Free-To-Play: Make more money by charging nothing

Sim City is the oldest city-building franchise developing games that put you in the role of a virtual city planner. In 2013, the franchise released its latest title, selling 3 million copies to this date.

CityVille is a facebook game based around the very same theme. The game offers very similar features with one exception - there is no upfront cost to play. How many monthly users did CityVille have in its prime of 2011? Over 100 million.

The number of people playing online video-games has risen exponentially over the last five years. Player numbers are no longer given in millions over the course of the product's lifetime, but in tens of millions a month. This evolution not only means fierce competition, but also results in innovative business approaches to delivering entertainment. While these business models are fairly unknown to the general public, they hold incredible potential if used properly and literally change struggling corporations into thriving industries making hundreds of millions a term.

This blog post is tightly liked to Roberto Dillon and Ori Cohen's (2013) research paper on the evolution of business models in the video gaming industry and applies their concepts to our everyday world.

I invite you on a life-changing journey of imagination and dare you to look behind the veil of videogaming, applying these business models to fields like education, psychotherapy or medicine.

We start our journey with a simple, yet powerful phrase: Free-to-play. While most games either charge you when first using the product (upfront purchase of the game box), or operate on monthly subcription, free-to-play works very differently. You get a large portion of the product for free, with an optional opportunity to pay at a later stage.

The payments are often not for the actual product, but for vanity perks such as limited edition goodies, addons that make your experience a little more comfortable or simply a donation to the developer. This lets you enjoy most of the service free of charge, while letting the company profit (often to a much greater extent than they would with alternative business plans).

But how is all this possible? How does a company make millions by making charging optional? The answer is strikingly obvious: This payment model utilises persuasion techniques to not only make customers pay, but to make them excited and extremely happy about handing their money over. The first technique used is reciprocity. Giving someone a product for free makes the player feel obliged and in turn more open to making an optional payment (Flynn, 2002).

Secondly, while there is no monetary payment upfront, the users invest a lot of their time into the product. This triggers an effect called loss aversion. When people build an emotional link to an item through it's ownership, they go out of their way to maintain the ownership in the long run - even if there are equally attractive alternatives present (Novemsky, & Kahneman, 2005).

The list goes on: Seeing other users enjoying their premium perks brings up social pressure and the need for approval; limited offer benefits introduce time pressure and scarcity; the positive image of the company giving you the service for free makes them come across as very likable; no upfront payment barrier maximises the effectiveness of referrals and makes the product easily available; the fact that you already are a user lets you come up with ideas you like it (self-generated persuasion); and also being a user gives the company incredible power over the shape and form their information reaches you. (To understand these techniques in detail, read Pratkanis, 2007)

Is this business model nothing but a fraud, or is there more to it? Star Wars: The Old Republic is the second most expensive game ever made, costing over $200 million to develop. This is the budget of most blockbuster hollywood movies. Released under the monthly subscription model, the game was off to a perfect start when it reached 1 million sales over the first three days. However not even two months in, subscriber numbers started dropping rapidly and the developers began to realise they won't even cover their costs. The struggling company was desperate and went for a wild gamble. They reorganised and shifted the product into the Free-To-Play (F2P) business model. In 2013 only, the product made $137 million through free-to-play transactions and the active playerbase doubled since the introduction of the model, now being one of the most profitable F2P games.

Dillon & Cohen (2013) predict a significant increase in the use of this payment model in the coming years. But let's look beyond. This payment model offers a unique opportunity to make money while delivering a service to the majority of users for free. Why not take the very same model and apply it to private education. Imagine students going to university for free, with the option to pay for guest lecturers, priority in marking papers or a small charge for sitting in the front rows of the lecture theatre. If designed right, this could result in a model as profitable as charging £13.000 a year in tuition fees, yet completely removing the payment barrier to actually get university education.

Paulo Coelho, the author of Alchemist - one of the world's most read books - took on board a very similar idea. When releasing his last book, Aleph, he did something unexpected - shared the whole novel online for free. With the positive uproar of his community and certainly a very surprised look on his publisher's face, he says: "The world has evolved. With everyone being connected through internet, it is no longer about releasing a product, it is about engaging with your audience. If people enjoy my book, they will buy it in store - nothing is more bothersome than reading a whole novel on a computer screen."

So we come to our last step on our journey of imagination - you. I dare you to think of an idea how we could use free-to-play and apply it to a service in our everyday life to make it more accessible, more flexible and more positive. Dream big and dream far. Comment on this blog and make the world a brighter place with one idea on how you would use free-to-play.

After all ... it doesn't cost anything to share an idea, right?

Blog by Tomas Engelthaler (#3)

Note: While the article (Dillon, & Cohen, 2013) does not explore a single persuasion technique specifically, through my post I argue that the business model is a collection of persuasion techniques, hence the article is an analysis of all the persuasion techniques mentioned throughout - presented in an efficient and applied package.

References:

Dillon, R., & Cohen, O. (2013). The Evolution of Business Models in the Video Game Industry. In Proceedings of the International Conference on Managing the Asian Century (pp. 101-108). Springer Singapore.

Flynn, F. (2002). The relative impact of perceived imbalance and frequency on favor exchange among employees: Tradeoffs between social status and productivity. Academy of Management Journal.

Novemsky, N., & Kahneman, D. (2005). The boundaries of loss aversion. Journal of Marketing Research, 42(2), 119-128.

Pratkanis, A. R. (Ed.). (2007). The science of social influence: Advances and future progress. Psychology Press.