Top 10 Revenue Models for Free To Play Games
The following 10 revenue models allow some or all of their associated game or virtual world to be played for free. The ordering is quite unscientific and I'm sure I've missed something obvious or messed up a detail. I leave it to the internet to correct me.
1. Virtual Item Sales
A well familiar revenue model first established in Korea and now the dominant model in Asia. Nexon - makers of KartRider, MapleStory, Audition and more - are widely seen as the leaders in this area, doing $230M of gross revenue in 2005 (the most recent year for which they've released figures), with 85% of that revenue coming from virtual item sales.
Virtual item sales is the practice of allowing users to purchase functional, decorative, or functional & decorative in-game items for use in and out of gameplay. A virtual item system usually uses two currencies - an attention currency (users earn virtual money via in-game activities) and a real money-based currency (users buy virtual money using real money). Typically, 5-15% of users opt for the latter currency and the influx of real world money is what provides the virtual item sales revenue stream.
What's so compelling about virtual item sales is the unlimited ARPU (average revenue per user). According to Daniel James, CEO of Three Rings, some hardcore Puzzle Pirates users have poured more than $10,000 apiece into the game via virtual item purchases. To reach that contribution level via a World of Warcraft-style $15/month subscription would take a user 55 years.
While extremely shaky sources peg the overall size of the virtual item sales market at $1.5-2B this year, without an NPD-esque measurement organization there's no way to verify that number.
2. Subscription Tiers
Runescape, the Java MMO from Jagex, is one of the leaders in the tiered subscription space. A tiered subscription model allows users to play the core game for free, but those that desire access to elite weapons or other game content, must pay a small ($5/month) subscription fee. Over 1 million of Runescape's 6+ million users have opted into the tiered subscription program, grossing $60M annually for Jagex.
Dungeon Runners, an NCsoft free to play MMO, offers a similar $5/month subscription package that affords players access to the elite items, a bank and the ability to stack potions. It also gives subscribers server queue priority.
3. Advertising
Several different forms of game-related advertising revenue streams have popped up in recent years. Firms such as Massive, IGA and Double Fusion do big business in in-game advertising for clients such as EA, Activision, THQ and Microsoft. Game ad agencies typically serve up static ads (ads that ship with a product and never change) or dynamic (ads that are updated in real time via the net) within game products that are contextually appropriate for advertising (i.e. sports, racing, or contemporary shooters).
The size of this conventional in-game advertising market is currently pegged at $100-200M, according to well-placed industry sources. However, the number and quality of games with dynamic advertising enabled is escalating dramatically. So much so that Yankee Group predicts the in-game ad market will reach $732M by 2010.
But other, more emergent forms of in-game advertising have been at the forefront of enabling free to play. Examples include:
- Google Adsense PPC ads (see recent post on Maid Marian, grossing $800K/year from Google Ads alone)
- Sponsored item sales (Habbo Hotel)
- In-game video ads (Real Networks)
4. Real Estate or "Land Use Fees"
Second Life is the biggest legitimate player utilizing this revenue model whereby virtual land is sold leased to individuals. Monthly lease fees range from $5 to $195, depending on the size of land in question. Users may also purchase their own island for a one time fee of $1,675 in addition to a monthly fee of $295.
Approximately 70% of Second Life's revenue comes from land sales and maintenance fees. Of course the virtual land ownership revenue model doesn't come without headache, as the Bragg vs Linden suit has proven.
Entropia Universe uses land auctions as a revenue stream, but a recent headline-making $100,000 land sale has been called into question as the successful bidder is an employee of Entropia's developer, MindArk.
5. Merchandise
In what's become a phenomenon of Furby proportions, Webkinz plush toys and their associated Webkinz World have taken the pre-teen set by storm. Users purchase a $15 Webkinz plush toy at retail and enter a secret code to activate the associated virtual character in Webkinz World. Beyond the retail plush toy purchase, there are no additional fees for playing in Webkinz World.
