Free-to-Play and the Future of Games

Monday, July 7, 2014

Right now, players who favor free-to-play games (hereafter, “F2P”) may actually be a majority — and if not, will soon become one. Because the barriers to entry are low, F2P is widely regarded as a democratic system where willing players are helping quality games rise to the top.

That’s wonderful on paper, but we need to be more critical of a model that is poised to become so dominant. That’s why I find the amount of glowing, optimistic rhetoric defending the model unsettling. Generally, these articles seem to come in two flavors: the most common paints F2P as a tragically misunderstood innovation to be warmly embraced. The other is more objective about the model’s flaws, but tends to shrug apologetically, saying financially viable alternatives hardly exist.

They both share one theme: F2P is the next thing, and we should all get comfortable with it.

This Gamesradar piece by Lucas Sullivan is a great example of the former type of article, covering most of the common arguments. When you get beyond the finely honed optimism, it’s an interesting collection of things that could be true of a new revenue model, but not F2P as it currently exists. It’s worth reading with that specific lens, if only because everything said is technically correct — except, notably, the final paragraph:

Success in the F2P market doesn’t come from bad, formulaic, or predictable design–these games have to put forward their best content first and constantly keep you hooked, in the hopes that you’ll leave a tip by purchasing a hero skin or convenience boost.

I wish the first part were universally true, but that isn’t actually what I want to explore. I think the second part of the quote is at the heart of the matter: these developers aren’t just hoping you’ll leave a tip. If players have to pay for a convenience boost, the game isn’t putting its best content first; it’s putting it second: after the player has paid for it. This runs afoul of the definition of tipping.

It’s obviously a mischaracterization, but it shows the basic mechanism of the F2P model: the incentive for players to spend money isn’t just the promise of more content after the transaction (as in earlier models: pay-to-play, shareware, etc.). It’s the ability to make their current experience better. Put another way, it’s the strategy of offering an inferior experience to get players to upgrade to the premium one.

While $0 seems like a very liberating price point, free games aren’t sustained from tips alone. As always, there’s an exchange of value happening. This isn’t about the worst examples of players being taken for a ride, though. In a sense, the amount of value the player gets from a F2P game is a separate issue of its own (though vital in its own right). I want to talk about something else: that a price of $0 will necessarily have design repercussions.

In his first paragraph, Sullivan’s defensive rhetoric is a great starting place to examine this:

[…] I’m perplexed by the unwillingness to acknowledge the stark reality of the free-to-play market. F2P games have to try even harder to make sure you have a good time, because no one will spend money to enhance an experience that they loathe.

He’s correct: players have to find some enjoyment in the game, so they’ll want to spend rather than quitting. But what’s glossed over is that F2P can’t go too far in the opposite direction, either: if a F2P game were to offer a fully optimized experience from the start, without making players pay for it, where’s the incentive? Then it would truly be a tip-based model — and while that’s interesting, it isn’t the model mobile developers have been adopting in droves.

Mobile developers have been leading the market toward F2P for a solid reason: it’s significantly more profitable than the old (“pay to play”) model. The F2P model generates profit by letting players optimize their experience in exchange for money. Some of the game’s pleasure must be locked behind paywalls, otherwise there’s nothing to buy you don’t already have.

That is F2P’s elephant in the room: for the model to work, enjoyable gameplay has to be intentionally diluted, or segmented, before it’s made available to players. Gameplay might only be diminished a little, but it must still be diminished to give players a reason to spend.

This describes a simple rule about micropayments in general:

If a game relies on gameplay-affecting in-app purchases (“IAP”) as its primary source of revenue, the game’s default experience (or sense of flow) must be purposefully suboptimal to generate profit.

To be clear, this only applies to gameplay-affecting purchases. Shareware/expansions, or payments in exchange for vanity items etc. are fundamentally different, because core gameplay isn’t affected.

With that understood, I’m not aware of a successful F2P game that broke this rule, or could.

So What?

Of course, I’m describing the content players are getting for free; the premium gameplay could still be excellent. Making games professionally is a business, after all, and developers deserve to be paid. Asking players to pay more to access the highest tier experience isn’t beyond the pale: it’s a tried and true business model (just ask your ISP).

So what’s the big deal?

In my book, two specific aspects of F2P are problematic:

The deliberate creation of inferior gameplay to be used as a monetary incentive. And to a lesser extent, Incentivizing players to pay repeatedly to avoid this inferior gameplay.

Calling these unethical is a bit dramatic: at the end of the day, acceptance of these practices comes down to preference, legality, and cultural expectations. But they rub me the wrong way. As a player and designer, I know I’m not alone in my distaste for F2P: many people draw a line at creating purposefully stunted gameplay to be used as a tool to incentivize players. And really, can you imagine a designer who prioritized the player’s experience doing either of these things?

