The Business and Design of Free-To-Play Games


Evolving Business Models in MMOs – Panel


  • Jesse Mulligan, moderator
  • Robert Ferrari, Turbine
  • Hilmar Veigar Petursson, CCP (Eve Online)
  • Nicolay Nickelsen, Funcom
  • Min Kim, Nexon

Is it possible to have one business model for a game for both sides of the Pacific?

  • Min: It's possible, but you need to tailor it for each market. You can do microtransactions in each market. But Korea has a PC cafe market which generates a lot of revenue and we don't have that in the West, so that's one big difference.
  • Hilmar: Eve Online is centrally hosted, so our busines model needs to be adaptable within the same server. We need to build a vast array of options within game so people can choose what they are comfortable with.

What changes have you had to make to attract customers?

  • Hilmar: We put in place a system of in-game codes that can be bought from us and sold player to player. Customers buy the codes with in-game money.

Is Nexon in China?

  • Min: We have made some changes in terms of accounts. When we took Mabinogi from S Korea to China, we had to add more PVP for that market.
  • Robert: We had to build in stuff to account for that market's anti-addiction rules.
  • Hilmar: We need to take more of a lead on this when governments start messing with our games. Governments have very narrow view of market.

F2P vs Subscriptions: is F2P going to take over? Will subs go away?

  • Robert: F2P has a huge influence. But we have been based on subscriptions for years, with some games being around for 10+ years. Subscripitions hit a hardcore audience that is really embedded in those games. But as you expand your audience, they aren't as hardcore anymore and F2P becomes more enticing as subs only wouldn't appeal.
  • Nicolay: Both models work. Hardcore gamers are comfortable with sub model and most of the games with microtransactions have been casual games. But it is possible to have more than one biz model in a game.
  • Min: There is room in the market for both biz models. F2P in North America will make a large push as teenagers can't commit to $15/month, so F2P will work well with them. Nexon saw lots of success when the market went beyond core to mass market.
  • Hilmar: Consumers are changing the business model of games - consumers making decisions. You can play Eve online through our trial program as a F2P program - users are able to "game" our trial system to play it as a F2P game. It's a challenge for companies to adopt the needs of the market rather than keeping their head in sand. People will play the game how they want.
  • Min: We're seeing in S Korea a lot of players have a subscription-based game that is their favourite, but have a secondary game that they play f2p with microtransactions.

Which model will win?

  • Robert: The demographics in LOTRO etc are a lot older: 20-35, male. F2P games tend to be younger, more females, casual, less hardcore. 30 year old males are not playing a lot of F2P and have no problem paying monthly subscription. Younger people and kids are playing lots of games and want F2P for that flexibility. However, F2P microtransaction games can pull in more ARPU than subscriptions.
  • Nicolay: People used to subs have not been in a microtrans environment because those games aren't geared to them.
  • Min: Demographic and psychographics drive the business model choice
  • Hilmar: In China, it is illegal to have an automatic debit for sub based game - user always has to choose. For game operators, it's important to realize that most biz models will be implemented by users. Better to implement them yourself and tune appropriately.
  • Min: It's also based on genre - not many ppl shell out $15/month to play FPS. There are some F2P FPSs now in Asia. Biz model based on genre as well.
  • Hilmar to Min: Would you add subscription to your games?
  • Min: We aim to have a sub without adding a sub - i.e. adding items to mimic a subscription model.

Is there a disconnect between designing for subscriptions versus F2P? Do you need simultaneous development tracks for each?

  • Hilmar: All subscription-based MMOs are merit economies - those with most time, win. But the only thing you can't buy is social merit. To be a purely subscription-based game, you should aim for social merit as it's the only merit economy defensible against outside influences.
  • Robert: There is an opportunity for subscription games to add premium services, but it is critical to look at the business model up front. You can't just switch models halfway through. You can't just migrate to F2P. Sometimes that up front thought doesn't happen though as business and development teams are often separated.
  • Nicolay: Going the subscription route makes it hard to go to China. So if you go subscription route, you need to be able to change later to go to China. You need to find your market and go for that.
  • Hilmar: You can't have a puritan outlook on your business model. People will use whatever business model they see fit, so design the game around that. If you are only subscription, people will use secondary markets to make your game microtransaction-based. Look at telephone services: you can choose how you pay (prepaid, subscription, etc) - we don't have this in games as the industry is not mature enough. We need to design for that mix.

