Steam Freemium advertisement

Steam recently implemented a slew of new free-to-play games.

Tyler does marketing for SFGameMonetization meetup in San Francisco, CA.

Why your game needs to be free-to-play
You work your tail off to build a great game. You put in hundreds of hours. From storyboarding to coding to calls with the designer to guerrilla marketing to gameplay testing to bug fixing, you pour sweat and tears into your baby. And now you want your customers to PAY for it? What are you, crazy?

But why shouldn’t I, you say. Building a game is significantly harder than a one-off web app that engineers can churn out themselves in a weekend, and those engineers charge for them. Building a game takes all of the challenges of coding and throws art, writing, and marketing on top of it. Why am I being punished for building the tougher product?

Sadly, to quote Ben Horowitz, nobody cares. Or at least your customers don’t. They saw your game had a great 4.5 star rating, immaculately written marketing copy, a bevy of beautiful gameplay screenshots, and even a snazzy app icon. They still aren’t convinced: they need to try it before they buy it. In dramatic fashion, users are flocking to free-to-play games and if your game isn’t free, you’re going to be left behind.

So why give it away for free? Honestly, the best way to think of your free users is as a marketing expense. Over the long term, the majority of users will stop using your app rather quickly whether it is paid or free, so your goal is to find as many of those long term users as possible. When trying to build a large user base to find these long term users, being free is a tremendous advantage. Free apps will get downloaded & used up to 6.6 times more than paid apps, and since this effect is compounded by word-of-mouth and viral channels, this can be the difference between your game joining the vaunted Top 100 list or being left in the basement of the App Store for eternity. Being free is also a great way to get users to try your game and convey your game’s vision far better than an app store description ever could.

Free is the new customer acquisition channel for anything from rarely beat out paid apps in revenue. You may ask: where is this growth coming from and how can I get a piece of it? The answer is in-app purchases.

Why In-App Purchases?
Of the top 150 free games on the App Store as of April 2011, 94 games or 63% of these games were using in-app purchases to monetize their userbase. In-app purchases have exploded onto the virtual goods scene recently, and while there are a number of factors that contribute to this trend, the most prominent is increased user familiarity with paying real-money for in-game items. Paying real money to play a free game is a concept that would have made most users balk before Zynga pioneered the approaches and hooks that made this behavior more appealing to players.
In the years since Farmville’s runaway success, countless games have adopted this model and players are far more comfortable parting with their cash for a game they enjoy. However, signup friction is still a key barrier to entry for the new buyer. This is highlighted by the fact that Google is making big movesto fix this problem on Android. Once a user is signed up with a payment provider that is plug-and-play for developers, it becomes much easier to get them to spring for a level pack or Broadsword of Awesomeness.
However, it’s interesting to note that the majority of in-app purchases are actually not a Broadsword of any sort. Recent studies have shown that 68% of in-app purchases are consumable items, which are things that speed up or shortcut gameplay and are destroyed after use. This means that games powered by in-app purchases can show residual earnings without new content because players will pay for generic in-game currency or temporary boosts repeatedly. This is the coolest part about using an in-app purchases model: there is no longer a price ceiling on what a user thinks your game is worth.
In the past, shipping a console game would entail sales in retail stores, and users would either pay full price for the game upfront or not, based on it’s packaging and marketing buzz. Whether they found the game worth $5 or $500, they would always be forced into paying the $50 price tag and were not able to price themselves. Users that did not see the full $50 value in their game ended up disappointed, and games did not make any additional money from players that valued the game far above $50. Now, with in-app purchases, players that don’t find value in a game can still enjoy it and spread the word to their friends, and it is not unheard of for dedicated players to spend average paid iPhone app costs $3.62, you’ve actually earned over 5X more from this cohort by allowing users to price themselves.

Alright, you’ve convinced me. Where do I start?
There are a lot of great companies that are trying to help you learn how to implement in-app purchases intelligently into your game. I have written a post on this topic on Betable’s blog called virtual goods guide. I hope these posts get you started, but there are always other great resources out there that are just a Google search away. Good luck, and feel free to shoot me an email about your next game. I would love to try it, as long as I can do so for free ;) .