Jul 10, 2012
Free demos have long been a staple of the game industry. Print magazines have included disks with trials of upcoming games, and when the world moved online, bulletin board systems and the Internet became sources of shareware and time-limited demos. In recent years, however, social game companies have used the “free-to-play” business model to turn the game industry on its ear by offering free games with persistent online environments that tempt players with endless lists of items and upgrades that can be purchased in “microtransactions” that cost just a few dollars each. While a typical mainstream game costs approximately $60, a hopelessly addicted player can easily spend far more than that on a “free” game that offers a constant flow of new digital trinkets and never truly ends.
The Shareware Era
The shareware software distribution model began in the 1980s and grew exponentially in the 1990s as more people gained access to modems. Companies such as Apogee Software, id Software and Epic Games achieved fame due to the popularity of games such as Duke Nukem, Commander Keen, Wolfenstein 3D, Doom and Jazz Jackrabbit. During this time, the typical shareware model involved distributing the first game in a trilogy for free and mailing the second and third games to users who paid the registration fee. Because these companies did not have access to the distribution networks needed to put games on store shelves, shareware allowed them to compete with larger companies.
The free-to-play business model came about in the late 1990s and early 2000s as a new way to compete with established publishers. While many wanted to experience the new form of social online gaming that the Internet made possible, some were unwilling or unable to pay monthly subscription fees to play in these persistent online worlds. Neopets and MapleStory – two massively multiplayer online games marketed primarily to children – were among the earliest titles to utilize the free-to-play model successfully. Although anyone could play these games for free, players had to pay for access to certain features such as premium areas or items that changed the appearance of their characters. Although some questioned the implications of marketing to children who couldn’t pay for these upgrades with credit cards of their own, the business model worked. Media giant Viacom purchased Neopets for $160 million in 2005, and Nexon – the company that owns MapleStory – earned nearly $900 million in 2010.
Free-to-Play Becomes Mainstream
The founding of online game company Zynga in 2007 brought the free-to-play business model to social networks such as Facebook, exposing it to an audience of hundreds of millions. Zynga purchased the rights to the popular online game YoVille and began developing other titles like it. Before long, tens of millions were playing Zynga’s titles such as FarmVille, CityVille and Texas HoldEm Poker each month. As of late 2011, Zynga has become one of the game industry’s largest publishers with revenue approaching $1 billion yearly. All of these games are free to play and are accessed through a Web browser while the user is logged in to a social network. Zynga earns money by selling the virtual currency that players use to acquire add-ons and other items.
Publishers Take Notice
In the late 2000s, the growth of Zynga and similar companies became too great for established publishers to ignore. Electronic Arts released a free-to-play entry in the popular Battlefield series – Battlefield Heroes – in 2009, and Microsoft opted to release the free-to-play Age of Empires Online in 2011 rather than developing a conventional sequel to 2005’s Age of Empires III. Massively multiplayer online role-playing games such as The Lord of the Rings Online, Age of Conan, Dungeons & Dragons Online, Star Trek Online, EverQuest 2 and Pirates of the Burning Sea converted to free-to-play models because they were unable to attract a sufficient number of paying subscribers to stay in business.
The Real Cost
Free-to-play games typically sell upgrades and add-ons for virtual currency that can be earned slowly through hours of playing or quickly by providing your credit card number. For example, Battlefield Heroes uses two virtual currencies: BattleFunds, which can only be purchased with real money, and Valor Points, which are earned by playing the game. Many items that give the player a real advantage – such as new weapons – are available to purchase with Valor Points. However, BattleFunds can be used to purchase a “widget” that causes Valor Points to accrue at a faster rate. This widget costs approximately $10 and lasts for 30 days, after which the player must purchase it again. Maximizing the player’s ability to compete with others costs up to $120 per year, essentially turning “free-to-play” into “pay-to-win.” In 2011, technology website Bit-Tech conducted a study of seven mainstream free-to-play games and found that it would cost more than $5,000 to purchase every item in each game.
One common aspect of free-to-play games is that the player cannot see the prices of in-game items until he has already committed to the game by downloading it and creating an account. Facebook games such as CityVille display no prices until they have been added to the user’s Facebook account. Likewise, the Battlefield Heroes website displays a login screen when a prospective player attempts to view the BattleFunds purchase page. Once someone begins playing the game, the temptation to purchase items is ever-present; in-game stores offer items to reduce the amount of time the player spends waiting for events to occur or “grinding” at repetitive tasks to compete with people who have been playing longer. Other items allow the player to give his character a unique appearance. Some items are limited edition and tempt the player with a sense of urgency; if he waits too long to purchase an item, he may never see it again. Items are typically inexpensive; a dollar spent here and there is still less than the cost of a full mainstream game. However, to keep people buying credits, the smallest packages available often include slightly more credits than are needed to buy one item, leaving the buyer with leftover credits. Because the remaining credits are insufficient to purchase a second item, the player may constantly feel compelled to buy “just one more” package.
Some people find themselves unable to exercise moderation when playing addictive social games. Across the world, there have been reports of people playing games such as FarmVille during working hours and losing their jobs, missing children’s birthdays, straining relationships with spouses and racking up hundreds or thousands of dollars of debt. Free-to-play games capitalize on several basic human desires in order to keep the micropayments rolling in, including the desire to be the best at something, to be seen as unique, to own something with an air of exclusivity, to show off one’s accomplishments to his friends and to be popular and well-liked.
Although all gamers are not in agreement on the merits of the free-to-play business model, it seems clear that it is not going away. Free-to-play industry leaders Zynga and Nexon now earn close to $1 billion yearly each and are both expected to earn as much as $1 billion in their highly anticipated initial public stock offerings. Electronic Arts, meanwhile, had an operating loss of $706 million in fiscal year 2010. After laying off a reported 1,500 employees and restructuring the company to increase its focus on free-to-play games and downloadable content, EA reported a net income of $221 million in the first quarter of fiscal year 2011.