Based on your experience, is an economy based on subscriptions more or less susceptible to grey market (i.e. player to player) transactions?

  • Min: It depends on the game, but in the MMO market it is all about supply and demand. Most companies keep items split - so dropped items are not same thing as bought items. Those item economies are split the same way in F2P - I don't think a lot of ppl understand that.
  • Hilmar: I've seen F2P games with o market challenges as well. Don't see how it is any different in F2P vs subs. If you're leaving a game, you sell your stuff for an 80% discount.
  • Min: We introduced the Maple Trading System to Maple Story so players can sell items to other players for Nexon cash. For players that have time, they can sell the results of their time for money. Can't get money out though.
  • Hilmar: Dual currency systems are a good inhibitor to prevent people from getting money out of the system. Players trading items within the game is not a negative, provided you keep the value within the economy. As soon as you move money out, it has a negative effect on the in-game economy.

Are there any negatives around designing your economy around F2P?

  • Robert: So many more people come into a F2P game so you need to ensure you can support so many more players. With subscriptions, if I am charging $15/month I need to ensure I supply content constantly. In F2P, maybe not so much content needs to be there.
  • Nicolay: F2P is more of a theme park. But items need to have value in order for people to buy them.
  • Min: I don't think it is so dissimilar. In f2p, you still need to make a fun game. We aren't just developing product to sell items, we need to make the game fun first, content needs to be updated constantly. Need to earn your money every day.

What are the challenges on the subscription model?

  • Nicolay: Because players are paying on monthly basis, you need to provide service. The player anticipates certain level of support that has to continue forever. Can't just say here is the game, have fun, don't ask us for help. This is the biggest challenge for developers coming from retail games.
  • Robert: The game is a service... now you need to keep them entertained.
  • Hilmar: If your goal is to develop a subscription game, you need to think about how you develop a merit economy that can't be turned into a microtransaction system later. I suggest designing something that accommodates both revenue models. Trying to fight against what your customers want will always be a losing war.

A number of games from China have converted from subscriptions to F2P successfully - what can you do to convert?

  • Min: There is much more intense pressure in China to go to F2P. There, it is about demographics and peer set, because so many games in china are f2p, other publishers are converting to compete.
  • Nicolay: It happened overnight in China... bam, it's microtransactions. Now publishers say it's the only way to complete. We've been following it, as Western devs, we need to look at that but it's difficult from Norway to understand what's good for the Chinese audience. It's important if you sublicense to listen to the partner you have... a lot of Western pubs that go to the East fail.
  • Min: I've heard that games that go to F2P have done far better than as subs. Games able to get a customer base and monetize it. Maple Story was successful in States because the players it goes after couldn't do subscriptions. We get them in first, then monetize them.
  • Hilmar: In China, people are used to a cash-based economy. There is not a lot of culture around subscriptions and there are also legal constraint as well around implementing a proper subscription model. Westward Journey 3 did it in an interesting way, similar to us.

What will happen to F2P when the first $200M budget game comes out? i.e. WoW goes F2P?

  • Robert: What we're seeing is a shift that a lot of the f2p games are so much lighter than traditional MMOs. Heavy MMOs are beautiful, but that puts a barrier to entry based on min spec - younger demographics don't have these systems. Global expansion doesn't support those specs either. Our games are above 5gb in size, whereas Maple Story is close to 1gb now.
  • Min: What would a $200m f2p game look like? I can't imagine spending that much... the game would be too big. Would a $200M game be a terrabyte game that wouldn't reach a mass market consumer?

