Free 2 Play and the Four Currencies

One of my most popular articles was "Piracy and the Four Currencies", which explains the economics of piracy in terms of four "psychological currencies": money-dollars ($M), time-dollars ($T), pain-in-the-butt dollars ($P) and integrity-dollars ($I). Purchases don't just cost money; they also cost different amounts of time, pain-in-the butt, and (sometimes) moral integrity.



Quick Summary

In the article, I argue that piracy, though it costs 0 $M, has a non-zero $T, $P, and $I cost, because the pirate must know where to search, risk exposure to malware, and do something illegal (which has a variable $I cost depending on one's outlook). Developers can compete with piracy by removing invasive DRM and practicing good customer service, which lowers $T and $P costs.  How much weight an individual gives to each currency varies widely.  For example, a wealthy person may value convenience over money, a busy person may value time the most, and someone with strong convictions might refuse to compromise their beliefs ("spending" $I*) for money's sake alone.

*Exactly what $I represents varies with ideology.  For example, Richard Stallman would put a large $I cost on using proprietary software, whereas I do not, and strict vegetarians might assign an $I cost to fur coats.


Free 2 Play

Now, let's apply the  four currency model to Free 2 Play games.

F2P is clearly here to stay.  It's seen big success with Angry Birds, Team Fortress 2, and given a new lease on life to MMO's that aren't World of Warcraft.  However, we've also just witnessed the spectacular implosion of F2P standard-bearer Zynga, and seen article after article about popular, critically-acclaimed F2P games that garner little revenue.

The debate is heated, so let's step back, put down our pitchforks (on both sides), and see what's going on.

Analysis

First of all, F2P competes well with piracy, because the barrier to entry couldn't be any lower.  Downloading an F2P game costs no $M, little $T, no $P, and no $I (for those who feel guilty about piracy).


Though FTP has no $M cost, it inserts $T and $P costs throughout the game to encourage players to pay $M instead.  This is the opposite of a traditional game, where there is no extra $T, $P, or $M cost once you've bought the game (invasive DRM, DLC, and bad design notwithstanding).

According to some best practices of F2P design, developers should intentionally inject inconvenience into games, which players can remove in exchange for money.  This means barriers, time sinks, and "dual-currency" systems where players can pay real money for rewards, or grind for hours instead.


In this way, traditional games are like laser printers: expensive to buy, cheap and easy to operate.  F2P games are like ink jets: cheap to buy, but expensive and sometimes a pain to operate, especially if the company has questionable business tactics.

On the one hand, F2P gives players options. Lots of people have no money but plenty of time and/or plenty of pain-in-the-butt tolerance.  Furthermore, it enables players to purchase things "a-la-carte," in case there are only certain aspects of the game they really want.  These are good things.

On the other hand, F2P adds inconveniences and compromises the "magic circle" by constantly asking the player for money.  These practices are why some designers call F2P "evil," and not just because they're luddites* who are afraid of change, as some have implied.  If anything, F2P is a return to the past as much as it is a step towards the future.  We've been here before, and it's called The Arcade.

Despite my reservations and general grumpiness, I do think F2P can drive great things - you only have to look at Team Fortress 2, League of Legends, and Triple Town to see that.  But it still deserves a critical eye.

*As an aside, the historical Luddites have been grossly misrepresented by industrialist propaganda and (incorrect) associations with religious fundamentalism.  I highly recommend the book Rebels Against the Future by Kirkpatrick Sale for an alternative viewpoint.

When (and why) F2P Fails

Let's look at some F2P games that have failed and see if the four currencies can tell us why.

The developers of Punch Quest and MonkeyDrums have suggested that their games failed because they were too nice - i.e., they embraced F2P but still hung onto the idea that they could "delight" their customers into paying more for the experience.  I feel for these teams and applaud their willingness to be so open with such a painful experience, so let's see if we can learn from it.

As I mentioned in Pay What You Want and the Four Currencies, the simple act of making something free removes the $I cost of not paying.  This is why donationware doesn't work - nobody pays because you gave them permission not to.  By making too much content easily accessible or free, customers feel no obligation to pay.  If you ask for the sale, however, there's a good chance you'll get them to pay, especially if there's a free sample.