Two million Webkinz toys have been sold since April 2005, with more than 1 million of those users registering their pet online. That's more than US$20M in retail sales in just 24 months. Products such as Bratz/Be-Bratz are quickly jumping on this bandwagon.
Another successful merchandise-based revenue model is collectible card games, or CCGs. Neopets launched a CCG in 2003 and just this week MapleStory became the latest free to play game to go this route, announcing a partnership with Wizards of the Coast. Consumers purchase real-world MapleStory collectible cards that come with codes redeemable for exclusive in-game content in the MapleStory MMORPG.
6. Auctions & Player Trades
In June 2005, Sony set up Station Exchange on select Everquest II servers. Station Exchange facilitates player to player trade of in-game items - including the provision of an escrow service - in return for a 10% closing fee as well as listing fees ranging from $1 (items and coins) to $10 (characters).
While Station Exchange recorded only $274K in net revenue in its first year of limited release, it was enough for Sony Online President John Smedley to declare it the future of RMT. Read the SOE Station Exchange whitepaper for more.
Entropia Universe - a world in which virtual items actually decay with use and require real money to repair or replace - utilizes first party auctions as their primary revenue stream. This means that instead of merely facilitating player to player auctions and taking a cut (a la Station Exchange's eBay model), Entropia auctions items directly to their players.
Entropia items sell for ludicrous sums, with rare weapons auctions closing at $26,000, land auctions for (allegedly) $100,000. The May 2007 auction of five in-game banking licenses brought in $404,000, total. Ironically, Entropia takes no fees for player-to-player auctions.
In the wake of this success, watch for third party virtual item auction houses such as Dan Kelly's Sparter.com to offer developers and publishers a cut to ensure the (exclusive?) cooperation of their products.
7. Expansion Packs
The best known example of expansion packs as a primary revenue model is the Arenanet product, Guild Wars. Likened by Richard Garriott to a series of fantasy novels, Guild Wars relies not on monthly subscription fees for its revenue, but on the sale of successive expansion packs for $29.99.
The game's creators argue that the thin-pipe origins of their technology allow their game to be run far more economically than competing titles, enabling this no-subscription free model.
Over 3 million people have purchased the previous three Guild Wars products (Guild Wars, Guild Wars: Factions and Guild Wars: Nightfall) with those numbers set to surge again with the release of Guild Wars: Eye of the North on August 31, 2007.
8. Event or Tournament Fees
Netamin's free to play, ad-supported Ulimate Baseball Online uses event fees as an additional revenue stream. UBO's Pay to Play tournaments cost $5 per player to enter and offer cash prizes up to $4,500.
Shot Online, a free to play/virtual item sales golf MMO, also charges users to enter tournaments.
Third parties such as Valve's Tournament.com and Groove Game's Skillground.com are getting into the pay to play tournament scene as well. These sites charge charging entry fees for game tournaments for games such as Half-Life 2 and Counter-Strike.
9. TrialPay
At the recent Virtual Goods Summit and again at the Seattle Casual Games Conference, I bumped into representatives from TrialPay. TrialPay is a third party facility that allows customers to pay for products (i.e. games) by trying or buying from advertisers.
What this means is that when you go to pay for a casual game or purchase virtual currency, you can instead select from a demographically targeted list of special offers. Trying or buying one of these offers - from merchants such as Avis, Geico, Vonage, etc - allows you to get your game purchase for free, as the offer merchant has paid the game provider for acquiring a new customer on their behalf.
TrialPay claims that this allows game developers to earn more per user, as some offers pay game developers upwards of $50 per user (as opposed to the $20 a casual game might normally charge).
Someone from TrialPay can jump in and give me a more relevant example of their system's use in the game space, but all I could find was a casual games company called Dreamquest Games.
