Freemium: From players to payers

    After Pokemon Go was released in the United States, it took less than a day before it was making more money than all the other apps in both Apple and Google stores. It took less than a week for the game to earn $14 million in revenue. But users did not have to pay a cent for it. All that money was coming from optional purchases people were making as they played. 

    This is the world of Freemium apps – a business model that, in the past few years, has largely wiped out the market for paid games. Now, game designers have to monetise the gameplay, and one way to do that is by applying some fundamental lessons of behavioural psychology. The first thing these games do is set up a virtual currency, so that people do not feel as if they will spend real currency, even though they are. This is a variation on something that economists have known for decades, which is that people find it harder to spend money when they are paying in cash than if they are using a credit card, as using cash provides a very immediate sense of how one’s wealth has dropped. 

    Games add yet another layer. In Candy Crush, one of the most popular games in the world, you pay for lollipop boosters with gold bars, and you pay for gold bars with your credit card, which is already distanced from actual payment. On top of that, the exchange is far from simple. It is not 50 gems for 50 cents. If incense costs 80 pokecoins, and a batch of 550 pokecoins costs $4.99, how much real money does incense cost? No one knows. 

    So, players are spending money that does not seem real, and it only takes a second because the app store already has their credit card. The whole payment process is designed to be painless. However, other parts of the game are designed to be painful. A key finding of behavioural research is that people tend to experience unexpected losses more intensely than comparable gains. In Puzzle & Dragons, players progress through a dungeon before facing a boss, and if they die, they stand to lose all the rewards they just earned, which when they are presented with the option to save their coins and their points by spending magic stones, which they can buy in the store with real money. Other developers actively embed inconvenience into the games, so that players can purchase convenience. In Clash of Clans and Game of War, infrastructure that needs to be built has a given wait time which gets progressively longer but is skippable, for a price. Hence, they build incentives into the games to remove pain points. 

    One argument in favour of free-to-play games and in-app purchases is that they give developers a reason to keep updating the games, and they collect tons of data in order to inform those updates – things like where you get stuck, where you close the game, which features are most popular, etc. All that data can help them keep making a game that people want to keep playing. But it also means that they can tweak the prices based on individual profiles and behaviour. If it seems like someone is about to quit, a discount will be offered. If someone is the type of person who will spend a lot of money, the prices will be bumped up. They can even look at what phone you have and what country you live in, and set the prices accordingly. According to one survey, 40% of game developers said they were setting different prices for different players. But the survey was anonymous, so it is pretty hard to tell which games those are. 

    Ultimately though, only a tiny percentage of players actually become payers, and a small percentage of payers become “whales” – people who will spend hundreds and sometimes thousands of dollars on the app. The marketing firm Swrve estimates that about half of the revenue of mobile games is coming from less than a half of a percent of all players. This means that for some of these games, non-paying users are essentially pouring time into a game designed to hit the pain points of a small, susceptible group of players. 

    If you are really having fun, great! But it might be worth looking into other rewarding games that go beyond the pleasure of purchasing in-game coins. However, as of now, the monetisation in Pokemon Go is unobtrusive, and that lack of manipulation might be a good reason for you to buy some lure modules and incense. 

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