“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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