Casual users really dislike big downloads and don't like pressing the "install" button. Does the web open that up to us? Is a web MMO as popular as WoW possible?

  • Nicolay: We have it already. If you want to go into foreign markets, you need to be web-based - microtransaction or subs. A web-based game can be just as big - I think it will be even bigger than big client products.
  • Min: In S Korea, people have no problem downloading big client products as the web is so fast. I often wonder if browser-based gaming is an interim step until web speeds creep up and people can return to client download.
  • Hilmar: Most of the subscription games are designed for retail, even though we have no retail component. Take Conan... why not have 1 starter zone, 1 char class get it to 100mb as a download?
  • Robert: Retail will always be around, but we need to design games for ease of entry - so we don't spend 6 hours downloading. Casual players need to get into game very quickly and can't spend their weekend figuring out how to get into the game.
  • Nicolay: Need to be able to get into the game within minutes.
  • Hilmar: Starting Runescape is bliss. You're into it in 2 minutes. That's a big part of its success.

In f2p, you have a store with microtransactions. Do you need more infrastructure than a subscription game?

  • Hilmar: A store is just a market exchange that all games have.
  • Robert: If you have a F2P game supported through retail cards, that's a simple transaction - clean. In a subscription-based business, you will have credit card problems as players can dispute anything on credit cards. The way credit cards are set up, you can dispute any charge. So your CSR costs can go through the roof because of this. Prepaid cards cannot be returned.

Hilmar - do you have zero issues with point cards, Min?

  • Min: We don't see fraud issues at all, but we pay a higher margin on those sales. Credit cards are single digit surcharges.

In terms of distribution, are your costs higher if you are putting these cards out to retail?

  • Min: Offering payment methods relevant to your target demographic is important. Over 20 years old, credit cards are viable. In the teen demographic, prepaid cards are still the dominant form of payment. Maybe SMS payments will come, but it is all about accessibility and convenience. In demographics such as Club Penguin's, credit cards are a big part of their payment methods as parents are paying.
  • Nicolay: I think Habbo has 140 different payment methods. The ability to pay has to be the lowest barrier to entry, otherwise you aren't getting any money.
  • Robert: SMS charges surrender so much margin to carrier, but retail cards may be more expensive just to get into channel.
  • Hilmar: It's puzzling why carriers aren't lowering their surcharges. People would switch to it immediately, resolving credit card issues.
  • Min: There is no access for our consumers to use credit cards. In 2006, we did $8.5M in the US in virtual item sales - in 2007 we did $29.3M in virtual items. Virtually all of that growth came from enabling people to pay.
  • Robert: Companies like Turbine are looking at the console to expand their playerbase. Potentially we can use an xbox payment system, so we don't need to do it ourselves. It's about expanding access for players.

What do you see happening 5 years out?

  • Hilmar: Dual currency systems. Most companies will evolve into local dual currency systems or perhaps an industry movement to have one proper currency system.
  • Robert: 3-5 years out, I think we'll see cross platform online games: pc, console, hybrid models of revenue: F2P, cards, ad-based, subscription-based - there will be lots of options offered so players can choose.
  • Min: 3-5 years out, PC will make a huge comeback. Online gaming will go beyond niche & core - it's going to be mass market. 5 years out there will be much more content out there - right now people are starved for content. Club Penguin fans will eventually need something new.

Will the balance of power shift from EA/Activision to more smaller players?

  • Hilmar: We will see more Nexons, but they aren't a small company. I don't think core game companies are wired correctly to play in that space.. Nexon is a god example of a pure play.
  • Min: You're right - it' s about the DNA of the company. Some companies are wired for online service - those people will make big impact on market.
  • Robert: You hear about big companies all the time, but Club Penguin and Runescape were under the radar for so long, but makign tons of money. The press follows the big names but overlooks the stuff in the background making tons of money.
  • Min: The scary thing to me are the diversified media companies that bring IPs, TV channels, etc. I'm not worred about the EAs.
  • Robert: Viacom is running 7 or 8 virtual worlds... they are monetizing them, driving lots of revenue.
  • Hilmar: I am not worried about diversified media companies. When I talk to them they are unable to understand our business and our direct relationship with consumers. We have lots of experience with that. Most diversified media companies just produce content for their retail channels.


