Are free to play games set to dominate the future of apps?

By Wendy Boswell on January 31, 2014, 1:11 AM
intel, apps, app economy, monetize, freemium, app developers, free to play, guest

A recent report from Super Data Research, whose data is collected directly from publishers and developers and builds on the digital point of sale data from millions of gamers, ranked the top earners worldwide for free to play games.

Topping the list was Tencent’s CrossFire and League of Legends, who together took home an annual gross of $1581 million. Media company Nexon grabbed three of the top ten spots with a combined worth of $800 million. Wargaming took $372 million for World of Tanks (which it eventually plans to launch on the Xbox One, reportedly). Lineage 1 took the sixth spot with $257 million in total sales.

World of Warcraft, while losing subscribers this year, generated $213 million (note: this report is for micro-transaction sales only, not subscriptions). An oldie but goodie, Star Wars: The Old Republic earned $139 million, and Valve took the last two spots with Team Fortress 2 and Counter-Strike Online.

More highlights from the report include:

  • The US digital games market grew 11% in 2013, reaching $11,766 million in sales across all segments, up from $10,582 million a year earlier.
  • The social games segment totaled $1,815 million in sales in 2013, down 21% from a year earlier.
  • The free-to-play online games category totaled $2,893 million in sales in 2013, up from $1,991 million in 2012 (+45%).
  • The pay-to-play segment totaled $1,126 million in sales in 2013, losing 19% from 2012. Subscription-based online games stabilized, month-over-month, totaling $83 million, as the total number of gamers in this category reached 5.3 million in December.
  • The US mobile games market totaled $3,063 million in spending in 2013, up from $2,391 million in 2012 (+28%).
  • The combined DLC segment (PC + console) totaled $2,870 million in sales in 2013, up 13% from a year earlier.
Editor’s Note:
This is a guest post by Wendy Boswell, technical blogger/writer at Intel. She's also editor for About Web Search, part of the New York Times Company

The freemium business model

Tencent’s CrossFire is a free to play game with a basic in-app purchase monetization model; however, the game is set up that even the most basic of accoutrements has to be paid for with real money, which might account for such amazing revenues in 2013. Does this model essentially reward money over skill? The answer seems obvious, but that is the model that seems to monetize most effectively. More from i4u.com:

“Reportedly, the game veers into pay-to-win territory as you can shell out cash for better guns, armor and various boosts that will increase your prowess in combat. Some premium items can only be purchased with real world money, and it seems if a player spends a decent amount, they’ll have an advantage over friends and strangers alike. Increased power is a far more effective motivator than simple cosmetic changes, hence CrossFire’s massive revenues. It goes against the fundamental tenant of a good free-to-play, microtransaction-based game, don’t let players pay for a direct advantage over others, but for whatever reason their audience doesn’t care, Tencent has struck gold with CrossFire.”

The freemium business model works, no doubt about it. 2013 showed an increasing trend towards this model, with pay for play apps making up an increasingly smaller portion of overall app revenues. An end of year report from Distimo demonstrates this quite effectively:

“The Freemium Business Model – free apps with in-app purchases – makes up the largest revenue share in the Apple App Store. Our analysis showed that this revenue share even increased over the year. While the Freemium revenue share was at 77 percent in January, it grew to 92 percent in November based on globally aggregated data for the Apple App Store. The other business models, paid apps without in-app purchases and paid apps with in-app purchases, made each only 4 percent of the revenue in November 2013. The same trend holds true for Google Play.” – 2013 Year in Review, Distimo.com

Asian domination

Most of the games that made this list do the majority of their business in Korea, China, and other Asian countries. And in-app purchases work in these countries; recent reports estimate that China’s game industry brought in $9.7 billion in revenue last year across all segments, with that figure predicted to grow to $21.7 billion by 2017. More stats on the Asian gaming market from App Annie:

  • According to Niko Partners’ 2013 Chinese Mobile Games Market Report, in 2012 there were 192 million mobile gamers in China. This year there will be 288 million. In 2014 there will be 390 million.
  • Mobile gaming is the fastest growing segment of the entire Chinese games market.
  • Even in smaller cities where not everyone owns a phone, the ratio of phones to people is more than 125%.
  • Mobile app users are spending 40% more time on their devices playing games in 2013 than they did in 2012, and they visit their favorite games 41% more often than in 2012

