Freemium shmeemium: the real price of free games

iPod In-Game Purchase Confirmation

How much is too much to spend on free mobile games?

“Buyer beware” is a classic, consumer warning. But free-to-play, or “freemium,” games are proving there are dangers even with free products. Traditional gamers groused, understandably, when prices for new games went to $60 a pop. Seems like a lot, doesn’t it? Chump change. Freemium games are, ironically, growing into huge money-generators.

Such games are free to download and, to varying extents, play. They make money by selling in-game virtual goods or benefits, such as a Christmas-themed barn in Farmville or “energy” needed to perform tasks like plow a field or play a hole of golf. A recent study done by research firm IHS showed that in-app purchases generated $970 million in 2011, nearly 40% of the smartphone app market, and will grow to nearly two-thirds of the market ($5.6 billion) by 2015. Still sounding “free”?

The research firm declares freemium the model of the future, not just for games, but all apps, estimating that, last year, 96% of downloaded smartphone apps were free versions. IHS analyst Jack Kent contends that “it will become increasingly difficult for app stores and developers to justify charging an upfront fee for their products when faced with competition from a plethora of free content.”

That prevalence of free apps, Roger Cheng at CBS Interactive’s CNET points out, has engendered an aversion to pay even a nominal upfront fee. Game companies are being forced into the freemium model by market demand. Executing on that model, though, Cheng notes “relies heavily on the quality of the experience, [to spur] a number of smaller purchases down the line.”

Cheng’s use of “smaller” has a touch of irony, since individual items can cost as much as $20, presenting players with options to spend up to $100 in a single transaction to play these free games. Can the model withstand that onslaught of irrationality?

It can, but most truly casual gamers won’t like the reason why. Last year, a study by mobile analytics company Flurry, found that about 70% of its 3.5 million user sample made transactions that were less than $10, and that an overwhelming 97% of consumers would spend nothing on freemium titles. Although transactions of more than $20 each accounted for just 13% of the total number, they generated more than half of all revenue. Transactions between $10 and $20 raked in nearly 20%, and ones of more than $50 accounted for a whopping 30%. On average, Flurry estimated that consumers paid about $14 per transaction to play these free games, all to avoid that upfront “nominal” fee.

If game companies are incentivized to build freemium games that cater to people who spend lots of money, those games could become more restrictive in the content and playing time available upfront. Consequently, this business model is going through some growing pains. With children often playing these games, there have been surprise credit card bills for parents, some of whom have pursued legal action against Apple.

A friend of mine was lucky. His daughter bought an item that appeared, on a phone-sized screen, to cost 99 cents ($.99); the actual price was $99. For children who might not be as savvy as adults, such mistakes are understandable. It didn’t occur to her that a mobile game would charge $100 for something. On this occasion, Apple support agreed, and graciously refunded his money as a one-time allowance, but others have not been so fortunate.

Casual games were supposed to be a way to open up the video game industry to the masses, not keep them the fare of just hardcore gamers. But with dedicated gamers driving the bulk of freemium revenue, are freemium games destined to alienate the audience they were meant to reach?

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Chris Huston

Though he relishes a dashed good book or a bit of sport (and British idioms), Chris Huston now spends much of his free time on his video game consoles, playing anything from Rock Band to Red Dead Redemption, or Need For Speed to Netflix. He finances these not-completely-innocuous vices by writing about video game companies and the technology industry for Hoover's.

Read more articles by Chris Huston.

Comments

  1. Nicholas Lovell says:

    It’s ironic that the “price” of being a core gamer (Xbox + Kinect + other controllers + plasma screen + games at $60 a pop) is not thought of being expensive, but spending tens or hundreds of dollars on a game you love on a phone is thought of as being crazy.

    To my mind, I think that people are now getting lots and lots of great games for free, and choose to spend their money on the games that have really engaged them (rather than having to make their decision based on marketing and PR). That seems like a step forward to me.

  2. Chris Huston Chris Huston says:

    Thanks for your constructive counter perspective, Nicholas.

    Your context of total cost of ownership is a valid factor to consider. I’m still convinced, though, that it, along with other factors, works out in favor of the console games.

    To clarify, too, I didn’t mean to imply that I or anyone (particularly any console gamer) is suggesting that console gaming is inexpensive. I tried to reflect that with my sympathetic “gamers groused about $60 games” comment. Also, I’d wager that most successful console games succeed because they are purchased mostly by people who genuinely enjoy them rather than being swayed by marketing. For my own part, there have been panned games that I’ve bought and loved (e.g. Drakengard for the PS2, Tomb Raider: Angel of Darkness), and massive hits that I’ve disliked and passed on (e.g. Halo, Mass Effect, the first few Tomb Raiders).

    It’s also possible that we disagree here about far less than we might imagine. I didn’t get into many specifics, and what I could have made clearer in my post is that not all games abuse the freemium model. I have a few free games that I’m satisfied with. Some content I still think is incongruously priced compared with what I pay for on console games, but with most of my games I feel like I get a complete game experience.

    One of the main problems many consumers have with freemium-abusing games is that they are trying to extract as much or multiple times more money for games that are demonstrably less sophisticated than console games and on a platform that is *meant* for casual experiences. Also, it’s an issue of something akin to truth in advertising. If I’m told it’s a free game, but I run into something that feels like I don’t have a complete game experience without paying, that feels scammy.

    Again, not all games are guilty of this, and there are varying degrees of abuse. Josh Wittenkeller at gaming publication GameZebo wrote a nifty little piece highlighting this problem (http://bit.ly/JBmP57), giving some reasonable guidelines on how game companies should ethically approach the freemium model.

    I agree with you that people are getting lots of great games for free, but my fear, shared by plenty of others, is that the worrisome abuse that exists now will get much worse, particularly in light of the analytics, and it’s already causing customer confusion and unexpected bills.

    Thanks again for chiming in, Nicholas.

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