Online Games: Free is Becoming Profitable
A couple years back, if you asked a devoted online video game player how much their hobby cost them regularly per month, they’d likely cringe and answer with a number easily in the triple digits. These days, you’re far more likely to receive a proud “Nothing!”. The Massive Multiplayer Online game (MMO) industry has seen a rapid shift in its business model, as evidenced by World of Warcraft’s loss of over a million subscribers in 2010 (down from 10 million) and League of Legends’ addition of over 32 million players in the two years since its 2009 inception. The distinction is between the subscription model (where a user purchases the game and then pays a fixed price per month) and the free-to-play, micro transaction model (where in-game items or benefits are bought at leisure). The former seems to be a much more stable, reliable method of income for the game developers, but its success relies completely on one thing: that every company uses it. This can be demonstrated using game theory principles.
For simplicity, look at a fixed number of customers looking to play a MMO. Companies have the option to create a subscription or free-to-play game. With a set number of players, the subscription model is probably preferred; income is steady and the payoff is more immediate, whereas free-to-play relies on users deciding to make in-game purchases with lower individual price-tags. If all of the game companies decide to use the subscription model, they would theoretically split the users evenly and all have a good payoff (combining the monetary benefits and the idea of stable income). However, if we assume that players prefer free-to-play since they are individually paying less, then one company defecting will draw users away from the subscription games. That company will have a higher payoff when the disproportionate number of users makes up for each one spending less, while the other companies’ payoff is damaged significantly.
To make this a more concrete example, look at a sample of 100 players and four gaming companies. On a subscription model, the players pay $10 a month, and on a free-to-play model, they pay on average $5 a month for micro transactions. When the companies all produce subscription games, they each receive 25 customers and a payoff of 25*10 = $250 a month. When one company switches to free-to-play, they take 10 users from each of the other companies, so that they have a payoff of 55*5 = $275, and the other developers are now making 15*10 = $150 a month. Each player that moves from the subscription to the free-to-play game is a large loss in revenue for the former, and so that company is motivated to switch as well in order to gain more users. The Nash equilibrium in this situation is all of the games becoming free-to-play, and all of the companies having an overall lower payoff.
In a nutshell, this is what really happened. As the Kotaku article points out, once several companies made the switch, the mindset of the players changed as well. There’s a common assumption that every game will eventually go free-to-play, so why purchase now what you can have for free only months after its release? And if a game doesn’t ever move away from a monthly fee, there are plenty out there that already have. Countless games have switched over after their subscriber base dwindled; Star Wars: the Old Republic is a recent example.
Of course, this simplified model makes the situation seem worse than it is, since the player base is not fixed. The fact that free-to-play games draw large crowds of new users can be explained by features of markets and social networks. One important aspect is that there is no requirement to pay, and especially not up front. Instead, players can try out the game with no strings attached. When someone buys a game, they’re taking a gamble that they’ll enjoy it and will get their money’s worth in playtime. Without having played the game first, they cannot know their true value for it. Micro transactions have a clearer value, as the player knows what this virtual purchase will mean for them. It’s also important to note that MMOs, having a social aspect, gain value for each user as their player base grows. And, with everyone trying to gain status in such a large player network, the real-money purchase of a more powerful sword or a fancy new hat can go a long way!
Source: http://kotaku.com/5937575/the-subscription-mmo-is-dead
–Enayla
MMO games are very popular nowadays and most of the MMO companies offers mmo games for free to play. Also, these games are good for positive and negative mental wellbeing.