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Opinion: Freemium Has Won; Time To Move The Debate On

Opinion: Freemium Has Won; Time To Move The Debate On Exclusive

December 22, 2011 | By Nicholas Lovell

I think we can safely declare 2011 the year when the free-to-play model was comprehensively proven.

Zynga floated and raised $1 billion at a valuation significantly above that of Electronic Arts. That is an amazing achievement for a company that did not exist a few years ago and has made games accessible to hundreds of millions of new players by using a new platform and a novel business model.

(The poor performance of Zynga stock post-IPO and the negative sentiment from the analysts don't take away from this amazing achievement.)

Nexon floated on the Tokyo Stock Exchange raising $1.17 billion, even more than Zynga, for another freemium success story.

Meanwhile, on the Appstore, 57 of the 100 top grossing apps in 2011 in the US were free-to-play. (80 of the top grossing apps were games). I estimated that at least 9 of those games made $20 million in revenue. Which isn't bad when they are given away for free.

It's time to move on

I think it has been proved conclusively that freemium can work. Whether it's from huge companies like Zynga, Electronic Arts and Capcom or from startups like the makers of my two favorite games of 2011 Nimblebit (Tiny Tower) and Spry Fox (Triple Town), the free-to-play model is attracting players, making money and, in some cases at least, making good, enjoyable games.

So can we stop arguing about it?

There are some games that can still command a premium (I'm looking at you, Modern Warfare, with the fastest billion dollars in entertainment history). There is still a market for games at single prices, sold in boxes on Main Street, although I think that this is in terminal decline.

What is clear is that for people who make games for a living, freemium is a viable option. It remains, however, incredibly challenging.

2012 Will Be The Year Of Customer Acquisition

We've solved the problem of how to make money from free. We know how to do that. What is more troubling is making profits from free.

The heart of the issue is customer acquisition. It has become insanely difficult and expensive to acquire customers. There are 450,000 apps on the App Store competing for attention. Zynga's success has come from milking the early viral growth of Facebook and converting that into an awesome cross-promotion platform, although there are signs that this is struggling.

Apple shut down pay-per-install businesses that it feared were "distorting the charts," something that would have a traditional retailer snorting with laughter. Conferences were filled with comments like "the cost of acquiring a customer -- not a paying customer, just a regular user -- is around $1 - $1.50."

With marketing costs like that, making money is hard.

It's not impossible, but it's very hard. Developers and publishers will have to find new ways to acquire customers, to retain them, and to monetize them (I call it ARM Yourself). They will have to become as expert at marketing as they are at game development, if not more so.

But please, can we move on from the debate about whether freemium works. Because clearly it does.

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