10. Donations
Clocking in at last on the list is of alternate revenue streams is player donations. Raph Koster recently blogged about meeting up with the Kingdom of Loathing guys at ComicCon in San Diego. Raph reported that while KoL's revenue is "definitely indie," their primary revenue stream of player donations is a sustainable one.
According to Wired, the donation revenue has allowed creator Zack Johnson to quit his day job and hire six employees to help improve and maintain the product.
That's what Maid Marian founder Gene Endrody would call a "lifestyle business," but I suspect most of us wouldn't scoff at it or any of the above revenue models.
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10 Things You Didn’t Know About the Most Successful Shockwave MMO
I don't know if Maid Marian's Sherwood Dungeon RPG is indeed the most successful Shockwave free to play MMO, but it's done pretty well for Gene Endrody and his wife - the only two employees of the developer, Maid Marian.
More interesting though is that the lone source of revenue for all of Maid Marian's games is Google Adwords PPC (Pay Per Click) ads.
Recently, I had the chance to sit down with Gene and discuss Maid Marian, Sherwood and his company's other projects. He was kind enough to offer up some very interesting info for those of us who aspire to create a free to play game as a "lifestyle business," as Gene calls it.
Here are the Top 10 things I learned over coffee with Gene at Caffe Artigiano.
1. Revenue
Sherwood Dungeon sees 1M unique users each month, generating 10M ad impressions via Google Adwords. Gene claims a 4-5% CTR (click through rate), where traditional banner ads see a paltry .3% CTR.
Out of respect for Gene's privacy I won't reveal everything, but based on what he told me I estimate Maid Marian is grossing approximately $700-$800K/year, with 50% of that number being reinvested into the business.
Pretty solid income for a husband-wife team with a homegrown, free to play product supported solely by ads.
2. Technology
Maid Marian utilizes Shockwave for all their games. And Gene says that while Shockwave has just 55% penetration among the general populace (and Shockwave installations are declining), his market - teens - sees about 80-85% Shockwave penetration.
So the higher Shockwave penetration among Gene's target demographic makes it an excellent technology platform.
Note: As a point of comparison, Flash has 98% penetration and is coming on strong as a robust game development platform. Interestingly, Gamasutra and Next-Gen.Biz both ran articles this week on Flash game development.
3. Servers
Sherwood Dungeon needs just 6 servers: 2 web servers, 3 game servers and 1 test server. Crude load balancing is accomplished via a round-robin DNS splitting scheme that directs incoming users evenly among the servers.
Maid Marian's servers are provided by Peer 1 - a hosting company with a Vancouver data center - at a cost of $200 each per month and provide 2000gb of monthly bandwidth. But Gene is quick to point out that equivalent servers can be had for as low as $80/month these days.
Because all the user data in Sherwood Dungeon is stored client-side, there are no database security concerns or associated db speed drag. Data encryption and some client-side checks attempt to curb cheating or too rapid character progression, but of course player cheating is possible with this scheme.
4. Demographics
Because Gene's game is web-based, he uses Google Analytics for most of the coarse metrics on his user base (country of origin, platform, unique users, etc). Some interesting stats:
- 15% of Sherwood's traffic is from US (largest single territory)
- 5% of Sherwood's traffic is from Canada
- Maidmarian.com is the 500th most visited site in Jamaica
Hungary and Poland also have disproportionately large representation in Sherwood Dungeon. The game outperforms in areas such as Eastern Europe that aren’t well served by traditional game distribution methods.
5. Usability
In the interest of making Sherwood Dungeon more accessible, Gene has chosen not to expose player levels to each other. This means Player A can't see what level Player B is at. Gene believes that this encourages more experienced players to help out new players, supporting the casual nature of the game.
Additionally, player levels are not even considered in PvP (Player versus Player) mode. So even if an experienced player chose to pick on a new player, ganking is much more difficult.
Players can also change their character type or look at any time. Players are not locked into a character after making their initial selection.
