Deep Dive: 3 Things to learn from the multi billion dollar Free2Play-Gaming industry


 

A major part of the global gaming industry’s revenue is generated by applications that are completely free to download and use, delivering free fun to their users for several days or sometimes months. I get asked frequently how such products generate revenue at all. This topic not only puzzles those outside of the games sector, it can be troublesome even for industry veterans as they struggle with the complex mechanisms of “free-to-play” (F2P) and “games as a service” (GaaS) products. Accordingly, many of the biggest and most experienced game developers and publishers cannot yet achieve the immense potential of this business model. Only a few have both mastered the techniques and science behind F2P and GaaS models and have the necessary resources at their disposal to implement their expertise accordingly. Those experts would not be satisfied with any product generating less than $50k global gross revenue per day at a matured lifecycle level. You may now wonder what makes the F2P and GaaS model so difficult to understand. This article will roughly explain the basic ingredients of successful F2P and GaaS products based on the results of years of product research and industry experience. A topic of focus will be product design and the connected organic success potential (regardless of inorganic marketing methods).

 

The Foundation: Accessibility

Accessibility plays a role of utmost importance for the entire F2P success story. Yet many facets of this topic are still highly underestimated or even completely ignored. I have intentionally chosen the far-reaching and expandable term “accessibility” for this section in order to raise awareness on this topic in every conceivable sector of game development and publishing. Obvious areas such as user interface design, localization, and pricing will be covered, as well as less obvious sectors like art design, narrative design, and game world settings and themes. Accessibility is a function of the effort a user must put in to reach the 'usage objective' of an application (e.g. time, money, muscle use, or brain activity such as problem-solving). For example, a typical objective when using a game application is to feel pleasure, or 'have fun'. The more effort needed (or the more obstacles the player needs to overcome) in order to reach the perception of fun, the lower the accessibility. A usage objective of a purely practical application like a calendar app could be the entry of an appointment. Every single obstacle or small effort make an entry (e.g. additional tap or click) reduces the accessibility of the application. It has been found that users tend to naturally choose the most accessible way to fulfill their needs. That is how games of higher accessibility (such as F2P, where no initial payment is needed) can become more successful than comparable products of much higher quality. These theories regarding accessibility can also explain the success or failure of voice control features: as soon as it becomes more accessible to use voice rather than using tap controls for instance, users show much higher rates of usage. Accordingly, voice-controlled virtual assistants are mainly used for processing tasks of low accessibility or high complexity, such as making a to-do list entry while driving.

 

Example: Candy Crush Saga (by King), F2P mobile and browser game 

Many players of Candy Crush Saga experience the feeling of pleasure ("fun") within the first few seconds shortly after launching the game. Up to that point, the game does not require complex thought processes, presents simple and clear graphic design and themes (candy), and can easily be understood by diverse cultures worldwide. Downloading and playing the game do not require any financial investments. In-app purchases are completely optional and deliver only comparatively small advantages. The hardware requirements are minimal. Candy Crush Saga’s high level of accessibility, combined with a solid monetization system and a smart cross-promotion strategy within King’s game portfolio, lead to an incredible success story: The mobile versions alone have generated average daily gross revenues of over $1 million within the last 4 years.

 

The importance of accessibility seems obvious, but the topic rarely receives the attention it warrants (especially within the F2P and GaaS sector). Even professional game development studios often don’t recognize its relevance. The reasons for this lack are diverse. Generally, it is recommended that accessibility be prioritized from the concept phase on, as well as incorporated into the foundation of all aspects of the product. If the accessibility topic is introduced too late during the development process, implementation cost will massively increase, or implementation will become impossible. A lack of accessibility is often a death sentence for otherwise great product design.

