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Yes, good money can actually be made in the rapidly-growing world of free-to-play massive multiplayer online games (MMOs), but just how much can micro-transactions actually generate? Unfortunately, average revenue per user information is often concealed behind the fog of competition by privately held game makers reluctant to report either very high or very low results.
To add to the confusion, some developers choose to report their "average revenue per paying user" (ARPPU) which, by definition, is always more impressive than their "average revenue per user" (ARPU). (Both of these statistics relate to monthly logged-in users, and the amount of monthly logged-in users cited in ARPU is often a fraction of total registered users -- a common metric used in press releases.)
The inability to get at the real "metrics-to-success" can make it extremely difficult for a developer mulling whether or not to enter the free-to-play MMO sector.
According to Daniel James, this "reluctance to clearly report revenues is a deliberate attempt to obfuscate the numbers." James is CEO of San Francisco-based Three Rings Design. "There seems to be a perception," he explains, "that there is a business advantage to not being transparent. But I disagree."
As James blogged recently: "People often ask me, with a wary look such as you'd give a lunatic, 'Why do you dish out your numbers like this?' It's a good question. There are possible downsides, but they are limited; if a competitor looks at my numbers and then goes on to execute better than us, I don't think that has much to do with our numbers. They executed better, that's the hard bit. Well done to them.
"The upside," he continued, "is that the more information that circulates the startup and games community, the more people will share their data. This rising tide will raise all boats. If I can shame my fellows into parting with their data, we'll all benefit."
Indeed, James reveals that Three Rings' MMO Puzzle Pirates takes in approximately $50 each month from each paying user (ARPPU) for a total of $230,000 a month, all resulting from microtransactions.
In February, 2005, James chose to launch a free-to-play version of Puzzle Pirates alongside the original subscription model (which contributes an additional $70,000 each month from subscription fees).
Three Rings' Puzzle Pirates
He admits he really didn't know what to anticipate in terms of revenue; there was nowhere to go to research how well microtransaction-based MMOs did elsewhere.
"We just jumped in," he recalls. "There were no data points and, frankly, every game is different, every play population is different, and extrapolating from one developer's data to your own is, well, an interesting intellectual exercise but it doesn't necessarily tell you what to expect."
Four and a half years later, James has learned a lot -- that the average revenue per user (ARPU) is between one and two dollars a month, but only about 10% of his player base has ever paid him anything. As a result, he says, approximately 5,000 gamers are generating the $230,000 in revenue he sees each month.
"The pivot number -- the number to focus on -- is not the $50 ARPPU but the $1-2 ARPU," he says. "That's the number that a new paying customer is worth to you. If that number were, say, 20 cents, you'd probably have a difficult time building a business."
"But if that number were, say, $3 then you have a good business that enables you to go to a flash distribution site and say, 'Hey, put my game up on your site and I'll give you a dollar for every new user you send me.' They'd surely be interested in that."
(Regarding registered users, a late 2008 press release from Three Rings noted that, over the lifetime of Puzzle Pirates, the game has seen seven million accounts created -- showing that the 'registered user' metric is not particularly helpful in extrapolating revenue-based success stats.)