Austin GDC – Day One Video Interviews

With one day down and two to come, Austin GDC is just getting started. Today we snagged video interviews with a couple unique personalities in the free-to-play space, Gene Endrody (Maid Marian) and Mike Zummo (Acclaim).

Behold our mastery of video camera technology!

Gene Endrody, Maid Marian

Gene Endrody is the CEO of Vancouver-based Maid Marian, makers of Sherwood Dungeon - an ad-supported Shockwave MMO with 1.7M unique users a month. Gene talks about Sherwood Dungeon's international market reach, the introduction of RMT into the game for the first time, player acquisition in an ever-crowded space, why he chose Shockwave and much more.

Mike Zummo, Acclaim

Our second interview is with Mike Zummo, Producer and Director at Acclaim. Mike talks about upcoming Acclaim free-to-play games, balancing community-driven design with corporate goals, creating a Flash-based payment system, an innovative free-to-play Facebook app and more.


Club Penguin Founder Lane Merrifield – Keynote and Q&A

Here we are at Austin GDC! First order of business was attending the Lane Merrifield Keynote, entitled "At Their Service: Making a Difference By Putting Players First," where I took copious notes. I have 40 mins while our first video interview (Mike Zummo of Acclaim) downloads from our camera, so here are my notes, cleaned up a bit:

Also, here is our photofeed from today, updated when we can.

Lane's Talk

  • Lane's plane landed at 4:30 this morning due to Ike travel complications. He jokes that if he's slow today, it's not because he's Canadian. I take minor offense, being Canadian myself. :)
  • By putting the player first, better customer support is natural follow through. But we also build better games and stronger businesses.
  • Lane is a huge fan of Walt Disney and was with the company long before they acquired Club Penguin. Lane first job was manning a float in the Lion King parade at Disneyland (shows his employee pass from Disneyland, including Flock of Seagulls hair). He rode the float every day after school and also controlled a 300-pound animatronic crocodile.
  • While at Disneyland, Lane observed that trash got picked up fast and drinks got replaced instantly when spilled. All the staff had a great attitude of service and took care of each other behind scenes. The environment was all about taking care of each other and service.
  • The passion for serving at Disney came from Walt Disney himself. He built it for his kids. Without realizing the parallels, Lance and Lane built Club Penguin for their kids to play in. Lane strove every day to find news ways to make it safe and fun for his kids.
  • Lane makes the point that "Serving must be genuine" - providing his dad's "shirt off your back" gauge of someone's service integrity as proof. In a snowy Canadian winter, someone who would give you their shirt is gold.
  • (Big story about how he's called Jason at his local starbucks. Point was likely about Customer Service Reps (CSRs) not taking time to know their customers.)
  • Lane then reads from a note he sent to his development team after Club Penguin initially launched amid the usual dev team chaos and late nights. The letter was a story about when Lane saw parents and teachers shepherding kids across a snowy road. His analogy to the net was that some companies thought crosswalks and stoplights were the solution to keeping kids safe on net, but kids still felt isolated and unsafe and confused. Danger still existed to those trying to cross. Club Penguin believes kids need advocates - holding their hand, walking with them - and Lane hopes that as a company they always go one step further to pick up that hand and cross the street together.
  • "Crush the Joy" - Lance, co-founder of Club Penguin, coined this phrase. Lance is convinced that before anyone joins the team, they need to have their ego turned down a bit. Hence, Crush the Joy. Dev team members need to work together to serve audience and let go of ego that gets in the way. Devs often wind up front and centre of what we build - we end up building for ourselves and not the player.
  • Club Penguin has worked tirelessly to find people who had a passion for serving kids. Without it, they wouldn't be hired.
  • Pixar has a saying: we put people through a gauntlet to get in here, but once they are here, we treat them so well they don't want to leave.
  • Club Penguin was once fired by a staffing firm as CP consistently turned down highly qualified candidates who weren't right for the position. CP has hired a lot of CS people from Starbucks because they know how to talk to people face to face.CP also hires people out of summer camps, boys and girls clubs, teacher's assistants, etc to take care of player base.
  • Most of the CSRs have rarely done more than email and web browsing with PC before coming in - deep tech knowledge is not as important as people skills. CP does not use automated responses... CSR team personally responds to 5-7000 emails a day.
  • Programmers stand over CSRs shoulders to measure things like mouse travel to make minor changes to CSR interface to optimize work flow.
  • Because real people answer player inquiries, players are more likely to relay qualitative info back to CSRs about issues like game difficulty, suggestions for "white fur" found randomly in game, etc.  CP approached this feedback in a revolutionary fashion: "we didn't do what the kids said would be lame and did do what the kids said would be cool" - applause
  • "If it doesn't matter to a kid, it doesn't matter" - this is the mantra CP works toward. Easy to get distracted and focused on ourselves - easy to get caught up making what we think is cool or what our friends think is cool, but need to remember what the kids think is cool. Should always be striving to serve our audience. That will create better games, work environments and a better business as a result.

