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Free to p(l)ay: the rise of freemium

Console games, known as AAA in the industry, are dying, consigned to nostalgic nooks alongside Donkey Kong, C64 tape games and Super Mario.

Console games, known as AAA in the industry, are dying.

Alan HucksConsigned to nostalgic nooks alongside Donkey Kong, C64 tape games and Super Mario, the years and millions of dollars required to create console blockbusters are proving too high a price to pay.

A seismic shift in the cost- benefit relationship, akin to the insistence of younger generations to see the show before paying the price, is becoming apparent. People now expect things for free. A 30-day trial is a given, and ‘freemium’ now boasts a place in the Oxford English Dictionary. The top 25 grossing games on the App Store are free-to-play (F2P).

Eros Resmini, vice-president of mobile social gaming network Openfeint, told the assembled masses at AnimFX that good games with a small download fee typically get played on and off for about three weeks on average.

Yet good F2P games get years of use, Resmini said. Why? They have to keep it fresh to make any money.

When you front load your revenue model into a one-off purchase price, the work is done, the cost is sunk and while the value per hour of usage gets better the longer you engage, the perceived value dwindles. You forget the lust you had and start looking for something new.

For a company to monetise a freemium model, revenue has to come via the experience itself. F2P games front-load their investment rather than their revenue model, building high engagement early and then look for the ‘whales’ – the 3 percent of users who generate 80 per cent of revenue, and the ones with whom you build long-lasting love.

One price is getting old. Gaming is yanking price elasticity out of dog-eared economic textbooks into the here and now. In-app or in-game purchases are the epitome of this, where new value is unlocked through updates, improvements and options throughout the user experience. The more they pay, the more fun they have, the longer they stay. Love you long time is a two-way street in the F2P postcode.

What does this look like outside of gaming or apps? Take Zappos. The massive online shoe store has built legendary status around customer service. Its staff get prizes for keeping customers on the phone longer, contradicting the classic cost-minimisation ethos of most customer support centres. For this company, it’s all about engagement.

In 2015, 150 million US kids will become teenagers. That’s 150 million expectations of free, instant stuff with continuous upgrades. Engaging with teens is now back into vogue.

Alan Hucks is a strategist at Creative HQ, which backs startup ventures to build global companies