mainly online, real-time and mobile games. It is not necessary to be at home, sitting in front of a screen to play video games. It is possible to play waiting in a queue, being in the train or in a cab or even at work. Therefore, a new dimension of video games has been created through the freemium model. On the other hand, I don’t think this model can be easily applied to traditional video games on a computer or a console such as FPS (First Person Shooter) or sports games. Indeed, the content offered to premium players are generally useful in-game. Thus, a clear disadvantage occurs for non-premium players. As a consequence, this might lead to intense frustrations because people will not feel equal to the game anymore. In order to maximize the game experience and the revenue structure of the developers, it is important to create contents that can be bought by players but that cannot give them an in-game advantage. These contents are mainly personalization items. However, some developers have decided to produce more playable contents such as new maps or new episodes. This partial price discrimination is a fair and promising alternative to freemium models. As a conclusion, I think that freemium models are called to grow and to be spread through the video game industry but I don’t think that it will totally replace the pay-to-play models.  http://www.developereconomics.com/freemium-apps-killing-game-developers/ Show less Reply Cyprien Georges 31 March 2015 I will base my comment on a french free-to-play MMORPG called "Dofus". It has just celebrated its 10th anniversary in September. Dofus is a MMORPG which is free-to-play in the sense that it is free to download and to play, but most of its content is only accessible through the payment of a subscription (which you can buy for a…Read moreI will base my comment on a french free-to-play MMORPG called “Dofus”. It has just celebrated its 10th anniversary in September. Dofus is a MMORPG which is free-to-play in the sense that it is free to download and to play, but most of its content is only accessible through the payment of a subscription (which you can buy for a week, a month, a year: it’s a basic personalised price scheme). By that I mean that Dofus is composed of thousands of “maps” and most ot them are only accessible if you subscribed. An important point to make about these subscriptions is that they also give you priority above non-paying users, in case servers are congested (which they are very often). This mechanism is called “pay-to-connect” and is quite spread in MMORPG. Dofus has as nearly every other game it’s in-game currency, which you can only earn by playing the game itself (and selling items you “drop” on “mobs” to other players, or by providing them with an in-game service like “crafting”, etc.) In fact, Dofus has it’s own in-game economy. At first, you couldn’t get more in-game currency by paying with your credit cards, in fact they really didn’t want people that are willing to buy “kamas” (the in-game currency) to completely unbalance the competition in the game (as most of the game consist of PVP or player versus player). Hence, being rich in real life shouldn’t help you to be rich in the game. An important point to make is that this system lead some people to start free-riding, i.e. trading subscriptions in the game: you exchange a code that gives you access to a subscription against in-game currency through a peer-to-peer in-game exchange. This is of course illegal, but it happened often. Hence you could enjoy a completely free game, if you were able to find people willing to pay for your in-game currency. There were hence a lot of abuses. Since this was clearly a problem, the developers came up with a clever solution. They allowed people to buy another new in-game currency with their credit cards, and this currency would allow them to buy special but very limited in-game items, as well as subscriptions and the “normal” in-game currency. This new currency is traded in some kind of “stock market” where people can buy “ogrins” (the new currency) against “kamas” (the in-game “normal” currency) and vice-versa (only ogrins can be bought with real-world money though). The exchange rate depends on the market : the more people are willing to buy kamas with ogrins (which means that a lof of people are ready to pay with real-world money to get more in-game money), the more you need to buy ogrins to get the same amount of kamas, and vice-versa. Concerning subscriptions, the rate is fixed: you are always able to buy subscriptions with the same amount of ogrins but you cannot buy them directly with kamas. Since ogrins are not exchangeable on a peer-to-peer basis, the problem is solved. Hence, they created a virtual market for subscriptions, allowing users who are willing to buy a lot of kamas to do so in exchange of real-world money (through ogrins) and allowing people who do not want to pay their subscriptions to get subsidised by players who are willing to pay for more than their subscriptions. It’s an even better way of discriminating prices. What is special about this model is that you can actually trade subscriptions through in-game transactions. This analysis shows us how a free-to-play game can actually nearly perfectly discriminate between it’s users and the best it that the developers do not even need to know the users’ willingness to pay: they perfectly reveal it through their behaviours. Hence you can choose between playing completely for free (but you might need to have a lot of in-game revenues to be able to fund your subscriptions), paying only for your subscriptions (on a weekly, monthly, yearly basis) or paying for your subscriptions and for more in-game currency. This also means that very long-lasting users are rewarded for their faithfulness by being able to play for free if they managed to develop an excellent in-game revenue generating mechanism. Sources: http://www.millenium.org/home/mmo/actualites/modele-economique-des-mmo-f2p-b2p-abonnement-101831 http://en.wikipedia.org/wiki/Free-to-play http://www.dofus.com/en Show less Reply Paul Belleflamme 1 April 2015 Very interesting! It seems that Dofus could also be a good tool to teach (monetary) economics 😉 Cyprien Georges 1 April 2015 Absolutely! It’s actually very interesting to see how an economy works when it is build in such a way that there’s no transaction cost, perfect information, scarcity of resources, and the market is following the law of demand and supply very closely. Thomas Busschot 31 March 2015 As a consumer of these goods and student in microeconomics, I think this article says it all. In my opinion, the analysis takes into account all the major elements. As a consumer, I witnessed F2P (Free to play) games becoming a major trend in video games industry. Many companies and famous titles embrace this model. And many games have to…Read moreAs a consumer of these goods and student in microeconomics, I think this article says it all. In my opinion, the analysis takes into account all the major elements. As a consumer, I witnessed F2P (Free to play) games becoming a major trend in video games industry. Many companies and famous titles embrace this model. And many games have to switch to this model. See for example . Furthermore, it is even expected by the community that some games, after 6 mounth or 1 year, will switch to the F2P model. A recent example was The Elder Scroll Online . Though technically, it went to a “Buy-to-play” model, it is still under the pressure of the F2P era, as the article explained. So definitely, I think that yes, F2P is part of the future of this industry. I will present here some factors that may be interesting to consider in order to predict the success of a freemium strategy: 1. Network effects In my opinion