Traditional game design has trained us to maximize the value we are giving players for their money, charge them once for it, and call it a day.  F2P requires an entirely new perspective that doesn't focus on delivering all the goodies in one big package.  It seems these developers had a hard time choosing between F2P and traditional design.  So, let's take a quick look at tradition.

The Evolving "Traditional" Model

In the past, video games were sold in retail stores as packaged goods that you bought sight-unseen. Retail is certainly on the decline, but those who use this fact to decry up-front pricing* are attacking a straw man. "Progress" doesn't happen in only one direction, and the traditional model has been evolving right along with the others.

*In fairness to Dan, he's right that charging 99 cents for all of TripleTown would be insane, and I'm largely a fan of his approach to F2P design.  That said, I can think of more than just a few indie developers who use the up-front pricing model without relying on mega-hits to succeed.


Traditioooooon!

We'll use ourselves as an example of the "neo-traditional*" model. With Defender's Quest, we relied on a lengthy, compelling, browser-based demo to drive sales. This allowed us to make good revenue without the benefit of major portals like GOG and Steam, although we were eventually able to attract their attention. We  survived by selling directly from our own site and free Flash portals like Kongregate, where we leveraged their microtransaction engine to sell an online version of the game.

*We seriously need a better name than that.

Furthermore, although the price is up-front, it's by no means "fixed." We started at $6.99 when we launched in January but made so many coupons available that anyone paying attention could nab it for $4.99.  Meanwhile, we handed out free promotional codes left and right.

We eventually raised the price to $14.99 for the gold edition launch but started with a "launch sale" of $9.99 through the first week on Steam.  And as everybody knows, Steam and GOG are fond of periodic sales with deep discounts, and we will be participating in every event they invite us to. Furthermore, we have some crazy plans of our own, so stick around for our one-year anniversary next October 30th.  Because players know that games often go on sale, they can exchange $M for $T by waiting for a price drop.

The ability to sell a game year-round, at variable prices, while keeping the majority of the revenue is a far cry from the old days of having a one-month shelf-life in a retail store and collecting a few percentage points in royalties - if you were lucky. That's the old traditional model, and I'm happy it's dying.

However, the advantage of the new traditional model is that it gets the financial exchange out of the way up front, which lets developers focus solely on game play rather than a string of tiny sales pitches. Furthermore, it avoids fracturing the game's shared cultural experience into low and high-paying tiers.  I realize that the traditional model has the potential for a smaller player base and lost income from "true fans" and whales, but I have some ideas about that and, more importantly, have no doubt that the model will continue to evolve to meet these challenges.

Finally, and I think most importantly, the traditional model and F2P have much to learn from each other. They are points on a spectrum rather than fixed binary alternatives.  The "neo-traditional" model incorporates many aspects of both, but takes it in a different direction than a typical iPhone game or console title for sale at GameStop.

Summing up F2P

F2P brings with it new opportunities, audiences, and markets, but it's not magic. Simply put, instead of front-loading the $M cost, it sprinkles alternative $P and $T costs throughout the experience as inducements to make you pay $M.

F2P pros:

  • Raises the ceiling on how much a single player can spend
  • Lowers the barrier to entry almost entirely
  • Opens up new genres and embraces new audiences


F2P cons:

  • Not a good fit for many genres (especially those focused on narrative)
  • Injects financial motivations directly into the game
    • Annoys players
    • Can corrupt the design (c.f. Zynga)


Closing Thoughts

Furthermore, those obsessed with growth* as the sole metric of the industry's sector-by-sector health should be slapped with a large, wet trout.  Facebook, mobile, and other once-emerging trends are obviously here to stay, but reports about the traditional industry's decline have been greatly exaggerated, especially because NPD results are grossly misleading.  And contrary to popular wisdom, the explosive growth of mobile has not doomed Nintendo's handheld market, though I can't say the same for the PSVita.



Retail sales of console games do seem to be on the decline, but the slowdown in PC sales should not be taken as an indication that PC software developers are in trouble. For example, eventually you get to the point where everyone who wants a car has one, so although it's harder to sell new ones, more cars are being driven than ever before.  Similarly, sales of new PC's have peaked because they are powerful enough, and, with a little maintenance, a decent rig can last you the better part of a decade. This is bad news for people like Dell who need to push hardware, but for those of us who just make games that run on the dang things, times couldn't be better.

Mobile platforms will eventually reach their saturation point, too, and then the pundits will start shouting that mobile is dead, and eyePhones are the Next Big Thing.