Interestingly enough, my research for this article found that CrossFire, the top revenue-generating game for the year with in-app purchases, isn’t necessarily what most gamers would classify as “top of the line” graphics; in fact, quite the opposite. Why does it do so well in China and other Asian countries? Because it’s easy to download via rural networks that might not have the same speeds and processing capabilities that other networks have, plus, users in these countries are more accustomed to in-app purchases than their Western counterparts. Here are some stats from the International Data Corp that bear this out (primarily for Android):

  • 44% of Android users in China use Wi-Fi for their access to the Internet, especially for video. 31% get their information from 2G networks, and 23% use 3G.
  • App downloads for Chinese Android device owners are growing exponentially: the average user downloaded 10.5 apps per month in Q3 2013; the previous year, it was 8.2 apps monthly
  • 15% of Android users in China install at least one new app a day vs. 11% in Q3 2012
  • 59% use app stores to download their apps, while 13% use online app searches and 21% use their PCs to sideload apps onto their Android devices

It will be interesting to see how this trend plays out in 2014; pundits seem to universally agree that the Asian market is the powerhouse for app development.

Free to play = better retention of users? Quite possibly

Here’s an interesting scenario to think about: say you’ve downloaded a free to play game, maybe even one of the ones listed in the above-referenced report. You start to level up, and the further you go, the more time and money you’re investing in this initially free to play game. Perhaps you even end up spending a significant amount of money creating something you feel pretty proud of. If you stopped playing this game to play another game, you would have to start all over again on that new game as nothing would obviously transfer over. It makes sense at that point to keep playing the game you’re already investing. The cost of switching to another game at that point becomes prohibitive, and what was once just a “free” game has turned into something else entirely.

Of course, this scenario doesn’t play out for every user. But it’s interesting to look at the psychology behind gaming and free to play games. The same person who might balk at springing $50 for a game won’t blink an eye forking over .99 to level up in a game that they might only play a few times. This makes the barrier of entry lower for developers; they know that people are going to be more willing to jump into something new, which makes the potential for monetization higher. It’s a good circle of economics to be caught up in (as we can see from the amount of money that the top gaming houses are making from this model alone).

Getting users to download the game is the first hurdle. If you can make it free, you’ve already got them in the door. That’s where the true genius of the freemium model really comes into play. There are tons of free apps already, and consumers are understandably wary of paying for something when they can find something that is pretty much the same thing for free. The adage “if you can’t beat ‘em, join ‘em” comes to mind with apps that are still demanding money up front; as free apps are only predicted to grow even more popular in coming years. A recent report from Gartner bears this out; predicting that free apps will account for 94.5 percent of all downloads by 2017:

"These app stores are still increasingly active due to richer ecosystems and large and very active developer communities," Gartner research director Brian Blau said today in a statement. "However, we expect average monthly downloads per iOS device to decline from 4.9 in 2013 to 3.9 in 2017, while average monthly downloads per Android device will decline from 6.2 in 2013 to 5.8 in 2017…. IAP purchases will drive 17 percent of the store revenue in 2013 and increase to 48 percent in 2017. However, as with downloads, IAP is expected to have strong growth in 2013 and 2014 and slow in later years. This is due to smart devices reaching more mass-market consumers whose willingness and/or affordability to spend on IAPs is lower than early adopters. Nevertheless, IAP will become a major monetization method for apps stores and developers.”

Free apps to be the norm in the future

Moving forward and judging strictly from current and predicted industry trends, it seems that the freemium monetization model is here to stay. It’s a win-win with consumers, but it’s especially successful for developers, who are able to get their apps downloaded by a wider user base, along with better potential user retention. What do you think of the freemium business model – is it viable for the long term, or do you see it fizzling out in favor of something else? Let us know in the comments.




User Comments: 23

Got something to say? Post a comment
Xtreme gamer said:

What game is that the picture of the Tank?

1 person liked this | Jackwoz said:

Looks like World of Tanks

H3llion H3llion, TechSpot Paladin, said:

We will most likely see more F2P games with Microtransactions in the near future.

