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The F-Words Of MMOs: Free-To-Play
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The F-Words Of MMOs: Free-To-Play

August 16, 2011 Article Start Page 1 of 4 Next

[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.

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Guy Costantini
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I enjoyed this very much. Good research and valid points throughout. I think your use of the term "whale" reminds me a bit too much of the movie Boiler Room however. I think that your article has a lot of merit without targeting large spenders but focusing more on the community purchasing and sharing of virtual items. I think gaming companies should focus on how this is great for the strengthening of gamer communities, which in turn causes retention and drives up revenues indirectly.

Either way thanks for putting this together.

Julian Hall
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I must admit I have never understood why premium items are limited to the purchasing account. If I'm willing to sell access to feature X for $Y, why should I care if the money was paid by the person using the feature or somebody else?

Will Buck
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Very good series, I've thoroughly enjoyed reading :)

I wholeheartedly agree with your analysis of where LoL falls down a bit (I play LoL rabidly myself, and have purchased gift-cards for teammates IRL).

I fancy myself a community ambassador for Riot, a recruiter of friends and a generally nice person much more eager to help other players learn than scorn them for not learning fast enough. Riot could benefit SIGNIFICANTLY both in terms of good publicity / market expansion (lack of kindness in the player-base is a very common criticism of the MOBA/DotA genre) and *direct* revenue by enabling users like me to "spend" our benevolence on gifted cosmetics / temporary champion unlocks / currency boosts etc.

I would be the "whale" not in terms of having tremendous spending power, but having enough spending power that allowing me to spend on others would increase my spending.

Take heed, would-be F2P developers; Mr. Ludgate has some very solid analysis here. Positivity is working as a business model for many, and good-will most certainly can cover the expense of the "free-loaders"

David Eckelberry
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I'm mildly amused that Simon wouldn't consider a League of Legends customer to be a "whale" after spending over $2K to buy everything in the game.

Ah the F2P community! That's only eleven years of WoW subscription, I guess.

Simon Ludgate
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@Guy & David: Maybe I tried too hard to re-brand the term "whale" from "large spender" to "gift giver." I should probably have just come up with a unique term for the kind of person I wanted to talk about :)

The term "whale" originated in Asian MMORPGs where people spent hundreds or thousands of dollars on free-to-play games. But they weren't buying THEMSELVES stuff; they were buying gifts to attract followers and build social networks. It's related to the Chinese notion of "Guanxi" and doesn't really translate to Western social relations.

So the point of a "whale" isn't in the amount of money they spend, but how far the social reach of their spent money goes. So someone who spends $2k unlocking everything in LoL isn't a whale because the social reach of their spent money goes no further than someone who spends $5 unlocking one skin.

@Julian: One possible reason is because of currency wastage. Lets say you sell in-game currency in packs of 100 coins, and stuff in your store sells for 119 coins. If you want stuff, you have to buy two packs, and end up with 81 coins left, which is really close to 119 so that might encourage you to buy a third pack and... well, you see how it goes. If everyone has to buy coins, then everyone has wastage, and that means more sales!

It also annoys the heck out of people who realize how scammy that is, of course...

@Will: I think you point out the mental challenge F2P developers face: freeloaders aren't an "expense" at all!

In the gift-able item store system, free-loaders are part and parcel with the game's source of revenue. "Whales" can't buy things for others if there are no others for which the stuff can be bought, after all. It's almost like going back to the Faucets and Drains model, except now the "whales" are the faucets and the "free-loaders" are the drains. Ideally, you'd have lots of both! :)

Gary Dahl
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Great article. I really enjoyed your visualizations. I've never worked on an MMO, but wonder whether there are legal considerations/dis-incentives to merging real-world and in-game economies. Selling something with lasting and transferable in-game value seems like it might open the game's publisher/developer to additional forms of liability(?) despite attempts to EULA such liability away. I'm no lawyer, but suspect this may influence some more conservative shops' decisions. If legal considerations like these are a factor, that might make an interesting part four to this three part series(?). Again, thanks for the great article. I look forward to reading through the earlier parts of this series.

Adam Johnson
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We shall see how Diablo 3 works out I suppose.

Luke Shorts
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I don't know if anyone can give an complete answer to how far the legal implications of integrating virtual and real economies extend, but there's two issues that spring to mind.

The first is related to the fact that as soon as you "close the loop" between virtual and real currencies, a number of practices currently used in F2P promos start to look very similar to the legal definition of gambling (and - no surprise! - they are profitable because they are typical "whale bait"), so F2P companies might have to review some marketing policies.

