Video Game Monetization

This is a draft

Let’s start by saying I am the least qualified person to talk about video games. That said, I have a huge curiosity and appetite to learn about them. With this in mind, I met with some very smart people to talk about it. This is a mix of conversations and emails where we are discussing marketplaces and video games monetization strategies.

Is incredibly hard and that it has never been tried before. But if it wasn’t hard then it wouldn't be worth it. Let me explain a little more why I think that even if hard in the long term it should be better. The game studios need to be able to have sustainable revenue to be able to survive.

So lets think about the different models:

Free

You compete against everyone else that has or host free games. You need to have some free games but having 100% of them being free makes it not sustainable in the long term. Its difficult to become viral on free games and even if you do, is difficult to replicate the success.

Selling ads is not the best way to make the hard core gamers come to your platform. Everyone knows they hate it.

Free has transformed into “free-to-play” games. “Free” games have microtransaction and virtual currency systems for users to buy customizations, upgrades, etc. in-game. There are hundreds of hardcore games that are successful with this model, with League of Legends and Team Fortress 2 being the best examples.

Pay game / Premium Games

STEAM rules. It already has an established brand, a network, a close community and a catalog of games that is incredible. It would make sense for those premium games that are VERY high quality and that have taken a high cost to create. This way the developers can get a return on their investment.

Even if Steam is a competitor in the premium games space (they also have free-to-play games ), they're in the downloadable games market. This creates an opportunity in the browser games market, creating a distinct competitive advantage over Steam, both for developers and for users. A developer can build their game for the web and it’s immediately available on 5+ platforms including mobile. A user can buy a game and access on virtually any device, seamlessly. Steam relies on the developer to port to each individual platform. A platform that is working on this is Boondogl.

Subscriptions

It has to be cheap enough so it doesn't create friction and have an amount of games that would make it worth to subscribe.

The only way to justify this model is that the platform/marketplace deliver volume and quality. There’s need to be enough games so you won't get bored of the content (entertainment) and you have to be always adding. There is the Netflix model or the HBO model (quantity/quality).

On the actual model of how much to pay as a fix flat fee and the % per user that played it depends a lot in the numbers of users. Also the cost of developing a game and the expectations of the developers on each game.

What it is important to remember is that the business model (and monetization strategy) should serve the product and not the other way.

There’s nothing stopping a marketplace or platform from having all of these models be mutually exclusive sections of the product. It will arguably give them a broader reach as different models appeal to different types of gamers.

That was my initial position about the 3 different models I saw in video games. As you can see I try to push into the Subscription model. A more “sustainable” model.

Co-existence of models

So here are two concepts I want to talk about (mentioned before). One is the “monetization that developers understand”. So there are many ways of getting money (creating income or monetize customers/users) but the most crucial part you need to dig deeper is if the business strategy depends on the supplier of your content or is independent of it. Let get an example: Amazon monetization is the same as the way he pays the owner of the books. They charge per book and they pay per book. Amazon Prime is an extra service that is not directly attach to the product itself, its just a complementary or upgrade service that is created to make the experience better. That’s what most people think, but if you ask someone he would answer “I have Amazon Prime” as if he pays a different price for the products. Why? Well, one point is because the shipping is an important cost, but also because they rebranded that client to be “Prime” even if she pays the same for the same products (remember shipping is not a product in itself*). So they have included shipping as part of the “experience” of the product.

Let’s bring it down to our case. The product itself is the game (or games) that you pay and probably can pay individually. This would be the Premium Games model. But the way you charge your end customer/user/gamer doesn't need to have a direct correlation to the way you pay the developer of the game. Why? Because they are different “stakeholders” with different needs. They are not satisfied by the same outcomes.

The second concept is on “frictionless of an onboarding process”. Let’s compare iTunes and Netflix. For the example let’s think you have an AppleTV and buy monthly at least one movie. Now every time that I have to pay (even if it’s all automatic because they have my credit card) it’s still a pain having to see the amount every time. Paying is probably one of the least satisfactory things humans do. No one, and I say literally no one, likes to pay for stuff. We like to consume but not to pay. On the other hand you have Netflix which I use weekly to see TV series or movies and I never feel friction. Why? Because I don't even realize I already paid for it. I never see numbers, or even the word “Pay” or credit card. Is like it’s magically there. This is real frictionless.

Can this model be adapted to video games?? ================================================================

Examples

Even if it’s frictionless to KEEP a subscription (i.e. the monthly billing just happens and we don't even know), but getting people to SIGN UP for one is very difficult without a proven track record.

PlayStation Plus: PS+ is an optional subscription service for PlayStation owners that gives subscribers “free” games every month as part of the membership. This is basically the exact model we just discussed; everything is premium (one-time purchases) at launch, and then when the catalog of games is large enough, you move the users to offer up the subscription to people who want to play a lot more games without paying for all of them individually.

On the other side, we also have the “Netflix of games”, including PlayCast and GameFly.

Flipping Around

I always say that you should adapt the business model to the product and no the other way around. This is a reason why so many startups fail. But…

We omit to discuss that the product depends on your customers and not the other way around. The “customers don’t know what they want” could work ten years ago when they couldn’t reach out to the company on a tweet and express what they wanted (features or promotions). The customers are always who you are serving and who your product is serving too. So you should always have them in mind.

What if the business model didn’t adapt to the game but to the customer? Why if the marketplace was customer centric and tried to reduce friction but letting the customer decide how they want to use or pay the game. Every game. What if every game would be possible to buy, rent, subscribe or pay-as-you-play ? The gamer would decide how they want to pay and they can change this way ?

Here is where it becomes tricky: on premium games no virtual currency purchases actually happen, and subscriptions are handled completely differently (a set number of games are free to subscribers for a month at a time). On virtual arcade games the model will have to have games that actually make sense as arcade games, so usually you can't just apply that coin-operated arcade model to every game as an option. Not all products work on each model, so we shouldn't try to force them to?

In summary:

  • Buy or rent premium games
  • Subscribe to a “premier” membership at a fixed monthly price and get X number of free games per month; different games every month
  • Buy coins and spend them on arcade-style games (these games may be fully purchasable too, but not all premium games can be coin-operated)
Does that make sense finally? Everything adapts to the customer’s wants/needs and to the products themselves rather than trying to force products into models that don't work for them.