of consumer, I think this model will prevail on the market but not for every types of game. The success of F2P comes from the ability to exploit network effects. For the moment, I think that nobody in the industry has launched a solo game with a freemium strategy. F2P are always multiplayer and online games. Indeed, in multiplayer and MMO (Massive Multiplayer Online) games, players have a larger utility if the game they choose have a greater pool of users. We can classify the MMO into two categories: – In “Player versus Player” (PvP) games, it allows the matchmaking to be more effective: players would like to face players with the same level as they are (nobody likes an easy win or a certain defeat). The number of players simply increases the probability to find a good match. – In coop games or “Player versus Environment” (PvE), they also need a good match: they would like to play with people they appreciate. If a game has a large user base, the chances are higher to find some “sub-communities” of players that they get along with. In both cases (PvE or PvP), the increasing of the number of players increases the utility of consumers because of the positive network effects. But I will reuse this classification later. Nevertheless, one may consider some opposite effects. By navigating on the forums of a game when its conversion towards F2P models is announced, it is not unusual to witness that some consumers seem disappointed by this announcement. It seems contradictory so how to explain that? Players could be interested not solely by the number of participants but by the quality of the pool. Indeed, F2P allows anyone to play. In a more traditional model (Buy to play or subscription), only “commited” and “serious” players could play, because they had to actually engage something in order to play. This type of preferences may be correlated with a particular group of consumers: older and more experienced players with financial resources. In few words, my point was to show that the ability to extract some network effects is complex. It depends on the type of the game but also on the type of consumers. 2. Pay to Win In the article, the author explains briefly what a “Pay-to-Win” is. Small reminder: it is a F2P game in which the premium part allows you to improve your avatar’s performances (i.e. you can buy in-game currency with real money or buy exclusive and powerful items only available with real money). It may seem like the best option for a freemium strategy since a direct improvement of a gamer’s performance will surely give him more incentives to “buy”. Nevertheless, Pay-to-win are often despised by players and by the press , particularly in the case of a PvP game. Indeed, you can easily imagine the frustration of playing against somebody which enjoys a better gear that you do. It is not considered as a fair competition and may ruin the experience. Note that this effect may be lower in a PvE game since players cooperate. The providential help of a premium user might even increase the experience of the players. My point is that another success factor is to find a right balance between giving incentives to buy the premium part without “overpowering” too much the premium users with respect to the non-premium users. Often, developers promise to use the following thumb rule which seems like a nice compromise: A player should be able to get the same level of advantage by investing a reasonable amount of his time instead of money. 3. Conclusion I simply want to state again that it was a very interesting analysis. I simply wanted to point out some possible directions to deepen even more the discussion. Source :  http://www.forbes.com/sites/erikkain/2012/11/21/star-wars-the-old-republic-goes-free-to-play-but-not-too-free/  http://www.jeuxvideo.com/news/414916/the-elder-scrolls-online-passe-en-buy-to-play-et-se-date-sur-console.htm  http://www.jeuxvideo.com/dossiers/00018315/le-free-to-play-et-vous-l-ombre-du-pay-to-win-003.htm Show less Reply Paul Belleflamme 1 April 2015 Excellent analysis. There seems to be a complex web of external effects - positive and negative- across different categories of gamers; the game may look like a two-sided platform, with 'serious' gamers on one side and 'casual gamers' on the other side but there are two differences with the platforms we studied: (i) interaction takes place across and within groups…Read moreExcellent analysis. There seems to be a complex web of external effects – positive and negative- across different categories of gamers; the game may look like a two-sided platform, with ‘serious’ gamers on one side and ‘casual gamers’ on the other side but there are two differences with the platforms we studied: (i) interaction takes place across and within groups and (ii) any gamer may decide to be part of on or the other group (according to the version of the game the gamer chooses to use). The game developer must choose the price/quality ratios of the two versions not only to internalize the various externalities but also to induce self-selection in the two groups (which determines itself the level of externalities). Complex (but nice) problem! Show less Rion Simon 31 March 2015 First of all, it is important to realize that with the extension of the internet and the digital media, a lot of new business model in pay-to-play and in free-to-play strategy have come to live in the video game world. Not only the freemium strategy, but also subscription, advertisement and other hybrid models have been created. Obviously, one has to…Read moreFirst of all, it is important to realize that with the extension of the internet and the digital media, a lot of new business model in pay-to-play and in free-to-play strategy have come to live in the video game world. Not only the freemium strategy, but also subscription, advertisement and other hybrid models have been created. Obviously, one has to choose the correct model or strategy to fit his corresponding business. It seems that there is not one perfect business model to rule them all. The article of Myriam DAVIDOVICI-NORA helps to understand and to choose the right model according to the kind of product that has been developed. Today’s article focuses on the freemium strategy which consist in offering an operational version of a video game for free and proposing additional payable content whether to customize the game experience or to go further in the durability of the game. Of course the game developers hope to reach a sufficient conversion rate to overcome the “loss” of profit coming from the proportion of the free users. One of the interesting concept that this strategy raises and which could be one of the reason why freemium strategy could be the future of the video game industry, is the “menu pricing”. Indeed, with the freemium strategy, consumers can choose the exact price that they are willing to pay. Therefore, they compute themselves their own contract and, in a world of non-completed information, it is valuable for a developer as the consumer give voluntarily his preferences and his willingness to pay through their purchases. However, if the developer has a rather dominant position, it is always profitable for him to provide different pricing so has to grab the maximum surplus from all consumer. Even if a user never convert into a consumer, he is useful for the developer through other channels also discussed in the article such as “user base”, “network effects”, “switching cost” or data gathering about the behavior of the players and their feedbacks. Another great strength of the freemium strategy is that it perfectly fits the nature of goods such as video games which are experience goods. It allows people to try a game before buying it and see whether it worth a further investment or not. In