The second is that the legal status of virtual goods is not very clearly defined: a crucial point is whether they should be considered equivalent to normal goods, because property rights cannot be "out-EULAed" that easily. A couple interesting links with news and analysis on the issue (they are not directly related to US law, but can be nevertheless relevant since MMO companies are typically global businesses):

As soon as you open the door of reality in a virtual world, together with additional business opportunities you let in also a lot of complications typical of everyday life. Can you make space for them without letting the fun of escaping in a virtual world go out? I think that's also a pretty harsh challenge...

Joe McGinn
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Spectacularly useful and generous article, probably the single best thing I have ever read on Gamasutra. Thanks so much Simon.

Bruce Mills
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I still consider the Free to Play shift in MMOs troubling. The whole MMO thing is still suppose to be a game, but this piecemeal buying system of F2P seems to be turning away from that.

One aspect of subscription based models that I always supported was that you pay your dues to join the game, and how you do is dependent upon your skill at playing/socializing.

That’s how it would be in a perfect world. The problem with it is not so much the subscription model, but it matters more about what the developer does when they realize their game doesn’t have enough varied content to keep players on board.

If the developer keeps tacking on systems to delay the player from finding out that their game really doesn’t have the breadth of content they advertise, then they’re going to lose their player base anyway no matter what model they do.

Types of delaying tactics:

Experience/Notoriety/Faction Bars

Item Binding

Low Drop Rate

Requiring Set Gear to progress

Set Gear bought from points from consecutive instance runs

Random Set Gear from Boss drops

Instance Lockouts/Timers

None of these are bad, it’s when they’re abused to the point that player is so aware of them that it rapidly affects their enjoyment of the game. Players shouldn’t be coerced to keep playing in fashion. While a company may get more money from the player doing this, they’ll most likely have high a chance of making a disgruntled customer that will affect getting new players.

Here are some questions that I've always wanted asked developers/marketing: Why do subscription MMOs cost around 15 dollars a month? Why has it floated around this number for the last 10+ years?

What is that number based on? I sometimes think that the number is magical value plucked out of thin air, because it doesn’t seem to respond to inflation or the amount of people playing the game which makes me wonder what the company is basing the price on.

I think MMO companies are going about this the wrong way. They shouldn’t be trying to retain players from month to month by stalling player progression or by limiting their character to coerce them to buy virtual items. They should concentrate more on making the time that they have player have as enjoyable as possible. If they liked their experience, they will be back and they’ll most likely bring friends to share the experience.

Jeremy Reaban
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What F2P MMORPG actually due is winnow down the player base to those that have the deepest pockets (or those that live in the game). Everyone else gets driven out by those things listed. And then they soak those remaining players for all they are worth.

Then companies just repeat the process over and over, with new games.

I think F2P might work in the short term, but eventually people will simply get sick of being gouged. I know I am. (Ironically, I quit playing F2P games and bought a lifetime sub to LOTRO, which then went F2P. $300 down the drain...)

Bruno Ribeiro
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"Imagine how many more Riot points Riot could sell if players could meet a friend in a match and, right then and there, gift them a champion or skin?"

About this, I see a problem of security. I worked as a CM for some time and one of the problems we find in MMO communities is "account thievery": some hacker manage to steal your account, trade all your items with his own account, and it's done. It's hard for CMs to track those hackers, so some mechanics, like giving "item currency" easily to another player, are left behind.

Richard Wahl, Jr
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Good article but I think there are a few things to consider.

Particularly the "whales," games are never static. Games MAY be limited as to what is CURRENTLY for sale, but those games are always evolving. They are always adding new items, champions, or other 'widgets' for sale. LoL, LOTRO, EQ2 always add items to their 'storefronts,' thus, I can buy everything today, but tomorrow, I have additional widgets to buy.

Additionally, MMOs as F2P is a hard line to walk. Since MMOs are a persistent world, you have to make sure that the items that are sold, aren't a game breaking item. One that is useful, but not required. Which is hard for MMOs since everyone in a MMO desires to min-max their time to reward investments.

F2P is here to stay, but I don't believe that MMOs will ever go to that model and have the lifespan that WoW or EverQuest did in their haydays. Games such as LoL, DOTA lend themselves to F2P due to the style they are built and the type of game it is. Some are designed for subscriptions and others F2P. Both will succeed in the new marketplace.