Q&A Period

How do you differentiate between vocal minority and whole audience when acting on feedback?

  • CP deals with a certain demographic that can barely type and read. Full time staff reads blogs and forums, play testing is done in office, etc.

Do you use any metric systems for pooling user data?

  • CP does not have a lot of systems for that. We rely heavily on people... emails come in by the thousands focused around certain topics, CSRs gather that info and compile top 10 issues and send out to dev team.

Does CP have any plans to do microtransactions?

  • This is a tough thing for CP to do, due to age of audience. Subscriptions are easier for parents to moderate spending. Subscription model makes it easier to focus on parental needs, versus an ad-supported model. For instance, CP just launched a timer that kicks kids off after a parent-determined aount of time.The cool thing is that there are no advertisers to get mad at CP for doing that - parents wanted it, parents got it.

Any other recommendations for fellow kids world devs, besides serving?

  • Know your audience, keep them in the forefront. CP is fortunate we did not take on any VC as we didn't think it was going to go as far as it did. We used our own credit cards to start it up and didn't need to be accountable to anyone but parents and kids. There were no VCs in our ear talking about the latest research and focus groups, etc.

Would you like to open up new avenues for users to give feedback?

  • There is never a bad way to get feedback from customers. CP also had phone support to talk directly with users. They are open to any new method for feedback.

You slated a percentage of profits to go to charity in the beginning. Was that maintained when you were acquired by Disney?

  • Yes it was maintained and continues to this day. CP does not talk about it a lot as we don't want to turn it into a marketing pitch. "Coins for Change" was our first public charity event - it allowed kids to give their coins to one of three charities. Then, CP took $1M and distributed it proportionally according to how kids put their coins between the three charities. Two billion coins were given, which is remarkable due how difficult it is to acquire coins in the game. Disney never questioned keeping the charity program.

How do you give kids what they want when, depending on the age group, kids can be bloodthirsty llittle monsters? How do you distinguish about what they say they want and what they really want?

  • Kids always ask for beds for their igloos, but it leads to inappropriate stuff so CP will never do it.

What are some of the key personalities or traits you look for when hiring?

  • A lot of it comes from gut If the people doing the hiring are not the type of person CP is looking for themselves, it gets a lot harder to hire the right people. Up in Canada, it's a very relaxed environment well suited to producing those sort of people.

Does CP appeal to an older audience?

  • CP actually has a wider demographic than people realize: 6-14 years old. It takes on a geeky cool thing at the older ages, like Napoleon Dynamite. Older kids spend more time on Xbox but will still hop on for snowball fight wtih friends in CP.

What percentage of your budget goes to Customer Service?

