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Attracting Users: Freemium Games

In recent years, a new gaming phenomenon has come onto the scene: freemium, or free-to-play, games. These popular apps have taken over the app store, people’s lives, and people’s bank accounts. “Free-to-play” is somewhat of a misnomer, because although these games are technically free, there are countless in-app purchases that result in billions of dollars of revenue for these companies. It sounds insane, but it’s all about building up a user base. Once tens or even hundreds of millions of people are playing, all you need is for each player to spend $1 and you have millions of dollars. There will always be players that refuse to spend any money in these games, but there will also be those that spend hundreds of dollars, so it evens out. But how do these companies attract millions of users?

This essential question boils down to a few key points. First, the original price is zero dollars, so for any given person, their value of the game will be greater than or equal to the price, and thus everyone who is interested in the app should download and use it. However, people do value their time so that could be considered in their reservation price and thus would cause some people to not download the game. These games, such as Clash of Clans, take up a lot of your time, so that must be taken into account. The other factor is that oftentimes you start playing these games because your friends do. There are two explanations for this: direct benefit and information based. You get a direct benefit from playing the game if your friends are playing it because it is more fun with friends. The crowd itself affects your decision. You may also decide to play because you think that your friends know something about the game that you don’t. It’s possible that they’ve heard some news about how great Clash of Clans is, or how the skills you learn through the game help you in life, or some other piece of information that you have not heard.

Once they have the users, the reservation prices come back into play with the in-app purchases. They make each individual upgrade so cheap that if you play the game for long enough it seems worth it to buy at least one. Your friends could also be buying upgrades and you could be falling behind. Because the fraction of your friends buying upgrades affects your reservation price, your reservation price would be greater than the inexpensive cost of the in-app purchase.


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November 2015