High Engagement or High Revenue — it’s the eternal trade-off that game studios struggle with. Do we want tons of people playing and paying very little or do we want fewer people playing but paying a lot?

Two really successful games — Candy Crush Saga and Flappy Bird — are perfect examples for comparison.

CCS — extremely well PM-ed, with all the trappings of a good revenue generating product — lives, power-ups, varying difficulty levels.

Flappy Bird -no economy, no complex systems — it’s a pure engagement play.

Both games are extremely successful — one thrives on engagement and hence revenue, the other makes its money through a complex economy and virtual currency.

As a game creator — what are the levers for revenue? I’ll start with a high-level overview

1. Ads

Get enough people playing the game all the time, impressions go up and you make money from ad revenue. Flappy Bird did this. Other mobile games also make money with just impressions and clicks on ads.

Advantages: You’re not restricting game play in any real way and everybody is equal. Nobody has an added advantage. Moreover, the absence of any gates means that players can engage with your game infinitely.

Disadvantages: This is a numbers game. You need to have a LOT of players playing your game A LOT to truly make money this way.

Another drawback is that to scale up your revenue with a stable user base, you have to show even more ads and this bothers users even more.

2. Pinch

This is the Candy Crush Saga approach. They create pinches and gates in the game — this means that they make the game harder and harder, but allow you to bypass that through power-ups which you pay $$ for. They also use “hard gates” or lives. To continue playing, you have to pay or send requests to your friends.

Advantages: You get to monetize through smaller tweaks in the game. You can make some levels harder and easier. The virtual currency makes general control over your economy easier. Even if your players base drops, you end up making money till the last player no longer sees value in your product.

Disadvantages: Engagement. This is hard. With gates, players who don’t want to pay $$ will leave and may never come back. Also, when you make a game harder and harder, you are alienating a part of your player base. For people who aren't looking for the hardest game, they will get frustrated and leave. Unless you truly master personalization, you will eventually alienate somebody. Even with personalization, there is an ethical dilemma (which I will address some other time)

3. Freemium

Here, you can play for free up to a certain level but you will see ads. Level-locking for free users and paid upgrades to unlock these levels is a common monetization mechanism. However, you need some seriously good content for this and enough users willing to pay for not seeing ads. Angry Birds did this and it has worked wonderfully for them.

Advantages: Value Proposition is extremely clear in this case. Users know exactly what they are paying for. It’s like buying a game CD after a long trial period. With a good quality game and strong content, this method is bound to work.

Disadvantages: Games will lose a large percentage of their user base at the free level. Unless a game’s content and level progression is truly compelling, it becomes harder to monetize through this route. While in the pinch method, players can keep playing no matter what — even if it means coming back after a waiting period.

All in all, there are advantages and disadvantages to all the methods, but I want to talk specifically about the engagement-revenue dilemma.

Extremely high engagement can reap huge benefits for games.

1. Addiction — players keep playing, they can’t stop playing, so they play some more.
2. Social — in games where social is important, since you have more players playing at any given time, you have a richer experience for all players.
3. Network Effect — all your friends are playing this cool new game and can’t stop so you play this cool new game and you can’t stop and the trend continues.

Monetizing free game play through ads is dependent on scale

However, the drawback here is the “value” of the product. When something is completely free to play and users don’t attach an intrinsic value to each session, they are unlikely to pay for anything ever. For instance, in Candy Crush — there is a clear value to each level start. You have 5 lives, you better use them well. In Flappy Bird, however, you know you can just go back and start again.

So how does the economics of this work for games? If the game has large user base + high engagement, ads can give dividends and eventually freemium revenues. However, for games who don’t reach that tipping point of scale, there are a few users who are not paying at all. Your ad revenues don’t cover your costs and you slowly disappear into oblivion.

Sacrificing short-term revenue for higher engagement works only at scale.

Economics of pinch are favourable at smaller scales

Revenue from pinch on the other hand is sustainable at any scale. If Candy Crush Saga had exactly 2 players and both were addicted to the game enough to keep buying more and more lives, they would be okay.

For that — the game needs to be fun, interesting and addictive enough for people to want to pay for more than 5 lives. This argument is fast becoming circular.

It’s clear that scale isn't vital for pinch, a small dedicated user base would be just as effective.

In summary : Engagement is vital. Dividends are reaped only at scale. Focus on engagement is a gamble, but if successful, there’s huge potential for $$$$ upside.