this sense, it could really be the future of this economy. Of course this business model makes developers suffer from “bleeding cost” coming from the fact that they have to support the running of the video game even for the people who do not contribute to the revenue of the service. A part of these cost can be compensated by advertising strategies. Indeed, a big user base created by a free-to play platform could represent a great opportunity for advertisers to reach a huge proportion of consumers and therefore could be a new source of revenue for developers. If you look at title such as PlanetSide 2, which is a perfect example of freemium video game, you can definitely notice that it has few to envy, taking about significant development accomplishments, to payable video game such as Battle Field & Co. Consequently, it seems possible to develop a totally free (at least for the basic version) comparable product. The freemium strategy is one of the most used strategy in the mobile app and mobile video game sector. In this area, free from charge products are legion. Which characteristics drive the profitability of this sector then? The article of Denis LESCOP and Elena LESCOP try to answer this question. The article succeed to highlight five main drivers of the profitability. First, the visibility and therefore the multi-homing are keys in this sector where a huge amount of professional and non-professional actors are developing games. Secondly, the offered application needs to be free because it is what users expect. The key problematic here is the retention of the users. Thirdly, the game has to be addictive using frustration, limited time to play and “stress and release” strategy. These strategies can make users play regularly and even become buyers of the premium content. Fourthly, the main goal of the developers is to maximize their conversion rate. This capitalization from the paying users can be made by encouraging in-game transactions, advertising and by using metrics and analytics to identify the profile of the big players. Finally, to keep his user base (paying user base) away from the competitors, a developer would offer more games and content from his own conception inside his previous and well-used games. It is really important to keep users in the same field of game (developed by the same developer) because in mobile gaming sector it is easy to move from one or another game instantaneously. References: – Davidovici-Nora, M. (2014). Paid and Free Digital Business Models Innovations in the Video Game Industry. Communications & Strategies, (94), 83. – Kim, Y. S. (2015). Analytical Models in Entertainment & Media (Doctoral dissertation, COLUMBIA UNIVERSITY). – Lescop, D., & Lescop, E. (2014). Exploring Mobile Gaming Revenues: the Price Tag of Impatience, Stress and Release. Communications & Strategies, (94), 99. – Maniquet, F. (2011). La tarification par un monopoleur. Cours de microéconomie à l’Université Catholique de Louvain. – Niculescu, M. F., & Wu, D. J. (2011). When should software firms commercialize new products via freemium business models. Under Review. Show less Reply Gwenaël Bailly 31 March 2015 Since the 2000s, we have seen the apparition of free games online. At first, all those games were available entirely for free (no premium content) and were the work of passionate developpers or "gifts" from studios. For example, "Wolfenstein: ennemy territory" was supposed to be a purchasable add-on, but was eventually released for free on the web in 2004. At that…Read moreSince the 2000s, we have seen the apparition of free games online. At first, all those games were available entirely for free (no premium content) and were the work of passionate developpers or “gifts” from studios. For example, “Wolfenstein: ennemy territory” was supposed to be a purchasable add-on, but was eventually released for free on the web in 2004. At that time, more and more MMORPGs adopted a freemium model because the monthly subscription fee model wasn’t viable anymore (Lord of the Ring Online, Warhammer Online,…). Following this trend, a lot of games are today available for free and offer purchasable content in-game. Now, let’s have a look at the viability of this “free-to-play” model. The first question developers must ask themselves is “what content and experience should be free for the users?”. This question is crucial as it will determine the number of users you will attract with your game. On the one hand, if the free offer is too poor, you won’t attract any user. This usually happens when the game is perceived as being a “pay-to-win” and the effort recquired to acquire a good level without paying is too demanding. On the other hand, if you offer too much content for free, the user base will be important but the convertion rate won’t and the game won’t be profitable. To sum up this paragraph, the content of the game needs to be “portionable”: sometimes just a few features in the game interest the players and it is not possible to split them. Thus, all the kinds of games don’t fit this ‘f2p’ business model. The last paragraph of the article is really interesting because it shows one of the limits of this model and we will illustrate this with the example of Hearthstone. Every 3 to 4 months, Blizzard add some content to the game and players have the opportunity to pay for it or to play quite a lot to acquire it (100s of hours). For players that are playing since the launch of the game, this “only” cost on average 30euros every 4 months, but for beginners the game is incredibly costly ! Players expect Blizzard to extent the free content soon, or the convertion rate will decrease years after years. The way they will operate this discrimination on prices promises to be quite interesting! Finally, we are convinced that the free-to-play model will continue to grow, but developers shouldn’t try at any price to use it. As we said above, all games are not fitted for this business model (e.g. games without any additional content). Also, they should be carreful about the amount of free content they offer. Sources:  https://hbr.org/2014/05/making-freemium-work  http://www.theguardian.com/technology/2015/feb/17/freemium-mobile-games-monetisation-candy-crush  http://fr.wikipedia.org/wiki/Wolfenstein:_Enemy_Territory#cite_note-2  http://en.wikipedia.org/wiki/Free-to-play Show less Reply Paul Belleflamme 1 April 2015 For non-initiated people (like me), MMORPGs stands for Massively multiplayer online role-playing games. De Kort Charlotte 31 March 2015 1. Is the future of the video game industry free-to-play? According to Yannopoulos (2013) because the environment and completion in online gaming has changed and the occurrence of new opportunities is there, business models should be adapted. According to Davidovici-Nora M. (2014) and Lee (2013) there is no superiority of one model over another. According to them each of the…Read more1. Is the future of the video game industry free-to-play? According to Yannopoulos (2013) because the environment and completion in online gaming has changed and the occurrence of new opportunities is there, business models should be adapted. According to Davidovici-Nora M. (2014) and Lee (2013) there is no superiority of one model over another. According to them each of the models has some advantages over the others and some drawbacks. So based on literature it cannot be said if the future will be towards free-to-play games or not. However a trend is been noticed. According to literature the gaming industry evolved from paid to free models (but there are also a lot of hybrid models too). From this I argue that the evolution is towards models that are a mix of paid and free components of which the freemium is an example. A possible explanation of this movement towards