 

The Backbone: Retention

A demanding design challenge for F2P and GaaS products is the creation of a strong user retention system. User psychology, which can include patterns like habit formation, can often fuse with mathematics-based balancing. These fields play a major role in user retention and are required to understand player motivation and behavior. Strong game design leads players into the game cautiously and carefully, without causing boredom or frustration. Finally, retention is about engaging players and pulling them back to the game on a frequent basis. Classic products (such as full-price console titles) often aim at keeping players within their game world for about 20 to 40 hours total. Successful F2P products, however, are usually designed to foster a daily return rate for several months, or even years. This massive playtime duration gap between the classic and the F2P models represents a significant difference in game design, which is often underestimated by classic game development studios and publishers. In fact, within the last few years, an entire new field of knowledge regarding user retention has been formed, which is still far away from being fully explored. At the moment, most effective retention designs are developed by specialized studios. The final goal of creating strong user retention is the accumulation of a massive and engaged active user base. Generally, it can be assumed that the number of in-app purchases (and revenue accordingly) will grow with the number of active users.

 

When it comes to estimating the success potential of an F2P or GaaS product, it is important to determine relevant retention KPIs. My usual approach when estimating retention potential includes several steps. First, a deep look into the individual game design concept is necessary. For instance, I investigate the amount of gameplay layers and their complexity, the factors of player motivation triggered by the individual game mechanics, and the interaction balance between sensory-motor (focus on senses) and cognitive (focus on thinking and planning) gameplay features. 

 

From a macro-theoretical viewpoint, an F2P game has great retention potential if:

  • it consists of many synergistically interwoven gameplay layers, 
  • it creates a strong focus on intrinsic motivational factors (e.g. Self-Determination Theory by Deci and Ryan) which suit the corresponding target audience, and
  • it delivers a smooth and steady transition from sensory-motor to cognitive gameplay.

The following step consists of a more detailed KPI potential analysis based on suitable product benchmarks. Second, I tend to choose F2P game benchmarks based on game design concepts according to the attributes mentioned above. This methodology often surprises industry colleagues, especially when compared to traditional game industry experiences and methods. After all, this model almost completely ignores the possibility of comparing individual games within a specific game genre (e.g. strategy, RPG, shooter). Instead, it places the main emphasis on the actual construct of an individual design concept and its targeted player motivational factors. As a result, the analyst is enabled to find suitable benchmarks across classic genre categories (in other words, analysis is genre-neutral). As long-term user retention is barely influenced by game type, but rather based on user motives triggered by game design, the procedure explained above has proven itself to be well-suited for evaluating retention potential of any individual game. Broadly speaking, users will keep playing as long as a sense of fun remains, regardless of the genre.

 

Powerful user retention is of utmost importance for F2P and GaaS products. Retention design is responsible for the users’ well-being within a game world. Still, the complexity and challenges of retention-oriented design are often underestimated. A massive part of the art and science of the GaaS sector is hidden within this field. Only products that display mastery of at least the basics of this field can truly succeed. The entire industry has much room to research and develop effective retention methodologies. We are still far away from making use of the full potential that retention-oriented designs can deliver.

 

The Marketplace: Monetization

There are various monetization methods used in F2P games. In-game advertising (IGA) is usually most suitable for simple games with only few gameplay layers. Products of this kind, however, can barely achieve extraordinary high revenues. Instead, cleverly-devised and complex monetization systems based on in-app purchases (IAP) deliver the most success potential, and at massive rates. Those methods, however, require a specialized knowledge base, which can be hard to find within this industry.

 

In-game purchase offers that grant certain benefits within the game world are usually accepted and used by players if the user is happy, i.e. motivated and engaged with the product (for example, thanks to a well-working retention design) and if the game balance does not significantly suffer from the purchases. Nowadays, such purchases are usually done with a virtual currency purely obtained within the game (known as "soft currency") or acquired in exchange for real money ("hard currency"). Hard currency monetizes directly, while soft currency creates either indirect revenue, or purely aims at user retention. Unfortunately, an extensive examination of diverse monetization concepts is outside the scope of this article. However, a few monetization basics for typical products of high-average revenue per user (ARPU) will be explained below.

 

The following paradigm generally applies: The more gameplay layers and the stronger their synergistical connections, the more viable opportunities a game has for monetization (known as a large “monetization surface”). This foundation potentially increases the amount of purchases, as it offers more opportunities for users to get into contact with the monetization system across the game (high offer accessibility). Additionally, this method can support a more indirect way of monetizing, which enables designers to develop purchases with only little direct impact on game balance. As a result, game designers can ensure that the infamous “pay-to-win” feel is avoided. Nowadays, many developers try to avoid pay-to-win mechanisms in their games wholly due to the bad reputation of such features. Instead, only purely visual goods are offered, which do not impact game mechanics in any way. This unfortunately results in a potential loss of revenue of the individual product, often caused simply by a lack of knowledge on the part of the developing studio. A monetization system connected to game mechanics usually offers much higher revenue potential, if done right.