TechGamer TechGamer said:

What game is that the picture of the Tank?

that is in fact World of Tanks its quite a nice game you should try it

1 person liked this | Scshadow said:

Insane... Freemium is designed to take advantage of one thing: Impulse control or to be precise, the lack of it. Yeah, I know... they aren't even close to being the first to do so. It doesn't really change the fact of how malicious it is. Impulse control is something the majority of humans just don't have. To be more precise again, they just don't have the ability, psychologically, to do it. Physically, they could stop, mentally they are pretty convinced they could stop if they wanted to, but in all reality, they will twist logic uncontrollably until they convince themselves its okay to waste money. Freemium is just a shameless declaration of how developers know in-app microtransactions will trigger your impulses and they are glad to openly exploit it. They've done such a good work of it that the posters below me will actually defend the industry for what it does.

Kibaruk Kibaruk, TechSpot Paladin, said:

I need to add a couple of comments, for example League of Legends is an example on how free to play games whould work.

Why you might ask? For those not familiarized with Legue of Legends it is an online moba game, the huge deal with micro transactions in this games, is that they only give you visual upgrades you can't buy "items" that will put you on an advantage against other players. You can buy heroes, IP/XP boosts (Consider IP as the in-game currency that allows you to buy runes and also champions).

Everytime I try a free to play game the first thing I take notice on is the ability to buy items that would give you advantage over other players that can't be gotten the "normal" way, I stop playing right away.

I've played other games such as Path of Exile, which follows the same example in microtransactions, you can only buy visual upgrades and no game changing items or skills.

Also I'm very glad to see LoL leading the list and hope other companies take it as an example that you don't need to sell game changing items to be able to actually sell.

ghasmanjr ghasmanjr said:

I was looking forward to Elder Scrolls Online until I saw that it was subscription based. I have hundreds of hours in Skyrim, but I'm not paying to play it with my friends. $12 per month is crap. They're acting like they will be the next WoW. If ESO were free to play, I bet they would do incredibly well in microtransactions.

Tanstar said:

Wouldn't "$1581 million" be $1.58 billion?

Nobina Nobina said:

We will most likely see more F2P games with Microtransactions in the near future.

Almost every f2p game has microtransactions already. Many of them are just cosmetic.

davislane1 davislane1 said:

Insane... Freemium is designed to take advantage of one thing: Impulse control or to be precise, the lack of it. Yeah, I know... they aren't even close to being the first to do so. It doesn't really change the fact of how malicious it is. Impulse control is something the majority of humans just don't have. To be more precise again, they just don't have the ability, psychologically, to do it. Physically, they could stop, mentally they are pretty convinced they could stop if they wanted to, but in all reality, they will twist logic uncontrollably until they convince themselves its okay to waste money. Freemium is just a shameless declaration of how developers know in-app microtransactions will trigger your impulses and they are glad to openly exploit it. They've done such a good work of it that the posters below me will actually defend the industry for what it does.

This has to be the single worst objection to the freemium model I've read. I was going to ignore it, but the bit at the end about having to be brainwashed to disagree was too juicy a bait to pass up.

Personally, I don't like freemium. It can be convenient at times but I've never been so enticed by a game so as to participate in the microtransaction system. That said, what I or other customers have the proclivity to do is only the business of the companies so far as their marketing and development teams are concerned. It isn't their (or someone else's) job to police people like some type of corporate nanny and protect them from their perceived lack of spending discipline. These companies are supposed to make money off of video games, not diapers.

If freemium is a profitable model for companies that use it, more power to them. They put the time, effort, and resources into producing these games, so they have the right to charge whatever they want however they want. If the price is right and the method is right, people will pay. If it isn't, they won't. The success of freemium games only demonstrates that the companies producing them are successfully delivering value to their customers.

3 people like this | TomSEA TomSEA, TechSpot Chancellor, said:

I was looking forward to Elder Scrolls Online until I saw that it was subscription based. I have hundreds of hours in Skyrim, but I'm not paying to play it with my friends. $12 per month is crap. They're acting like they will be the next WoW. If ESO were free to play, I bet they would do incredibly well in microtransactions.

I prefer the subscription pay model for MMO's. I don't want to have to break out my credit card every two hours to advance in the game. You'll end up paying WAY more than $12 a month. And besides, $12 a month is nothing. You pay that to see a 3 hour movie and you're done. Whereas you can put in 20-60 hours a month playing your MMO for that price, bringing the actual cost down to pennies per hour.