the free-to-play games could be that asking a price to play the game is not anymore the only source of revenues. There are multiple options to make money with free games too. A game developer can earn money by running advertisements during the game or thanks to the sale of items players can buy when playing the game. 2. Is the concept indeed sustainable for large titles that involve significant development costs? This is a rather complex question that cannot be answered with a straight yes or no. We can look at this in different ways. To tackle this question we need to be aware of a paradox that can occur in these free-to-play games. The paradox states that a F2P model can be a total hit and lots of people play it but at the same time it could turn out not to be profitable. This because the profitability here is mostly dependent on the correct pricing of the premium features and the amount of people buying for them. Of course profitability is also depended on the base size too. When we compare this with the paid games we note that a paid game that acquired a large customer base, the game will always be profitable (because you pay a price upfront to play the game in the first place). When building a game that requires a lot of development costs it would be a larger risk when you implement a F2P model in comparisation with a paid model because you are not sure that you can recuperate these up front costs with the profit you will be making later when the game turns out to be a great success. However another way to look at this question is by analyzing the Coase conjecture theory. As mentioned in the text the Coase conjecture theory states that a monopoly supplier, of a durable good, will not have much monopoly power to set the price as he wants. This because customers tend to put downward pressure on the price and eventually he sets the price at marginal costs, just like the competitors. In my opinion a paid model will more likely face these problems compared to a F2P model. This because a paid model sets a price (up front) for playing the game. This means that he needs to correctly price its game otherwise he will not reach the necessary customer base. If there are a lot of competing games that offer a lower price, the chances are that customers will chose one of the other, more affordable games. However in a F2P model you do not set a price up front to play the game meaning that you do not have the problem of the Coase conjecture. In the F2P model the customers pay only for the premium features (if they want to) and only for the amount they are willing to pay for it. To come back to the initial question, I do not think that there is one simple answer to this question. Literature itself did not come to an agreement on this matter either. On the one hand, Davidovici-Nora (2014) argues that all models can be adapted to different game sizes and genres and that F2P is not limited to causal and short games. On the other hand Lee (2013) argues that F2P models are limited to causal and short games. 3. Can you think of other factors that determine the success of a freemium strategy in the video game industry? As I mentioned earlier (in question one) the larger range of possibilities to get revenue on the internet can be a possible explanation to the success of a freemium strategy over a paid model. Another factor for the success of freemium could be the significant switching costs it generates when you paid for premium features. As seen in the lectures, switching costs are a very effective barrier for competitors to enter the market and steal you customers. Also I think the customer base of the freemium games will be larger than the paid games because with the freemium games you attract also the people who do not want to pay to play the game. This means that your customer base will be higher and consequently your game becomes more interesting for others to play. Especially for online games the customer base is really important. Also people want to play against or with their friends but it could be possible that you are willing to pay to play the game but your friends are not. Then you can not play with your friends unless you all play a freemium game. If the quality is as high as from the paid games, I think it is not difficult to imagine that the freemium games have an advantage and will become more successful because of the social component in video games. References Davidovici-Nora, M. (2014). Paid and Free Digital Business Models Innovations in the Video Game Industry. Digiworld Economic Journal , 94, 83. LEE R. (2013): “Business Models and strategies in the VGI: an analysis of Activision- Blizzard and Electronic Arts”, June, Master Thesis in Management Studies, MIT. YANNOPOULOS P. (2013): “Business Model Innovation: Literature Review and Proposition”, Proceedings of International Business and Social Sciences and Research Conference, 16-17 Dec., Cancun Mexico Show less Reply Masson Martin 31 March 2015 For my part I have try many freemium games on my smartphone and have made few in app purshase. I enjoy reading this article and ask myself few questions concerning the sustainability of that type of games. I think that those type of games have a bright future if they are enable on devices that we already use for others things…Read moreFor my part I have try many freemium games on my smartphone and have made few in app purshase. I enjoy reading this article and ask myself few questions concerning the sustainability of that type of games. I think that those type of games have a bright future if they are enable on devices that we already use for others things such as our smartphone.Indeed according to a study realease by superDataresearch mobile gaming will represent a $7.5 billion worldwide market by 2015, tripling from $2.7 billion today People will not want to pay a fixed price to use a gaming consol for playing this type of game. Moreover the cloud alows the developer to reduce the space that those game need to function on devices and that will allows higher mobility and connectivity for the user. I thought about two factors that determine the success of that freemium strategy. First as said in this article, the developers need to increase the number of users by investing, developing his brand awarness and that can be done by using marketing. Making advertising on tv for example. Some developers such has supercell have notice this point and even pay one ad on tv during the super bowl. Which you can imagine the price.( https://www.youtube.com/watch?v=GC2qk2X3fKA ) A second point is that those games do not enough maintain the link with not paying users by always adding some new elements to the game. Innovation is for me a key element that must be taken into account. Indeed I think lot of player that don’t want to pay at first feel wronged and quickly leave so that the user base and the conversion rate remain stable. Innovate for them is a key element of the strategy. I also still wonder why prices are so high in some game like 80 euro for 1000 virtual coins. I think the success of those games will depend on the ability to put very low price to increase the number of conversion significantly and keep a large quantity of users connected on the long term. In addition to that, keeping users also goes along with minimizing the power differences between buyer and non-buyer so that everyone still enjoy the game ( speaking about own experience). That is why putting in place a price for activities such as decreasing the time of improvement of a building or enable to reload the energy by purchasing are effective in that kind of strategy. Only user who want to go faster pay but are not especially stronger. An additional positive point for developers is that this strategy alows them to