6. Content
Most of Sherwood Dungeon is procedurally generated, which saves a ton on level data. Among the items procedurally generated:
- Dungeons
- Islands
- Height maps
- Trees
- Ramps
Gene uses seeds to ensure the same result every time with his procedurally generated worlds.
7. Genres
Maid Marian features three types of games, theorizing that users who are temporarily tired of one type can jump to another for a while. These game types are:
- Action – i.e. Tank Ball 2
- Chat Worlds – i.e. Marian’s World
- MMORPGs – i.e. Sherwood Dungeon
8. Distribution
Rather than block third party sites from linking directly to his games like many casual game providers do (at least the ones that rely on revenue from ads on their sites), Gene chose to embrace them. As a result, web game aggregators such as Addicting Games have become great secondary sources of new players.
Maid Marian's highest referrer is Arcade Town, accounting for 5% of Gene's total traffic. But Gene ensures his Google Adwords are preserved even if the third party iframes his game. Using his logs, he's able to identify sites that violate his affiliate policy by stripping out his ads.
However, the sites are free to bracket his game with their own ads, forming an ad-hoc revenue sharing program.
9. Client Size
I'm a big believer in tiny client sizes and Sherwood Dungeon is a clear winner here. Clocking in at just 2mb (compared to 4mb for the already tiny Runescape and Habbo), Sherwood's puny downloadable client makes it the fastest loading free to play MMO I've ever experienced.
Couple that with deferred sign up (as I mentioned in my previous article), and you have a deadly fast way to get players into your game.
10. AI
In Sherwood Dungeon, the AI monsters utilize distribute processing to reduce server load. This means that the brain for the monster you and your friends are fighting resides on your PC, not the server.
When you log off mid-fight, the control of the monster's brain is seamlessly handed off to another user's PC. A monster might "lose his mind" momentarily if his AI can't successfully land on another user's PC, but it's often tough to tell the difference between a monster that's flailing with purpose and one that's not.
A big thanks to Gene for his time. I had for more interesting points, but had to cut them down for this article.
Also thanks to Raph Koster, for directing a small subset of his traffic my way twice in the last couple weeks.
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Top 10 Ways to Remove Barriers to Entry in MMOs and Virtual Worlds
Whether you're making a casual MMO like Maple Story or a virtual world like Habbo Hotel, here are 10 ways to remove game-killing barriers to entry and create the largest possible addressable market.
1. Free to Play
The Free to Play business model is here to stay - and growing every day. In an entertainment world filled with endless choices, asking someone to pony up $50 before they can play a game is rapidly becoming a non-starter. The focus now is on getting players through the front door, keeping them happy, then monetizing 5-15% of them. Non-paying customers become "content" for the paying minority, so don't think you can ignore them.
2. Integrated graphics support
“If our games required a video card, we’d lose 80% of our audience”
- Min Kim, Director of Game Operations, Nexon North America"Graphics are not important - the mind models the situation"
- Daniel James, CEO, Three Rings
Enthusiasts who purchase the latest, greatest video card make up just 4% of the market. Integrated graphics (i.e. no dedicated video card and therefore lower graphics performance) accounts for over 60% of all new computer sales. It would be foolish to develop a Free to Play product requires a video card when success in the F2P sector is partially reliant on addressing a large market and monetizing just a small fraction of your player base.
3. Multiple, regionalized payment systems
Finding the right payment method is a key success factor for Free to Play products. When a user finds a payment method they're comfortable with, they are fiercely loyal to it. But there are nearly as many payment methods as their are markets. Erik Bethke of GoPets says his company utilizes 90 different payment systems worldwide in order to address the local preferences of each region and make it as easy as possible for users to pay.
Many factors influence payment method selection. Credit card penetration in China is low, so billing customers via their land-line telephone provider has become a widely used payment system that provides excellent security in exchange for high surcharges. In Europe, SMS payments are hugely successful and carriers take anywhere from 10-30% surcharges versus the 40-50% fees of North American carriers. PayPal, checks, points cards and more are also used.
