Team Fortress 2 Going Free – Network Effects on Products
A couple months ago, the popular online video game “Team Fortress 2” became free to download and play online.
http://www.develop-online.net/news/38103/Team-Fortress-2-becomes-free-forever
Upon reading this article, it almost seems to fit too perfectly with what we have recently learnt about network effects on products. Valve representatives are quoted in the article saying things such as: “the more people playing the game, the higher value the game has for each individual customer”, and “The data we got back from that update leads us to believe that TF2 would be more successful as a completely free product”. This corresponds very closely with the model of network effects on products that we’ve talked about in class: the multiplayer game has a greater value if more people play, and reducing the price of the object to “free” has increased the stable equilibrium point’s fraction of users.
However, although the game TF2 is free to play, the company as a whole (Valve) will probably benefit financially all the same. To download TF2, one must download another program called Steam, on which Valve advertises and sells many more games for profit. By raising the fraction of potential consumers who play TF2 (by making it free and pushing the stable equilibrium point closer to a fraction of 1), they simultaneously raise the fraction of users of Steam. This greatly increases the people to which Valve can advertise and sell video games, which probably will bring an increase in profit.
Another way to interpret the price of TF2 may involve accounting for the price of the small items/features that one can optionally buy in-game. If we determine the fraction of people who purchase these items, we can derive some form of “average resultant price” for downloading the game due to later purchases made in-game. We can then consider the price of TF2 to be non-zero, with an equilibrium point that better describes the profit made by Valve.
Overall, many more network effect considerations may have gone into Valve’s recent decision, but it seems highly probable that Valve is deliberately considering Network effects on their product values and profit.