TEST JAR LABS

What the Heck is Free-to-Own and Why You Should Care

A look into Free-to-Own as the next evolution of game monetization.

Edited by Emily Jiang

If you have been keeping up with games and web3 for the past few days, you may have heard the term Free-to-Own (F2O) being thrown around. This new model is coined by Gabriel Leydon and Limit Break who just successfully raised $200 Million. There seems to be a lot of confusion around what Free-to-Own means, so let’s break it down.

A Brief History of Monetization in Games

Let’s start with a brief overview of how monetization in games has come to its current state so that we can approach this from a more informed perspective.

In the 80s, arcades were all the craze. These games were designed specifically to encourage players to put in another quarter to continue playing. Then the home console came around. The goal at this time was to sell as many copies as possible. There became a co-dependent relationship between studios and publishers since the only way to distribute these games was physically in stores. Then the internet became a thing in the mid-late 90s, and we moved into our modern era of games: the era of accessibility.

In our modern era of games, there are two primary business models: the premium model and the Free-to-Play model.

The Premium Model

The premium model has been best suited for games that are story-driven and has not changed much since they came to be — the main goal for these games is still to sell as many copies as possible.

The Free-to-Play Model

While the premium model has not changed significantly, the Free-to-Play model has not only grown to be a prominent part of the games industry but has also turned into a moving force that has begun shifting the industry into a new generation of games.

Free-to-play games originated in Korea by the company Nexon. They grew in popularity around the late 90s and early 2000s. During this time, we began to see games like Runescape, MapleStory, Neopets, and Club Penguin — all of which introduced multiplayer, Free-to-Play games with micro-transactions to a large audience. Then, around the beginning of the 2010s, Riot and Supercell took the Free-to-Play model to new heights with League of Legends and Clash of Clans, spurring the new generation of games that has since emerged.

The Free-to-Play model has become so successful that premium games began converting to the Free-to-Play model. Games such as Team Fortress 2, CS: GO, Rocket League, and Fall Guys were actually premium games that cost around $20 before turning into the games we know now. Even seen huge franchise games like Call of Duty (and pretty much every sports game like NBA 2K and Madden) apply a hybrid model by selling copies of their games with additional Free-to-Play live game tactics for extra revenue (including season passes, cosmetics, loot boxes, etc).

TL:DR;

Monetization in games has evolved drastically over time. We can thank technology for this, alongside our desire for new games, new forms of entertainment, and the evolution of culture.

(And it is also incredible to note that games have only really been around since the 80s. And modern games have only been around since the 2000s. The industry is still very young.)

At the highest level, it seems that the premium model exists primarily because it makes sense for those story-driven games that are single play-throughs, and the Free-to-Play model is slowly taking over the industry. As we enter the age of Free-to-Play, premium games are slowly becoming overtaken by micro-transactions.

Why Is Free-to-Play So Attractive?

The Free-to-Play model, whether completely “Free-to-Play” or hybrid, is driven by data. Like any other live service, every company with a live game has to balance its games around metrics, some being retention and Average Revenue per User. They also have to work to figure out ways to cut the costs of acquiring their users so that they can optimize the magic LTV: CAC ratio (Life Time Value to Customer Acquisition Cost), which has risen due to the changes in privacy laws and various policies. For the games that are not driven by ads, most of their revenue is driven by Whales, the big spenders; in most cases, 0.15% of the players account for 50% of a game’s revenue. What all of this means is that studios can pull in revenue over an extended amount of time instead of depending on the initial sales of a game. On top of this, studios are able to better leverage their IP and game concepts to do things that never would have been done before. As stated earlier, this can be seen when looking at games like League of Legends, which has become a golden child of IP expansion.

The best part about Free-to-Play games is that they are highly accessible and can reach a mass amount of users and sustain for a reasonably long time. As the larger portion of the industry is noticeably shifting towards Free-to-Play, some developers have moved to take a stab at new game models that leverage blockchain. What first emerged from blockchain and the newly dubbed “web3 space” is what we know as Play-to-Earn.

The Attempted Shift to Play-to-Earn

Play-to-earn games have taken the games industry by storm. For the past year and a half, it seemed as though everyone from AAA veterans to investment bankers had started a web3 game studio to develop Play-to-Earn games. These games promise their players that they will earn money just by playing the game. From the non-gamer or non-game developer perspective, this makes tons of sense as a user acquisition strategy. Unfortunately, these games were lacking and the majority of interest stemmed from investors trying to maximize returns, leading to a high barrier of entry for gamers and game developers and an overall negative sentiment from those who were outside of the web3 circle.

We then began seeing the creation of guilds as a response to the rising costs and barrier of entry to get into these Play-to-Earn games. Although the guilds were conceptually “nice” and beneficial to players who otherwise would not be able to access those Play-to-Earn games, these guilds and their members would go from game to game as mercenaries trying to get as much money as possible instead of playing for entertainment.

Arguably, the trading and grifting that went into these were a game in and of themselves. Technically, the Play-to-Earn games did serve their purpose and hit their player experience goals. They just targeted a new player type. However, the nature of these games led to Play-to-Earn games being highly unsustainable.

It is common sentiment now within the web3 community that the majority of Play-to-Earn games are Defi protocols wrapped in the package of a game.

Unsurprisingly, Play-to-Earn did not work out. So what’s next?

Free-to-Own is a natural progression from Free-to-Play.

Free-to-Own, the Next Stage of Web3 Games

Some people I have spoken to are calling “Free-to-Own” a Web2.5 approach. My co-founder, Emily Jiang, calls it “a natural progression from Free-to-Play”. Regardless of what it is called, we can all agree that the Free-to-Own model is exciting because it is the most accessible game model for all games that plan to use blockchain. In turn, it will be the most sustainable.

When considering the history of how monetization in the games industry has evolved, this is undeniably the next evolution. Free-to-Own takes what we learned from Free-to-Play and expands on it with the web3 application of ownership and community-focused development. This type of strategy gives developers the flexibility to experiment and build alongside their community, who now can hold some stakes in the project while allowing players to do more with their in-game assets.

DigiDaigaku takes advantage of the concept of Free-to-Own to do exactly that. So far, all of their updates have centered around community-driven wants and they have been able to grow an early and loyal audience that they can build with.

So long as a game is fun to play, the Free-to-Own model also theoretically solves the retention problem we have seen in the majority of Web3 games while possibly solving the increasingly growing problem within the games industry of finding the spenders that allow a studio to keep making fun games.

Why We Have Embraced Free-to-Own Before It Was “Free-to-Own”

If you have had the chance to talk with us or have been following us, you know that this has been our approach since we began in November. The biggest issue we had with Web3 games was that the games had high barriers of entry with high price points, and on top of that, they mostly consisted of reskinned games that didn’t feel as good as the originals. Knowing this, we set out to create an original game that is designed to best leverage web3 and the Free-to-Own model it brings to us as developers. Read more about our game here.

Building a game on-chain gives us endless amounts of flexibility in the future, and lets us tap into a quickly expanding ecosystem. It allows us to be experimental and creative in our approach to the business of games. And we have the team and the expertise surrounding us to succeed at a high level.

At Test Jar Labs, we believe that this mindset is the best way to incorporate web3 into games. We are excited to be a part of the next wave of games and to help push the industry forward.

Stay tuned and join us on Twitter and Discord to follow the development of our genre-bending MOBA Fighting game, Ghostie: Battle for the Bones!