[In the third installment of his feature series, Simon Ludgate examines the evolution of the free-to-play MMO, and how games can implement -- or how they should implement -- different monetization schemes for best economic benefit and user satisfaction. ]

In Part 1 and Part 2 of this series, I discussed the game mechanics of economies and how they relate to game design decisions: how to make games fun and fair by designing economies for the types of worlds that exist within MMORPGs.

In this final installment, I'm going to take a step back from the game-centric theory and look at game design from a marketing perspective, and discuss how the recent trend towards the free-to-play model for monetizing games affects game design and, in particular in-game economy design.

This is a particularly interesting topic, because many "F2P" games rely on a dual-layer economy in order to prosper: the in-game and microtransaction markets have varying degrees of intersection in different games.

The free-to-play market transition has not only been important because of its success, but also because of how it challenges deeply-rooted conventions and ideals that have existed at the core of marketing since the first goods were bartered.

That basic idea is "everyone pays." It's the basic idea that's fueled the endless war on piracy, for one thing. Pirates aren't paying! Marketing is in uproar! It's the gaming apocalypse! But does this idea even make sense with digital goods?

Video games are a type of good that economists class as "non-rivalrous." This means that, if one extra person "consumes the good" (economic-speak for "plays the game") it does not cost the producer any more (zero marginal cost of production) and it does not cost the other consumers any more (non-subtractable, meaning it doesn't stop anyone else from also using it at the same time). This means that if someone pirates a video game, it does not have any impact on either the producer or other consumers of that game. Strictly speaking, of course.

Video game publishers have long equated piracy with lost sales, which in pure economic parlance isn't true. Technically, it's a failure to sell; a marketing failure that has less to do with "stolen" product and more to do with an inability to persuade consumers to pay for a product that's otherwise available to them for free. The video game industry needs to take a lesson from the bottled water industry and worry more about branding and prestige than "lost sales". Every glass of tap water is a "lost sale" for a bottled water company, but you don't see them slamming the DCMA on municipal water systems, eh?

The games industry's thirst for payment from every single consumer has led it to conflict with consumers at large; a conflict currently being targeted for juicy profits by the new cadre of free-to-play game makers. Rather than trying to squeeze blood from stones, they set up their buckets and wait for it to rain. And when it rains, it pours! Especially when it comes to an overused analogy...

Back to the Basics: Marketing to Individuals

In order to understand recent trends in F2P game design, I need to take a look at how they developed. We start at the obvious point of origin: the traditional subscription-based model. A subscription works on the principle that every consumer of a good pays the same price and has the same access to some good. This can mean unlimited access, beyond what a subscriber can possibly consume.

For example, I used to subscribe to cable TV, which meant a flat monthly fee and access to 80-odd channels. I couldn't watch TV 24 hours a day for a full month, so the amount of value I got out of my subscription fee varied. Moreover, I couldn't watch all 80-odd channels at a time, so I was, strictly speaking, paying for several thousand times more TV than I actually watched.

But it was fair. Everyone paid the same fee, everyone got the same channels, everyone watched as much or as little of whatever channel they wanted. The notion of fairness is so important I dedicated the first part of this series to it. That's why I'm borrowing another major concept from my first part to explain what happens in subscriptions: the notions of time and money.

In general, the amount of time and money people have to spend on entertainment are inversely proportionate. That is to say, that the more money you have to spend on games, the less time you have to play them. That's because the things that get you money tend to take up time. The more time you spend getting money, the more money you'll have, and the less time you'll have. I don't mean this as an absolute description of all people, but this explanation holds true for this fairly large group of people.

With that in mind, here's what the subscription model looks like, across a spread of people with varying amounts of time and money available to spend on a game:

The people represented by the left group of columns have the most time and the least money; in this example, not enough money to pay the monthly subscription fee. As a result, that group of people isn't permitted to play the game.

There are two issues with this scenario: first of all, that group of people that's not permitted to play does have some money to spend, just not enough for the subscription. That bar might also represent a disproportionately large group of people, so that small bar might actually represent a very large amount of money.

One option to reach that group is to lower the fixed fee. But then you're charging less to everyone else. Historically, that was the group targeted by F2P: by making the payment options smaller than an arbitrary subscription fee, the hope was to monetize an unreached market segment. We can see how this happens with one of the early F2P payment models, which I refer to as the energy model.