put advertising in their games and make their customer pay to disable it whish was not the case with pay to play game. That increase the revenues. They can also make the users watching advertising content by offering them additional coin when the video is finish and that is an advertissement space which is valuable for the developer because they can target segment and be sure the consumer is watching the ad because that is him who was asking for it. I have in mind that game can be profitable only by using advertising space. Future of freemium games developers looks good. They just have to make the right choices and develop the strategy that fit with their game. Sources: -Davidovici-Nora, M. (2014).Paid and Free Digital Business Models Innovations in the Video Game Industry, Digiworld Economic Journal, 94, juin, 83 – http://rpgparadise.com/games/general/the-growing-trend-of-freemium-games-a-look-at-the-future/ – http://en.wikipedia.org/wiki/Free-to-play – http://www.geekwire.com/2013/gamehouse-thinks-freemium-gaming/ – http://en.wikipedia.org/wiki/Episodic_video_game -http://www.mediabuzz.com.sg/asian-emarketing/game-based-marketing/1663-free-to-play-f2p-games-from-a-business-perspective Show less Reply Ana Martínez Alcaraz 31 March 2015 When an industry is striked by piracy as the videogames’ industry, it is necessary reinventing. One of the measures taken by the producers has been free-to-play. Ubisoft chief executive Yves Guillemot said in an interview that 95% of the computer users are pirates. In this case, it is obvious that making profits is an impossible task using the regular format…Read moreWhen an industry is striked by piracy as the videogames’ industry, it is necessary reinventing. One of the measures taken by the producers has been free-to-play. Ubisoft chief executive Yves Guillemot said in an interview that 95% of the computer users are pirates. In this case, it is obvious that making profits is an impossible task using the regular format of videogames. Free-to-play is a natural reaction to the massive vulneration to copyright, even when less than 10% of the users of these games pay for the game at the end. This is the reason because in my opinion free-to-play is not the best model to produce titles that require high developing costs. Those costs are so large that is too risky offer the product for free without any guarantee that the users will pay for the game in the future. Indeed, we can observe many examples of free-to-play games with poor graphics and gameplay, sign of low financing. One of the factors that make freemium strategy successful in the videogames industry is, without any kind of doubt, the social component of videogames, increasingly present. With the arrival of Internet into our lives, videogames have become more and more interactive. Nowadays we are able to play with people from other countries in our homes and this have given to the videogames industry an opportunity to explore new ways to play and enjoy the experience. At present is strange that a certain videogames do not include a multiplayer mode but some videogames squeeze this possibility more than others. The experience in some videogames, like that games played in Facebook, depends largely on the ammount of friends that use the game in Facebook. This type of games are more successful insofar the user base is wide enough, hence these games work better under free-to-play than other less interactive. Source: http://www.whatgamesare.com/2012/10/the-free-to-play-triangle-game-economics.html http://www.theguardian.com/technology/gamesblog/2012/sep/12/yves-guillemot-ubisoft-interview Show less Reply Heijmans Gaëtan 31 March 2015 Free-to-play is a new concept. It allows customers to play at a video game for free or even to try this one. The concept of micropayment is also important to notice because it make the concept sustainable and profitable. Free-to-play can be explain as free with purchasing options. It can be apply in other categories than video games. A…Read moreFree-to-play is a new concept. It allows customers to play at a video game for free or even to try this one. The concept of micropayment is also important to notice because it make the concept sustainable and profitable. Free-to-play can be explain as free with purchasing options. It can be apply in other categories than video games. A good example is Dropbox. Drew Houston said that: “the fact was that Dropbox was offering a product that people didn’t know they needed until they tried.” (3.) It can be said for video games too. People who normally would not have played at one video game can try and be surprised. An important key factor that determine the success of the freemium strategy in the video game industry is that all developers have to make a judicious distinction of free and premium content ad to take care of the price sensitivity of the customers. (1.) Both need a perfect understanding of the target audience. In some games like ‘Candy Crush’ and ‘Clash of the Titans’, putting a finite number of moves or actions to take before waiting a period of time is the best solution to facilitate the distinction of free and premium content. (2.) Making an error can be fateful. For example, ‘Angry Birds Go!’ is a standard kart racer with various stages. The business models of this game is based on a freemium strategy. But they don’t make a good choice in their freemium strategy and particularly in the distinction of free and premium content. Their choice to urge gamers to pay once their driver had gotten ’’tired’ made a lot of waves (2.) The freemium concept runs out of steam. The audience now is used to it and they won’t be easily ‘duped’ by the concept. It becomes more and more difficult for the developers to set the right strategy that make the difference between a Game on the Year and a cash grab. The concept can be sustainable but the freemium strategy is not the future for the video games. I think that the business models like episodic games are more the future than the free-to-play video games. It reduce the price of playing video games for the customers. Because testing the first episode influences the choice of purchasing the following content and if you are not enjoyed by the game you will simply stop to purchase and play. Customers don’t feel ‘duped’ compared to free-to-play video games. 1. http://www.siegelgale.com/white_paper/working-for-free-applying-content-strategy-to-the-freemium-gaming-model/ 2. https://gigaom.com/2013/12/20/2013-was-the-year-of-freemium-games-but-2014-may-not-be/ 3. http://techcrunch.com/2011/09/04/complete-guide-freemium/ Show less Reply David Suarez 31 March 2015 Although is irrefutable the fact that F2P business model dominates in the mobile market and P2P successful games are becoming the exception instead of the rule, it would be a mistake to think that one model is superior and will eliminate the other; in fact they are two different model that –should- aim to two different market segments. Companies developing…Read moreAlthough is irrefutable the fact that F2P business model dominates in the mobile market and P2P successful games are becoming the exception instead of the rule, it would be a mistake to think that one model is superior and will eliminate the other; in fact they are two different model that –should- aim to two different market segments. Companies developing good quality titles will be recognized by consumers and will have a greater edge over companies relaying solely on the business model as their key for success, i.e. according to the type of game, companies select the business model that best suits it and build their revenue from there, not the other way around. The console market is a good example of it: F2P games are becoming an important part of this market but