  • Two thirds of our staff, 150 ppl, are dedicated to CS. We are opening offices in Brighton, Australia, Brazil, etc.

What kind of predator protection tools do you use?

  • Predators are not much of a problem for CP due to our filtering tech and massive human presence on CSR. We remove several hundred words a day from system. i.e. "lollipop" takes on undertones due to pop song, so we remove it. Then we review it a few months later to see if it can be reintroduced. A lot less gets through than people realize. Reportable incidences are how these issues are measured and to date CP has not had one. Nothing is ever perfect, but in a sea full of unlocked cars, CP is low-jacked and locked up. Plenty of easier targets for predators.

With two thirds of staff being CSRs, are costs a concern? Would you ever outsource?

  • CP worked hard to build a scalable model and work on efficiencies in CS. We support English alone in Australia, UK, North America, so it's really important to have people in each country that know that region's slang, etc. CP is so passionate about CSR system that we have never brought up outsourcing it.

How will your product evolve to accommodate a more mature userbase?

  • CP has a substantially large writing staff working hard to make sure there is relevance across the board, but realistically, CP will never be able to compete with a 17 year old's console gaming habits, etc. So at some point we need to let them go. Now with Disney we can look at developing other products for those older demographics.

I heard Penguin Times is the most widely read newspaper in the world - is that true?

  • An article recently compared it to a lot of leading newspapers and it is substantially large, but CP does not keep a lot of hard metrics on it. CP did track it for a while and it was impressive - especially intimidating to the 2-3 writers who work on it full time.

How did you come up with the backstory you have?

  • Story is everything in entertainment. From day 1 we had a writer who started as a support person. She built a team, but a lot of the ideas come from the kids. Lot of logical - and illogical - ideas. CP introduces characters very slowly - we don't introduce 30 chars at once and call it a day. 90% of our internal conversations revolve around what CP can't do re: story, but ultimately the 10% that makes it in, makes sense to audience.

How often do you get feedback concerning the flash platform?

  • Lance is great at working backwards. CP was originally developed in Flash 6 and most of it would run today in that environment. We've always looked for the highest install base and built for that. One of the biggest issues is ports not being open on routers, so we spent a ton of time making sure it just works for everyone. New issues are constantly coming up - i.e. new browsers coming out - but our audience is quite patient as we work through issues.

What other non-English markets do you plan to launch in?

  • CP has 7 or 8 translations in the works now. None are public yet, but our goal is to roll them out quickly. That is one of the reasons CP joined Disney. In the next 6 months there will be several announcements around that.

At what point did you realize you needed more than out of pocket money to move forward?

  • We started CP with aggressive budget, low salaries. We worked really hard to build a scalable model, so as audience grew, CP could cover costs. There were lots of VCs out there, but CP needed infrastructure help not just money. John Lassiter and the crew at Disney were always consistent with what they said would happen and are still consistent.

How can you handle the support tools and requests from other regions and languages?

  • That is one of the reasons we can't just push a button to launch in other territories. We need to ensure the tools work for those regions. CP brings people from that country to their office for 6 weeks, then sends people from CP to the regional office for 6 weeks.

What was the biggest challenge working with Disney?

  • The largest challenge CP has was the size of Disney. Every Disney division has a 50:1 ratio compared to CP's team, so it was easy to be inundated with emails due to difference in size. Bob Eiger called Lane after acquisition and said "If you ever feel that Disney's size is stifling you, I want to be the first to know"

What level of importance does mobile play have for your audience?

  • We are trying to track demographics of our audience and how fast they are adopting mobile. We have a few things in the works for mobile now, but we want to make sure it is done purposefully and not just to check a box. Need to make sure it's as fun or more fun than PC.

How do you deal with banning players?

  • One thing we do is to purposefully keep CSRs who ban from seeing whether it is a member account or non-member account, to prevent bias from creeping in. We issue 24 hour, 72 hour and permanent bans. We're able to see not just chat logs but also what a user was trying to say - i.e. what didn't make it through filters.