Pyro Beanie: Team Fortress 2 makes its money by selling stupid hats.
Every year around this time I begin a deeper descent into the world of gaming. As Editor-at-Large of Games Magazine, and a writer for many others, I keep up with games year round, but in July and August, I co-edit the Games Magazine 100, an annual awards issue and buyer’s guide to the best of gaming, both cardboard (traditional board and card games) and silicon (video, computer, and mobile). I create a lot of lists and examine the entire panorama of electronic entertainment, then try to extrapolate some trends and pick some titles that stand above the rest.
The biggest trend, of course, is mobile and social gaming, and it shows no real sign of cresting. In fact, it appears to be warping the entire gaming industry, leading people to expect great, fun games for a couple of bucks. Conventional electronic games are in trouble, with some estimates placing the sales fall-off in excess 25%. That’s heavy-duty for a business that only a year ago was still being called “recession proof.”
Companies are scrambling to find some way to make up the revenue shortfall, and they’re hit upon a strangely magical and counterintuitive solution: giving away their games. Epic’s Tim Sweeney says it’s the next big thing. After Crysis 3, Crytek is doing it exclusively. John Riccitiello and Peter Moore (EA), Yves Guillemot (Ubisoft), and American Magee are saying it has a bright future. The verdict is in, and “free to play” is the new black.
When Peter Moore gets excited about something, it’s time to make sure you have a good hold on your wallet, because it’s about to get picked. You want to know what has John Riccitiello pumped? The realization that some gamers are paying $5000 a month to pay the “free” FIFA Ultimate Team.
What the money men are looking at is something called ARPU, which is “average revenue per users,” and it’s much, much higher for freemium games. You ever look in the App Store for the most profitable iOS games? Ever notice something? They’re all “free.”
Gamers are paying more, on average, to play for free than they do for $60 skus. This is because the costs tend to be hidden and the expenses creep up on you. A buck here, five bucks there; a little horse armor here, a new character set there: each microtransaction feels fairly small, and thus lowers the consumer’s natural psychological resistance to spending large amounts of money. But each of those transactions adds up very quickly. People pay more per user on freemium than they do on premium because they’re being manipulated. Riccitiello calls this a “dirty little secret.” Dirty? Yes. Little and secret? Not so much.
Serious gamers have another name for “free to play.” We call it “pay to win.” Many “free” games are only free at their lowest levels. If you get into something and expect to be anything other than a greasy spot by the side of the virtual road, you need to pay. That is not a problem on its own. Id Software made their millions through the shareware model, in which a few levels were free as a demo, and then you had to pay to get the full game. It was, essentially, the drug dealer model: first taste is free! After that …
But shareware was an interactive demo with a trigger-point: you made a choice, committed to the purchase, and you were done. Publishers have discovered that if they don’t push people to make that larger financial commitment (say $30 to $60) all at once, their resistance threshold is much, much lower. Gamers get committed, and then rather than reaching a single tipping point and investing once in a game, they make repeated, impulsive choices to invest smaller amounts, often losing track of just how much they’ve spent. As Riccitiello observed to shareholders, “When you are six hours into playing Battlefield and you run out of ammo in your clip and we ask you for a dollar to reload, you’re really not that price sensitive at that point in time.”
Just stand back and soak in the crass manipulation of that statement, and then tell me with a straight face that this is ethical marketing.