there are no signs of the rapid takeover that occurred on mobile. Games are still willing to pay large amounts of money in exchange of a great game experience (especially for premium, well-recognized brands). Another fact that support the survival of the P2P business model is the design of the games; not all the games are apt to F2P monetization (take for example the case of Walking Dead game mentioned in the article about episodic games). I consider that F2P model will soon dominate sales across all different platforms but it won’t eliminate direct product sales, the final effect will be a bigger market for game developers. However, it is worth mentioning some of the complaints coming from P2P about F2P games. The first one is related with the negative connections created by F2P games and the possible long term damage to the market as a whole. According to P2P most of the F2P games don’t monetize on a “positive moment” but on the frustration of gamers (like when a gamer spend on Candy crush after failing to complete a level 40 or 50 times). The second most important critic is that F2P developers are taking out for free low quality games that nobody cares about, giving the impression that even P2P games will be of low quality too (hence the surge of free demos and similar strategies for P2P). To support these arguments they highlight data showing low levels of engagement (66 per cent of mobile games are not played beyond the first 24 hours), incredibly small numbers of paying customers (two to three per cent), 20% of games that are opened once and never again, and 50% of total revenue coming from just 0.2 percent of players. In general, the problem revolves around the dangers for the industry of having generations of gamers that increasingly expect more and more content for free. About the success factors I would include the “influence” of the store or market place. This is especially evident in the mobile game market where the stores (Appstore, Play Store etc.) feature some of the games in their front page or within a special category like Editor´s Choises. Using tools and analytics like the ones provided by App Annie show how the visibility of games changes drastically when comparing pre and post-exposure, indicating somehow that most (if not all) the games that have seen some success had been previously featured by the app stores. Again, for P2P games it is more evident because even if successful, they can rarely make it into the Top Selling, or Top Grossing Charts (the third most common chart is Top Free). So the game of seducing the store plays also an important role, even more if the company cant afford professional marketing and PR upon the release of games. A consequence of this influence of the store is the high concentration of revenues, for example in 2013 mobile games made over $10 billion globally but the makers of Candy Crush alone took almost $2 billion; when including the top ten games there is not so much left to divide among a huge number of competitors. Sources: http://www.gamesindustry.biz/articles/2014-05-12-fireproof-free-to-play-isnt-giving-players-what-they-want http://www.prnewswire.com/news-releases/swrve-finds-over-35-of-all-in-game-revenues-are-delivered-in-the-first-three-days-of-player-life-254526381.html http://www.prnewswire.com/news-releases/swrve-finds-015-of-mobile-gamers-contribute-50-of-all-in-game-revenue-247246771.html http://www.polygon.com/2014/5/9/5699058/free-to-play-mobile-candy-crush-the-room http://www.appannie.com/apps/ios/top/?device=iphone Show less Reply Paul Belleflamme 1 April 2015 Your last paragraph refers to what we discussed last week about the long tail. By the way, P2P is the usual acronym for ‘peer-to-peer’ opt ‘person-to-person’. I suppose that you use it here for ‘pay-to-play’. Linsmeau Hélène 30 March 2015 In my point of view, we cannot say that the future of all the videogame world is free to play but we can certainly say that this economic model has chances to survive. Indeed as explained in several articles, there are several advantages for the free-to-play model: - The adaptation of the game to the customers’ needs - No access’ barrier: the customer does…Read moreIn my point of view, we cannot say that the future of all the videogame world is free to play but we can certainly say that this economic model has chances to survive. Indeed as explained in several articles, there are several advantages for the free-to-play model: – The adaptation of the game to the customers’ needs – No access’ barrier: the customer does not have any incentive to not try the game – Less marketing effort from the company thanks to the viral marketing and the network effects (feeling of group belonging for the consumers) – Less distribution cost because of dematerialisation – No piracy – The multitude ways to finance the game : freemium pack, advertising, partners, access to the restrictions “areas” of the free version and micro-transactions for some features An Associate Professor at Telecom-Paristech and member of I3-UMR9217, Myriam Davidovici-Nora goes even further and analyse 4 main motivations for MMO games to switch for a free to play model (cfr.) : “- Targeting the long tail and managing the end life cycle – To boost players acquisition after a recent release failure – To widen the hardcore players target to casual players – To capture business and financial opportunities for already successful franchise ” These compensate the disadvantages including as the most important the non-guarantees of any payment, the developers are not sure to find enough money back to make profit. Linked to this, how attract consumer to pay ? As soon as the game is downloaded, the game industries need to be pleasant for the customers so that they continue to play. Then they need to increase their interest for fee-based features. A study revealed that only 6% of the F2P gamers do more than ten purchases. It shows also that the firsts motivations to pay are for advantages in comparison to concurrent players, for more parties and to boost scores (cfr. ). Some from the game industry like Pascal Luban (cfr.), a game designer and creative director, go even further into the analysis and think that the future of the games are not only on laptop but also on other devices as well as smartphones and tablets. This will lead to a different way to play from the customer. They will spend a shorter time playing but more frequently and this is a challenge for future developers to adapt rules, design, price, quality, etc. of their creations. References used: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2534022 http://tcjg.weebly.com/uploads/9/3/8/5/9385844/davidovici_nora_tcgj_23_martinmas_2013.pdf  http://web.fr-hmd.com/Hi-media/cp/info_fr.jpg http://www.gamedesignstudio.com/biography http://www.jeuxvideo.com/news/412204/mmos-quel-modele-economique-adopter.htm https://books.google.be/books?id=Qc8NBwAAQBAJ&pg=PA155&lpg=PA155&dq=why+adopt+%22free+to+play%22+video+games&source=bl&ots=wkI4ip_qF9&sig=3VJNjCDOa44awQOYX0XawMup7N0&hl=fr&sa=X&ei=E5MZVcyVEtLO7Qb-w4GoCw&ved=0CE8Q6AEwBQ#v=onepage&q=why%20adopt%20%22free%20to%20play%22%20video%20games&f=false http://www.afjv.com/news/2857_les-motivations-des-joueurs-a-payer-dans-un-jeu-free-to-play.htm http://www.afjv.com/press1105/110523_etude_evolutions_types_jeux_video.php http://www.afjv.com/press1008/100826_game_design_free_to_play.php (and following parts) Show less Reply Pierre-Yves Peeters 30 March 2015 After having read these two articles, I came to personnal conclusion that the concept of free-to-play is indeed the future of video games. Big licences like League of Legends of Riots (since 2010) have already proved that their business model is free-to-play. And more than that, these licence are not pay-to-win, but