Mooseinadesert Mooseinadesert said:

I don't even play free to play games anymore unless they are proven to have an honest model. Free to Play often equals having to pay anywhere from $5-30 to look any different from your fellow players, $5-30 for any content, and $5-30 for many necessities in the game. You never get a complete product in a free to play game and instead of earning things people just pay money for them.

treetops treetops said:

I was looking forward to Elder Scrolls Online until I saw that it was subscription based. I have hundreds of hours in Skyrim, but I'm not paying to play it with my friends. $12 per month is crap. They're acting like they will be the next WoW. If ESO were free to play, I bet they would do incredibly well in microtransactions.

I prefer the subscription pay model for MMO's. I don't want to have to break out my credit card every two hours to advance in the game. You'll end up paying WAY more than $12 a month. And besides, $12 a month is nothing. You pay that to see a 3 hour movie and you're done. Whereas you can put in 20-60 hours a month playing your MMO for that price, bringing the actual cost down to pennies per hour.

Yeah But I wish MMO's like wow were more like the old diablo franchise where your great items stayed great. And you did not have to refarm for all you character every other update.

H3llion H3llion, TechSpot Paladin, said:

Almost every f2p game has microtransactions already. Many of them are just cosmetic.

I am saying we will see more F2P that* have micros-transactions in the future rather than B2P or P2P games.

1 person liked this | madboyv1, TechSpot Paladin, said:

I like the irony of "Free to play" games making ridiculous revenues, the servers paid for somehow. =p

One game that is not doing gamers justice as a "Freemium" game is Mech Warrior Online. Almost all cosmetic purchases cost too much, continual rehashes of mech designs and special premium mechs with a bloated price, and of course the painfully slow (almost non-existant) pace of features, both newly discussed and features promised a year (or more) ago.

If anything, I'd like to see a comeback to the "buy once and it's yours" standalone games which you can basically only find on non-XBox360/One Consoles. You know, you buy it once, you have a -complete- single player game with a supporting (but -complete-) multiplayer component that does not require a third party service to subscribe to... Heck I'd rather see true "expansion packs" come back as well...

But for many companies that hurts profits so screw that... =(

That being said I can't FREAKING WAIT until Star Citizen gets into alpha...

Guest said:

I am surprised you guys haven't covered things like World of Tanks or Warthunder.

Guest said:

Who honestly has time to play 20-60 hours of 1 game per month. Do you not have a life/job?

bob333 bob333 said:

I disapprove the usage of LoL image on the top of the document.

ShadowDeath said:

What game is that the picture of the Tank?

World of Tanks

Also this should also note that some of these games are Freemium.. not FREE there is a difference. World of Tanks is completely free and you will progress up the tech tree ladder until you hit their 5 where they made it next to impossible unless you pay for a premium account.

tipstir tipstir, TS Ambassador, said:

Kixeye Battle Pirates very popular on their server or Facebook. They also have War Commander, and Vega Conflict space game. They are free games then before you know they have you spending real money to get things done in the game if your cheap then those things weeks or months to complete a fleet of ships. I am cheap so it takes me a very long time. I am not spending real money in free games.

SirGCal SirGCal said:

The problem is when it is pay to win, instead of pay to play differently. Even SWTOR now has gone to a pay to win setting, even for already subscribers paying $16/month. As a former subscriber, there are achievements/items I can't achieve without real $ turned into 'cartel coins' for the market. Period. But what do you expect from EA...

I'm all for a free-to-play and micro-transactions design. But it shouldn't penalize paying players forcing them to spend more money to keep up. And ironically, if you're not a paying member, you get even more penalties (only two toons instead of 12 (of which I do have 9 to end-game), only two quick-bars instead of 6, limit of 1M in-game credits (I have had 150M at one time, it's easy to make and items cost upwards of 25M), etc.) These limits on the F2Pers actually are just stupid. And if you are a sub of a long standing (not just a few months) that goes F2P, they also shouldn't have the limits. "Ohh, want to keep playing with all your stuff? Give us $16/month plus micro transactions or go away.". Hence the extreme loss of player base lately. It's all short-term gain, long-term loss.. Ohh ya, what EA excels at...

St1ckM4n St1ckM4n said:

Wouldn't "$1581 million" be $1.58 billion?

This website is read by people internationally, and $1581 million is the only 100% correct way of saying it. Million/billion means different numbers in different languages.

1 person liked this | Tanstar said:

This website is read by people internationally, and $1581 million is the only 100% correct way of saying it. Million/billion means different numbers in different languages.

Interesting, I didn't know that. Thanks!

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