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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.









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."