We have three people on staff whose full-time job is to open envelopes with single dollar bills and quarters in them. The users can’t figure out how to get the cash to us. One user sent in a $5 bill in a $14.95 FedEx package so it would get to us on time.
- Craig Sherman, CEO, Gaia Online
4. Little or no download
Get users into a game as fast as possible. If your game requires the user to download client software, make it as small as possible and give the user something to do while they wait for the game to download and install (i.e. setting up their character).
But better yet, make your game in Java, Flash, Shockwave or Silverlight so it's playable within a browser. A game delivered via Java applet (i.e. Puzzle Pirates, Bang! Howdy, Runescape) can be downloaded and installed in under a minute. A signed Java applet will even avoid tripping a user's installed spyware detectors.
Only ~30% of players actually tolerate downloads at all, the other 70% preferring to play online. I believe this percentage of download-intolerant players is increasing.
- Daniel James, CEO, Three Rings
5. Deferred sign up
How many times have you been faced with filling out a mandatory sign up form before you can starting playing a new game? The barrier of filling out one more form and becoming a member of yet another online site/network/game/etc that might eventually spam you - before you even try the product - is a huge barrier to entry.
Why not let a new player name and create their character, enter and start experiencing the product, then ask for sign up information along the way? A game that gets this right is Maid Marian's Shockwave MMO Sherwood Dungeon, which allows you to start playing immediately after you enter your desired character's name. Despite its simplistic graphics and lack of server-side character saves, Sherwood has attracted over 1M users to its Free to Play ad-supported game.
6. Easy to understand world/lore
Pets, penguins, pirates, party goers - these are some of the most successful Free to Play virtual worlds and games. If you want to keep your game's potential market big, utilize commonly understood worlds, characters and rules as often as possible. There are exceptions of course, but generally the more jargon and fiction you graft onto your property, the greater the barrier to entry for new players.
7. Quick to play core
Build your game or virtual world around a quick-to-play core mechanic that loops into a larger meta-game. A game that can be played in small 5 minute chunks that feed into a higher purpose.
The casual MMO Puzzle Pirates was designed with short play sessions and a solid meta-game in mind. However, the average Puzzle Pirates user spends 2.5 hours per day in the game - 30 days a month. And while some players do drop in and leave, others spend up to 9 hours a day in-game. Ultimately, the game's short compulsion loops keep players online longer than traditional, longer compulsion loops that take 30-60 minutes to complete.
8. Warp, don’t walk
Spending precious minutes walking to destinations is, for many, a significant barrier to entry and a big waste of time. Many games and virtual worlds allow "warping" between areas to avoid long marches or simply a point-and-click interface with the world.
9. Spending limits
It seems counterintuitive, but enforcing spending caps on some or all of your player base (depending on your product's demographics) may actually increase your user base. Habbo Hotel puts spending caps on all payment methods to control the influx of cash into their economy but also to allay parents' fears. Users can spend money only on 2-3 predefined days of the week.
Limiting how much a player can spend spend in a short period of time benefits the game by reducing parental concern and decreasing incidents of buyer's remorse in new players.
10. Secondary markets
The presence of a secondary market can drive the primary market. Wizards of the Coast had this observation, as told by Daniel James at this year's Virtual Goods Summit:
Wizards of the Coast had some interesting things to say, that secondary markets, for example of Magic Online, have been incredibly valuable in driving the primary market. People will buy way more cards in the primary market because they know they can flip them. Mostly they don’t, though, they just hold onto them. Which is a great tip for people thinking about this.
So embrace secondary markets as more users will choose to participate in your primary market if they believe they can sell their goods to others when they're done the game.
Sources:
- Integrated graphics stats
- Sherwood Dungeon stats
- Quotes & Puzzle Pirates Stats via Virtual Goods Summit
Notes:
- Thanks to Raph Koster for analyzing my previous post.
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