At the 2008 Worlds in Motion Summit, Adrian Crook opened his talk on free-to-play with a look at the larger trends surrounding the business model in the real world. In Vancouver, ad revenues are used to offset the costs of public toilets. Musical artists like Radiohead are using the "name your own price model" and finding success. And European discount airlines like RyanAir utilize the free revenue model by charging for cargo and incidentals, and by negotiating reduced landing fees at airports.
Back to games, Crook said that free to play doesn't belong to a different genre -- fishing games, golf games, RTS and FPS can all be free to play, so it's more than just the casual MMO or virtual world. It's also platform agnostic -- Crook named the PlayStation 3 and the iPhone as avenues beyond the web-based internet.
The increased traffic that free to play invites allows content to be monetized through a broader variety of vectors, Crook notes, demonstrating examples such as Nexon's KartRider, Jagex's RuneScape (which uses a tiered subscription model featuring a free option), and Webkinz, with which the users pay for the toys, but not for the online content. And, of course, Club Penguin, with the same sort of tiered subscription model.
"With free to play, it's all about monetizing attention," Crook pointed out. Among the worlds with the highest userbases, only WoW charges subscriptions. 91 percent of the online PC gaming that kids under 18 do is of the free to play variety, noted Crook, citing NPD stats.
Crook discussed just a few on a long list of free to play revenue models, starting with virtual item sales. "It allows the users to decide their own ceiling," Crook pointed out of this option. The value drivers for virtual goods are their price, rarity and visibility, he explained, with each of these contributing to how much an item is worth to its users. Most of these games, Crook added, utilize a dual-currency system, which allows users to purchase stuff via in-games efforts alone -- in other words, an attention-based currency -- and a real money-based system for the "cash rich, time poor."
Virtual items offer a small conversion rate -- some 90 percent of users will never purchase them, Crook says. Some are consumables, for example, the $10 virtual rose at HotOrNot.com. And yet, he says, it's one of the site's most popular items.
Another revenue model Crook discussed is merchandise. For example, BarbieGirls.com has acquired 9.5 million users in 9 months, through sales of the Barbie doll-shaped MP3 player. Webkinz did $20 million at retail for their plush toys, and MapleStory has an alternate revenue stream with its collectible card game.
The Facebook game Food Fight uses what Crook calls an information-based revenue model. "What's interesting is that their revenue model, at the height of this app, they were getting 36,000 users daily. Now they're getting about a tenth of that due to the viral, flocking nature of Facebook games. And each user would have to fill out two marketing surveys in order to buy the cheapest virtual item there." And yet, Crook pointed out, this would result in a profit for the marketer. Though he admits these are "back of the napkin" calculations, Crook says this example is illustrative of potential to earn significant ROI from a free to play game without ever requiring users' credit cards.
There are design considerations surrounding the efficacy of the free to play model. First, Crook advises creating an environment where the free players receive -- both from the developers and the player base -- an equal level of respect to the paid players. Second, the game should support integrated graphics, be browser-based (or a small download), offering a regional payment system, and providing short compulsion loops to keep players engaged. Finally, user signups should be deferred or minimized as much as possible to allow people to get in immediately and then gather their information incrementally.
Crook points out some growth challenges to free to play, though he notes these are definitely not deal-breakers for the business model. First, there are virtual property challenges. "At some point that's going to be decided by the courts. Hopefully we're out ahead of it," Crook said, pointing out Eric Bethke's forward-thinking endeavor to create an avatar bill of rights. Second, there are differing broadband speeds. And rising development costs will become an issue now with the advent of Electronic Arts' highly-polished Battlefield Heroes. Larger-scale F2P products are going to raise the quality bar, Crook says.
Second Life's slowdown may scare off investors too, Crook adds. Secondary markets, such as those enabled by LiveGamer, may be a risk, too. Finally, after age 18, statistics show females leave gaming and males move to the consoles and away from F2P -- so keeping that userbase engaged is still a challenge.