pay-to-entertain. I am myself a player of this…Read moreAfter having read these two articles, I came to personnal conclusion that the concept of free-to-play is indeed the future of video games. Big licences like League of Legends of Riots (since 2010) have already proved that their business model is free-to-play. And more than that, these licence are not pay-to-win, but pay-to-entertain. I am myself a player of this game, I noticed several non negligeable network effects. The first one is very similar to what has been discussed in the article. Licences begin to reward more the player who plays with friends than users playing alone. This clearly increase the user base and the strengh of the community. One problem for that kind of games is that they may look hard to handle at the first glance and thus discourage the begginers. This is why the developers added chat boxes where people can exchange about their gaming experience. Players can “reward” other players if they had been helpfull through the match. Thanks to that, the behaviour of players is good because it is stimulated by the fact others will reward them for that. Secondly, and (in my opinion) this has to be watched carefully by the economist, e-sport is more and more importance in the universe of gaming. Indeed, last year the final of the League of Legend Worlds encounter a enormous success. This took place in a football stadium in Korea and has also widely been spread on the web. Thousands of gamers were in the stadium and millions has watched it on the web. This interest also strongly increased the user base. E-Sport is such important in Korea than they now have an e-sport minister. It is indeed difficult to measure the influence of those two kinds of effects on the conversion rate. However, licences who often release patches to improve the game easily sell payable content. Indeed, they looks like licences who listen to their community and solve the problem they encounter. Players like the game more and more and thus will easily spend real money in order to better appreciate their online experience. Show less Reply Paul Belleflamme 1 April 2015 Interesting comment but not that helpful for other readers as you have forgotten to mention your sources… Gérard Christophe 30 March 2015 I have a divided opinion on the future of video game and especially free-to-play. For this comment, I will divide the consumers of video games in two sections, «geeks » and « casual players » who are the two different kind of players on the market. The first part are the players who are looking for the novelty, new sensations and…Read moreI have a divided opinion on the future of video game and especially free-to-play. For this comment, I will divide the consumers of video games in two sections, «geeks » and « casual players » who are the two different kind of players on the market. The first part are the players who are looking for the novelty, new sensations and who are « occasional/casual players » (more on consoles than PC). I could take the example of the « Wii » which was a great success with lower performance than their competitors. It revolutionized the video game industry thanks to his motion detector. I think the future of video games for these people is the innovation. For instance, with the « oculus rift », a « virtual reality headset for 3D Gaming » which will revolutionize video games again. With these players, who favor beautiful and innovative games with amazing graphics, it will be so difficult and risky for developers to include a free-to-play strategy because of the development costs of all these technology. The second section of players are the « geeks » who are faster addict to video games and who can spend a lot of time on it. Thanks to the « smartphone revolution », the freemium game is « actually the best business model for multiplayer video games ». But I think the freemium game is reserved to geeks. Indeed, the user base of a freemium game (which has the goal to sell additional content) will include casual gamers, but they only will test the game and often stop it after a while because of the big time you have to spend to progress in the levels of the game. I will take the example of a smartphone game, « Clash of clan » (CoC). The game itself is not revolutionary (basic graphics,…), but what it offers is very addictive. The delevopers pass to reach the two network effects. Firstly, they have a large user base thanks to the word-of-mouth and a certain « buzz ». Secondly, with the increase of the user base, developers have developed additional premium contents which motivates more consumers to download the game and the contents (Gems on CoC that you have to pay with « real-money » ables to construct faster building and to evolve faster). Moreover, thanks to the switching costs that developers has created, competitors like « Fire Quest » have difficult to compete with « CoC ». Personally, I think the most important factor that determine the success of a freemium game is his addictiveness and that’s why each developer has to work on it if he wants to be competitive on the market. To conclude, I think developer must adapt his strategy to the target of players he wants to reach and the kind of game developed. If you want to create a game which is expensive (we have the example of Destiny), I think you can’t purpose a freemium game. On the contrary, with basic games that could be sometimes more addictive, it’s better to offer a free-to-play game which will bring money with additional contents and advertising. Sources : – http://www.lemonde.fr/economie/article/2012/11/12/la-revolution-permanente-du-jeu-video_1789140_3234.html – http://uk.businessinsider.com/sean-plott-explains-why-he-thinks-freemium-games-are-the-best-business-model-for-both-players-and-developers-2015-3?r=US http://www.lexpress.fr/culture/le-jeu-video-destiny-bat-deja-le-record-du-budget-le-plus-eleve_1574355.html Show less Reply Justine H 30 March 2015 In today’s digital era, the concept of freemium is an interesting one in so far as it enables many people to test a product for free, which is a risk they may not take if they had to pay for it. It is a model in which users can get a basic version of a product at no cost but…Read moreIn today’s digital era, the concept of freemium is an interesting one in so far as it enables many people to test a product for free, which is a risk they may not take if they had to pay for it. It is a model in which users can get a basic version of a product at no cost but without having access to all functionalities, updates, special features and content, etc. Any consumer willing to get “more for the money” is able to pay a premium fee to access the full version – that is the premium version – according to their private valuation for it. We can find many examples such as : – Games applications on smartphones : Candy Crush, Fruit Ninja, Temple Run, etc. – Digital newspapers : in the free version you can access parts of articles, synthesis of articles, etc. Any consumer willing to get more information can pay to get the full content of articles. – 8tracks (music site) : in the free version you cannot skip to the next song more than 5 times a hour. – LinkedIn : the premium version enables to get complete contact information of people consulting your profile, etc. Knowing that one of the objectives of LinkedIn is to find an employer, people looking for a job would agree to pay. – Microsoft Office suite : recently Word, Excel and PowerPoint have been made free for smartphones, tablets and any device with a screen of less than 10 inches. The objective is to attract as many customers as possible then some of them will pay to get the suite on their computer. These last few weeks the revenues of Microsoft have been