Rachelle Teixeira
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Umm... I hate to burst your bubble, but those "F2P: The Next Generation" games have been around for years.

From what I can tell, your only F2P experience seems to be LoL and games like LoTR which were made by western developers and then converted into F2P.

However, the vast, vast, vast majority of F2P games out there were made by eastern developers to be F2P in the first place. All of these games have the system you speak of where you can give item shop items to other players for in-game gold, most frequently through an "auction house".

Good analysis, but you seem to be a bit late to the party.

Robert Kohr
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When working on a game called Constant Sail, I created a system where you could pay to unlock certain ships in merchant areas. You could then buy as many as you would like with in game currency, and even sell them to others.

This doesn't help much with the wale buying everything problem though, since once everything is unlocked he can't buy anything more.

[User Banned]
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This user violated Gamasutra’s Comment Guidelines and has been banned.

Tony Celentano
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Great series of article, but what's mind boggling is that you completely skipped the pioneering of the virtual asset sales model. Many niche games, especially MUDs like Achaea, enjoy moderate financial success due to dual currency models. A dual currency is hands down the best economy model for any startup MMO, I think Matt Mihaly best describes it in this article

William Tan
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First of all - great article! Monetization is really one of the main factors (not the only, of course) in game making, especially for independent game developers. Eventually something has got to pay the bills and fund development, and I'm always glad to see articles that address this area.

What I'm getting from the article is:

1. Subscription based model: Cuts off way too many players because they don’t have money to pay.

2. “Energy model” not good - people with lots of time to play but no money to pay will feel frustrated and not play; people with lots of money to spend typically don’t have that much time to play anyway, therefore they won’t spend either.

3. “Pay for convenience” model. it's the current model that’s generating a lot of revenue, but the it makes developers make crappy games and force player to pay it make it a good game - really isn't what we developers do.

However, Simon, is getting people to pay for gifts for others the holy grail to monetization? I cringe at the thought of months of development funds and effort hoping to be recouped by something as 'optional' as this. Surely there must be something else that is compelling enough for a player to pay, but works to improve, not detract from the game experience?

Jeremie Sinic
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I know this is a quite late comment but I am doing research on the subject right now and this is one of the best articles I have found so far!

Thank you, especially for very useful graphs.

David Lindsay
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Even later... this is still an awesome read.

Helena Zaccaro
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I think its an overcomplicated way of describing the result of the user detached design ideology.

Most companies big or small lack the vision to understand, that elegant mathematics, bold ideas and sales mojo, alone or even together aren't worth much in the gaming industry. Most people I know in the business design these "things" for a sort of "mystical cattle" ... that somewhere out there receives their product/service.

Crafting a HUMAN experience, is intricate enough to require consideration for the actual people receiving it. We all know that we WANT to spend money on the things that we enjoy. That is a single idea that can assure we don't run into most of the errors that we've seen play out as titles.

Passionate and competent people in that regard often are to empathetic to sit down and sharpen the intrinsic value of that experience, thats why in the best companies out there, the people who design great experiences are counter-balanced by market thinkers, and none of them are given the power to override the other side. Because we've had our share of money sucking nightmares and beautiful games that seem to have forgotten they need money to survive, thus don't last much.

Gaming isn't the first service ever offered. There is plenty of trial error knowhow on "services" to be found before you even starting to shape your economy, be it free or premium currency.

If you don't care for the overall quality/value of what you deliver, why should anyone care that you need money?

People might cite WOW as a cunning marketing ploy disguised as a game. (and i think it is).

But what they most often neglect to even look at is the amount of effort the company has invested SOLELY into their customer satisfaction over the years. They valued their customers' experience way before they were able to think about making WOW. And thats a foundation that lasts beyond this or that game TITTLE. Or as the completely detached like to call it the next "intellectual property". As if its a homogenized substance people are obligated to interact with. While this or that "guru" dish out their latest "IP" gamble. Hoping that rolling enough dices will bring out the lucky draw this time. So some of these gambler companies bankrupt all the time. The others understand the service well enough to secure its continuation regardless of what exactly the games are they're offering at the moment.

Good thing is that however slow the users might be, when you flood the market with cheap money grabbing ploys, users inevitably learn to recognize and avoid them. Thats why the good tech experts tend to steer away from gaming companies, they're job security is way better off with companies that develop software thats somehow needed, instead of gambling to see if their gaming executives' understanding of gaming, can hold its own to the real people playing games.