So do yourself a favor; play a great Free2Play game or two. Then play some great traditional games by friendly indie developers. Then slap a pundit with a fish.

*Second side note: the single-minded focus on "growth" is a major fallacy of modern economic thought. See Tim Jackson's Prosperity Without Growth for an alternative viewpoint. 

Watch CNBC and take a shot every time a pundit says "growth."

7 comments:

Drew said...

One thing I think you've not taken into account is that for many people the free to play model for many people doesn't present a $M vs $P+$T situation but a $M+$I vs $P+$T situation. For many people opposition to free to play models is an important principle. Personally I can think of many situations where I would have felt a larger $I cost if I used one of the pay options in a free to play game than I would pirating a game under the traditional model.
This of course depends on how the actual free to play model works as the $I cost isn't a result of having to pay for things so much as it is a result of supporting game design choices you disagree with.

Lars Doucet said...

That's a cogent point, Drew!

MondSemmel said...

Two things you could fix:
- The link to "shared cultural experience" goes nowhere.
- There's an empty bullet point in the F2P cons list.

Random said...

One hurdle I have with F2P games - I can't help but feel they are intrinsically less valuable (or worth playing) than pay-to-play games. After all, why should I play one of these free games when I have a backlog of 50 Steam games and 4 Humble Bundles that I have already paid for? That's actually one of the main reasons that I haven't pirated games in a long time - given my limited free-time, why not just enjoy something that I already have an investment in?

zephyrean said...

> This is why donationware doesn't work - nobody pays because you gave them permission not to.

You're wrong here. Donationware doesn't work because paying is a pain in the ass compared to not paying. People are just fundamentally lazy. It's the difference between opt-in and opt-out that matters, in everything from videogames to charity to organ donation.

That's why the Humble Bundle is such a huge success: once people are already taking the time of their day to click several buttons (oh the hardships I have to endure!), they might as well pay more than 0.01.

Jake Birkett said...

He's not wrong. It's BOTH a) the permission thing and b) the pain in the ass thing (which he mentioned in another article). Things like the guilt/integrity thing (I$) also varies a lot based on your particular moral stance.

I also think that some people who pay up front for a game also feel guilty (I$) just because they feel guilty about spending money due to their personal circumstances or just general ingrained view about spending money. It's not that they are letting the developer down but that they feel they are letting themselves down, and this can be a big thing for some people. Maybe many of those people would get on with F2P much better as they can start playing for free and then later on justify a small spend in the game (may still come with some guilt) and then gradually up the spend, perhaps uncontrollably...(and that's where I have a problem with uncapped F2P using psychological tricks)

Raevyn said...

I think the danger of F2P is that it is so very easy to tip those scales on $P and $I. To me, the poster-child of this is the now-F2P MMO, Star Wars: The Old Republic. When the game was released, I felt BioWare created an overall excellent game...with some odd blind spots, to be sure (*coughspacecombatcough*), but they had many great narratives bundled into one game, with some innovations in presentation as well. I paid for a subscription for several months, and felt I was getting a great value.

I'd thought about going back on and off, but hadn't had the time to justify paying for a whole month...and then heard it was going F2P. Yay! Except not so much. Upon logging in, I found that at every possible opportunity, EA had found yet another annoying way to try to get money from my pockets. Want more UI bars? It'll cost ya. Want to get back *your own credits* from escrow, or display titles that *you've already earned*? Fork over some cash. Want to (and this was the hallmark of stupid to me) HIDE your HELMET?? Let's make a deal. Add to that the constant reminders when you buy or sell from a vendor that subscribers get a better deal, the fact that free players do not accumulate rested bonuses, and a dozen other little things...and I found that I was so annoyed that I couldn't even enjoy playing the game.

Here's the bit worth noting: The $P cost has become so high that it has affected the $I cost. In spite of the fact that I've been a long-term fan of BioWare, what EA has done has actually *raised* the $I cost of paying them. Because what they've done is so invasive and obnoxious that, at this point, it feels like giving them money would just be encouraging them to destroy other great games the same way.

Don't get me wrong; I don't have any problem with games going F2P. And there are a lot of ways SW:TOR could have gone that would have encouraged me to keep playing and spending money. But publishers need to understand that F2P is a very delicate balance, and they need to be sure they're not being the electronic equivalent of a pushy used-car salesman.

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