Percentage of paying users is among the important metrics tracked by the game developers that utilize freemium as the predominant business model for their mobile/social/casual games. Typical value of this metric is between 1% and 3%, implying that only about 1 to 3% of a game’s user base is the paying user base. In other words, at least 97% of a game’s user base is not making any in-game purchases or paying to play the game. The popular way in which the game developers monetize this 97% user base is through in-game advertising, which in itself is not the best way to monetize because the ads distract from the game experience and the revenue from virtual goods is 4x higher than that from advertising.
The major opportunity, therefore, lies is figuring out how to better monetize the non-paying 97% of the mobile, social, and casual gamers. In this blog, I argue that the game developers can utilize a combination of product flavors and pricing options to better monetize their games. Game developers can use the following 9 models to monetize and 11 techniques to improve their game monetization. Please note that some of these models and techniques are already used extensively, whereas, others, I have derived from the real world products and services, and from my readings.
8 monetization models:
1) In-game banner ads: This is already been used extensively. It provides a free option for users that are not willing to pay anything for playing games. Some of the mobile games using this model include Paper Toss by backflip studios and Touch Pets* by ngmoco.
*Touch Pets also features virtual goods
2) Flat fee: This is also already been used extensively. It provides a one-time flat pricing option for users that are willing to pay a flat fee to play games or to access premium features of games. Some of the mobile games using flat fee model include Rovio’s Angry Birds and Activision’s Call of Duty.
3) Integrated branding: This has been increasing in popularity as a monetization model. Some of the mobile games using this model include Tapulous’s Tap Tap Revenge and ngmoco’s Godfinger. One of the social games using this model includes Zynga’s FarmVille.
4) Micro-transactions: This is the most popular monetization model among social, mobile, and casual games. This model is also deployed by some of the traditional MMORPG games such as Shaiya by Aeria games. Under this model, the game world (creating value for virtual goods) and the game mechanics (creating demand for virtual goods) work in close collaboration to drive sales of virtual goods within a game. Some of the mobile games utilizing this monetization model include ngmoco’s Godfinger and Touch Pets, and Tapulous’s TTR and R2; examples of social games using this model include Zynga’s product line, Digital Chocolate’s product line, and Playdom’s product line.
5) Cross-Branding: Under this model, game developers can utilize their game as a brand to sell the complementing real world goods. Some of the examples include Zynga and 7-Elevan cross promotion and Rovio’s Angry Bird Plush Dolls.
6) Micro-leasing: Under this derived model, game developers may allow their users to lease a set of virtual goods at a price point lower than purchase price for the same set to be used for a set period of time with certain usage restrictions. This model may allow game developers to monetize their non-paying users who are not necessarily interested in owning the virtual good and do not mind some usage restrictions.
7) Pre-packaged games: Under this derived model, game developers may offer their users their games pre-packaged with a set of virtual goods at a higher price point than a standard game version. This model will allow developers to capture higher willingness-to-pay of some their paying users.
8) Netflix-style subscription: Under this derived model, a game developer may offer its users a fixed number of virtual goods for a flat monthly fee; essentially, same as Netflix model.
11 techniques to improve monetization:
1) Personalized store-front: This is more of a feature to enhance monetization and less of a standalone monetization model. Game developers may develop features within their games to offer exact virtual currency packs required to capture a user’s next game move. For example, in ngmoco’s Touch pets, the game (inferring from my in-game click-through and knowing that I hold 599 coins) may offer me to purchase 396 coins at a prorated price to adopt a specific dog priced at 995 coins. Please note that this tactic may not work in iPhone platform since Apple requires its app developers to pre-define all of app developer’s in-game virtual goods.
2) Virtual Goods variety: Under this technique, game developers may create different product versions for their virtual goods based on branding (branded virtual goods), quality (an all-frill Santa hat vs. a simple Santa hat), utility attributes (4 days energy pack vs. 2 days energy pack), seasonality (winter – holidays, summer, Football Season, etc.), theme (set of Rock songs), and events (July 4th, March Madness) among other things. Game developers may also periodically create one-of-a-kind (per city/state/country) virtual goods to auction off as exclusive virtual goods or collectible virtual goods. Different product versions will allow game developers to capture different willingness to pay of their users.
3) Second-hands virtual goods market: Under this technique, game developers may allow their users to buy or sell virtual goods in an ebay-style second-hands marketplace. This tactic will serve as both a social game mechanic and increase user retention by allowing users to refresh their content at a lower price point.
4) Virtual Good Sales and Promotions: Under this technique, game developers may run in-game limited time virtual good sales during their slow usage times to spur in-game activity. The developers may also consider publishing coupons for their virtual goods outside the games (e.g. on social networks such as facebook for social games or on mobile networks such as Plus+ and Game Center for mobile games) to attract new users to the game.
5) User-Generated Virtual Goods: Game developers may sell modular virtual goods as part of their product portfolio. Such goods may be used by the gamers to combine and create new “personalized” virtual goods. For example, social games such as Mafia wars by Zynga may sell an in-game virtual gun and a virtual tattoo separately and allow its buyer to place the tattoo on her/his gun, creating an entire new user-generated virtual good. This tactic will increase user retention as well as spur additional virtual goods purchase.
6) Trade-ins: Under this technique, game developers may allow their users to trade-in older virtual goods to purchase new virtual goods at a discounted price. This will allow the game developer to introduce another price point to activate users with even lower willingness to pay.
7) Celebrity Player: Certain games may engage celebrities as players to allow its user base to play with famous celebrities. This will increase the stickiness of the players and may also increase their willingness-to-pay for certain virtual goods.
8) Region-based pricing: For games that operate across countries or large regions, the developer may consider charging different price points for virtual goods to users across countries or large regions with different willingness-to-pay.
9) Mixed bundling: Game developers should consider bundling different type of virtual goods to leverage different willingness-to-pay among users. For instance, if gamer A is willing to pay $0.99 for an avatar and $1.99 for a pack of two songs and gamer B is willing to pay $1.99 for an avatar and $0.99 for a pack of two songs, setting $0.99 price for avatar and $0.99 price for the pack of two songs and selling individually will generate revenue of $3.96 or pricing both at $1.99 will generate a revenue of $3.98. On the other hand, if the two virtual goods were to be bundled and sold for $2.98 each, both users will buy and the revenue will be $5.96.
10) Reward program: Game developers should consider incorporating a reward program for increasing user retention. Gamers may earn points for hours spent playing games and use these points to buy in-game virtual goods.
11) Group discount: Developers may introduce group discount such as buy one virtual good and get another for free for your friend (currently not a gamer) to both spur in-game activity and acquire new users.
In conclusion, the right combination of the above mentioned monetization models and tactics will ensure that together it offers a wide variety of price points and product versions to eliminate each user’s barrier to purchase and capture, ideally, each user’s willingness to pay to better monetize a game.