Thursday, June 11, 2009

Free-To-Make-Money

Gamasutra is running a great article on Free-To-Play, but not really because there are micro-transactions, and the revenue they generate.
Yes, good money can actually be made in the rapidly-growing world of free-to-play massive multiplayer online games (MMOs), but just how much can micro-transactions actually generate? Unfortunately, average revenue per user information is often concealed behind the fog of competition by privately held game makers reluctant to report either very high or very low results.
The article contains some great quotes from Daniel James, CEO of San Francisco-based Three Rings Design.
"There seems to be a perception," he explains, "that there is a business advantage to not being transparent. But I disagree."

As James blogged recently: "People often ask me, with a wary look such as you'd give a lunatic, 'Why do you dish out your numbers like this?' It's a good question. There are possible downsides, but they are limited; if a competitor looks at my numbers and then goes on to execute better than us, I don't think that has much to do with our numbers. They executed better, that's the hard bit. Well done to them.

"The upside," he continued, "is that the more information that circulates the startup and games community, the more people will share their data. This rising tide will raise all boats. If I can shame my fellows into parting with their data, we'll all benefit."

Indeed, James reveals that Three Rings' MMO Puzzle Pirates takes in approximately $50 each month from each paying user (ARPPU) for a total of $230,000 a month, all resulting from microtransactions.
I've often railed against the micro-transaction model as inferior to the traditional subscription model in regards to revenue. However, after reading this article, I'm a bit surprised how well some Free-To-Play games fair.

Also, I want to share my desire for companies to be more transparent with their data, as I strongly believe it leads to negative stereotyping of the business model. Before this article, and seeing Puzzle Pirates and Domain of Heroes (in the comments) revenue numbers, I just assumed that the average revenue for a paying player was well below the standard $15 of a subscription-based player.
I'll break the figures down into Lifetime (8 months) and 7 day (last week). Daniel didn't mention this, but I would add that the numbers seem to get better each month as long-time players continue to make purchases and new features are added that retain/convert newer players.

Lifetime:
ARPU: $2.03
ARPPU: $59.27

7-Day:
ARPU: $3.51
ARPPU: $46.66
If the numbers hold true in the article, it is far greater! In some cases, close to $50. The benefits of which Raph Koster, of Metaplace, sums up nicely:
The biggest reason to go with a micro-transaction model, says Koster in a recent blog post, is because "it opens up both ends of the curve. People who would not be willing to pony up the full $15 a month [subscription fee] are enticed to pay at least something, thereby hugely broadening your market."
So, color me conflicted on micro-transaction business models. I still don't believe it beats a subscription model, but no longer is it the EVIL that I thought it was.
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