increasing thanks to this. The difference between a paying game and a freemium game is that in the first case developers have to determine the price before launching the game (fixed price) while in the second case developers make it possible for a large number of users to test the game and some of them will pay according to their personal preferences and needs (variable price – price discrimination). On one hand some users will never buy the premium version but on the other hand some other users will pay more that they would have paid without the freemium version. A freemium strategy is successful for the following reasons : – Developers can attract more users (user base) without expending marketing resources, and therefore more potential buyers. – As they attract more users, they can get more feedback, enabling a continuous improvement of additional features. – They can also gather information about users and the type of purchase they do, and therefore they can prioritize their sales efforts. – Users have always loved what is free and they find that free access more attractive than limited-term offers for example. – Every user is able to define himself exactly the value they attribute to the game and the amount they are willing to invest to keep playing and improving its experiment. However, a freemium strategy does not work for any kind of businesses. The success will depend on the number of users converted into paid customers, measured by the conversion rate. Moreover, in order to succeed, companies should ask themselves the right questions such as what is free in the version, are the characteristics of the premium version clear to consumers, is the premium version clearly differentiated from the free version, is the marginal cost to support a free user negligible, etc. To conclude, concerning video games, as even consumers who do not purchase the premium version contribute to the success of the game – by helping to grow the user base and conversion rate and by collecting data about them, it seems that freemium is probably the future of video games. More generally, in light of the various fields in which we meet that kind of economic model, I would say that this model has a promising future if deployed the right way in the right business. Sources : http://www.freemium.org/what-is-freemium-2/ https://hbr.org/2014/05/making-freemium-work http://tomtunguz.com/when-to-go-freemium/ http://www.startup-marketing.com/the-3-keys-to-success-with-freemium/ http://www.ign.com/articles/2012/07/20/the-dark-future-of-freemium-games-and-how-we-can-avoid-it http://blogs.office.com/2015/03/24/mobile-versus-professional-thoughts-on-the-office-business/ Show less Reply Willems Robin 28 March 2015 First, it is understandable that video games companies that already have a massive fan base decide to create freemium games. Indeed, they have the economic resources gained by the previous investments to create freemium games with higher development costs and thus better quality to have at the end an advantage on the other companies. However, it might also better for…Read moreFirst, it is understandable that video games companies that already have a massive fan base decide to create freemium games. Indeed, they have the economic resources gained by the previous investments to create freemium games with higher development costs and thus better quality to have at the end an advantage on the other companies. However, it might also better for smaller companies to create freemium games. For a company which doesn’t have yet a sufficient fan base, it is better for it to have a million of players but only 1% of them buying a 1€ product than 10 000 players buying a game at 1€, for it therefore creates a larger fan base, and future buyers. A good example of this is the game Temple Run. Launched in august 2011 on iOS, it was first sold at 0,99 US dollars but the developers chose to make it freemium several months after . The game worked way better on the market and Temple Run has been now downloaded more than a billion time (every platform reunited), and the next game Temple Run 2 has been downloaded more than 50 million times after two weeks . Moreover, freemium strategies might also be good for the industry. While early adopters are often the easier to convert, late arrivers are harder to convert. In order to make them become premium, we need to continue creating upgrades or increasing the value of the premium state. It is therefore a commitment to innovation, which can boost the industry. Freemium strategies are based on an equilibrium between what’s free and what’s not. If the free part of the game is too big, then there’s less reason for a player to go premium, and on the other hand, if the premium part of the game is too big, it will attract less free players, and thus less potential premiums. Companies have to find the optimal ratio according to their customers. Also, companies have to think of what are they offering to their premiums, but also what could be the effect on the free ones. According to the kind of product sold and the genre of the game, premium players might have a negative effect on the community. For example, War Rock is a freemium MMOFPS launched in 2004, where players can purchase 3 levels of “premium state” . Until 2012, players that were buying the full premium state were way too powerful in comparison with free players, which led to complete unbalanced games and thus less gamers . In this case, the effects of premium gamers on free gamers were to strong, and led free gamers to leave. However, since 2012, War Rock has been bought by Nexon and the balance of the game has been equilibrated. It shows that what the companies choose to grant to the premiums might affect the free users as well, and must be well thought before. Such companies as Zynga, leader in Facebook games, decided to use the freemium system to sell what was before normal to have for free: the right to play. For some games like Candy Crush Saga, the player only has a limited number of attempts to play, but can buy more via micro transaction if he doesn’t to wait for more. Highly efficient in the beginning, Zynga is now facing a huge retreat of players that realized that what they were buying what was supposed to be free, leading to a 70% loss of the share in last December . For it is a kind of game that is growing more and more, players are getting therefore more used to some freemium strategies. I personally think that if freemium practices are going to be the future of video games, companies will have to get rid of toxic practices that were working at the beginning, but won’t anymore. Players will soon get in touch with various form of freemium, via multiple platforms or different products, and they will slowly build their preferences into that new system. This will lead the companies to offer via premium to gamers real adds, and not features that were free in the past, or that could destroy the game experience. Moreover, I think that the companies that will succeed in that system will be those that treat all their audience like gamers, and not possible premium gamers.  https://gigaom.com/2013/12/20/2013-was-the-year-of-freemium-games-but-2014-may-not-be/  http://toucharcade.com/2013/02/01/temple-run-2-downloaded-50-million-times-in-less-than-two-weeks/  http://fr.wikipedia.org/wiki/War_Rock  http://www.mpogd.com/news/?ID=3102  http://www.ibtimes.com/something-nothing-how-videogame-industry-adapting-freemium-world-789466 Show less Reply Paul Belleflamme 1 April 2015 Interesting analysis. The potential negative external effects exerted by the ‘premium gamers’ on ‘free gamers’ is an important point. Leave a Reply Cancel reply Your email address will not be published. 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