 

The current lootbox debate (“Are lootboxes gambling?”) represents an interesting case study. The debate essentially became public with the release of the product Star Wars: Battlefront II and has already resulted in dedicated regulations for such designs in some countries. The issue within Star Wars: Battlefront II lies decidedly within the weak design of the original monetization system (since this event, the developers have changed the system due to negative press). Diverse and extremely successful GaaS products on the market, partially full price titles, have adopted a similar and arguably much more aggressive monetization strategy that has interestingly barely attracted negative attention. Such games require similar amounts of effort in terms of money or time in order to enable players to obtain the desired digital items, though the way their monetization systems are implemented are much more indirect, so that users and even industry veterans can hardly see the similarities to the unpopular system of Star Wars: Battlefront II.

 

Aside from the underlying design construct, psychological aspects also play a relevant role. Just as in physical supermarkets today, elements like pricing, layout and structure, and temporary special offers are extremely important as they effect customer engagement and revenue. The possibility of instantly creating individual special offers for certain user groups is one of many additional advantages of purely digital game content. The impact of applied methods of pricing psychology (such as "anchoring" or other cognitive pricing biases) can even be measured up to the minute thanks to collective purchase data.

 

The deconstruction and analysis of diverse GaaS products have also revealed to us the well-designed connection between monetization and intrinsic user motivation factors that can result in an incredibly powerful system. For instance, we have found that combining hard currency packages with systems that build upon theories describing our primal need for social relatedness (again, Self-Determination Theory by Decy and Ryan) can create massive additional revenue. For example: a play system in which all members of an in-game alliance receive a direct reward if only one player makes a purchase. In this case, the motivation to make a purchase will most likely massively increase in such scenarios.

 

In general, these theories are all about increasing the accessibility and attractiveness of in-game purchases while avoiding negative effects such as a pay-to-win feel or inconsistent in-game balance. Though there are many small and feasible measures that companies can put in place to create a significant positive impact, truly powerful monetization systems are complex, synergistically interwoven constructs that require solid specialized knowledge and experience in order to be created and maintained. Additionally, healthy and well-functioning products can usually benefit from further development and monetary upscaling. A single strong GaaS product can keep a company of hundreds of employees alive for multiple years, if done right.

 

In a Nutshell

A F2P or GaaS product with solid organic success potential is constructed on the three columns accessibility, retention, and monetization. The effort users need to put in to enjoy a game must stay low. Motivation triggers for the user to continue playing must be strong. Offers of in-game purchases must be attractive and accessible. If a product can deliver well on these three factors, a product will likely have a decent success potential. This may sound simple, but the GaaS model turns out to be one of the most complex business models of the games industry. These days, an extraordinary number of developers and publishers seek their fortunes within this field, but only a few will build great financial success. We in the industry can draw hope from the fact that a large potential for growth still lies within the GaaS sector, as comparatively little empirical research on its methods has been carried out so far.

 

To end, it is also important to note that user acquisition represents another relevant point of interest, a factor that mainly applies externally to game play. User acquisition includes topics such as marketing, viral game design, and brands and IPs. However, this element of success deserves its very own article and will not be elaborated upon here.

 

Bio

Patrick Rose is a passionate games and tech industry expert. Having worked in different fields of the industry and international studios, he is a jack-of-all-trades when it comes to games. His company experience includes product research, F2P and AAA games consultancy in terms of monetization and retention as well as business analysis. He is currently working as a Product Analyst for a large Japanese entertainment company and as a freelance consultant (GamesAnalysts.com, LinkedIn).

 

Special thanks to the editor Adair Cardon.

 


Others were also interested in the interview with Daniel Schreiber, CEO of Lemonade: "It's not enough to change the design" or Work-with-me.


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