I don’t want to see either of the above become industry standards. The billion dollar question for developers is: does rejecting them mean leaving money on the table? Is there an alternative model that’s just as financially viable, or more? That’s a tall order. Too tall, if you’re trying to aim at the same type of players F2P is.

Before you can frame a competing model, you have to understand what makes F2P so powerful in the first place. After all, if all this gameplay is getting diminished, where does F2P’s competitive advantage come from? Diminished gameplay doesn’t seem that sustainable as an industry standard… But it does work well for the right audience.

In my view, there are basically three types of players, and F2P is optimized for the wealthiest segment of two types: incidental gamers, and casual hobbyists.

Incidental Gamers

(Games as time-killers)

To incidental gamers, games are little more than enjoyable ways to kill time, stave off boredom or otherwise serve as a distraction. They are rarely primary leisure activities. Quick, convenient enjoyment and easily-grasped gameplay are mandatory. Games based on widely-known genres or templates are preferred.

When it comes to platform, incidental gamers will simply use whatever device is on hand when they want to play. Because games are regarded as a commodity, it’s logical that they should all be available on any device. Thus, the amount of incidental gamers on a given device tracks very closely with that device’s ubiquity (which explains the wide popularity of mobile games).

F2P suits incidental gamers very well: those who don’t mind being monetized are, and those who do mind get to enjoy a lesser experience for free. Because games are time-killers, the diminished gameplay isn’t really a factor (usually well-masked by a game’s addictiveness).

Casual Gamers

(Games as units of entertainment)

Casual gamers enjoy videogames as a primary mode of entertainment, and enjoy games that give them most of what they want. They’re perhaps still the largest segment of the market, but the increasing ubiquity of mobile phones is likely to change this.

Quick, convenient enjoyment and easily-grasped gameplay are important differentiators, but not mandatory. For most AAA studios, the golden standard for capturing casual gamers is:

Advertising, and Making the game good enough that a wide segment of players will buy it, and still be willing to buy the sequel afterward.

This is because casual gamers are more of a mixed bag: they’re price-conscious, and it’s no wonder that they prefer freemium games when AAA games retail for $60 a pop. They have a budget for their hobby, and they have room to pick up a few games at $60 that are established safe bets to get a good value. A glut of expensive, high quality titles is simply an embarrassment of riches for the majority of this audience.

Casual gamers are pretty evenly split in terms of platform. Because it’s a primary leisure activity, these players value getting the best possible experience — but cost, ease of use, and mobility are still important factors. As the performance gap between mobile and fixed platforms grows smaller, consoles and PCs won’t be quite as popular as they once were for casual players (accounting for human-interface factors, of course: currently, mice are clearly better than touchscreens for some games).

Enthusiasts

(Games as a pasttime)

The enthusiast wants quality, and is willing to pay for it (and often able, though not always). But they also have high standards and certain preferences about what constitutes quality.

It’s important to understand that in F2P terms, not every whale is an enthusiast. Being wealthy enough to purchase entertainment at will and being a selective, dedicated fan aren’t (necessarily) the same thing.

Clearly, many niches exist: because this population is the smallest of the three, games that cater to enthusiasts are typically crafted with a very particular audience in mind, usually a loyal fanbase who aren’t regularly catered to.

Also, I suspect there’s a meaningful subgroup of enthusiasts who want games they can sink their teeth into and enjoy long term. As Daniel Cook points out, these players are the most likely to enjoy deep mechanics that support long term play, and consequently are willing (even eager) to accept a learning curve. Investing in a long-term hobby is also a very favorable value proposition for them.

Enthusiasts by platform

Mobile: There aren’t many mobile enthusiasts, but enough of a niche to be worth aiming at. This is because F2P is much better at capturing wealthy incidental gamers who respond to a game’s addictiveness; enthusiasts who favor mobile games are a bit of a niche (and largely untapped) market.

Console/PC: Enthusiasts will go where the quality games are, and currently, consoles and PCs are where most of the highest quality games live. There are more PC enthusiasts than console, because enthusiasts will tend to gravitate toward a dedicated gaming machine that provides the best experience (consoles were once ideal for this, today the PC is very competitive, if not dominant).

Before moving on, there are some important things to note about this method of categorization:

No type of player is superior to another, and no value judgments are being made here. There’s nothing wrong with being a Candy Crush enthusiast.

In theory, each type of player can be a profitable base.

Obviously many players exist somewhere between these categories.

It’s also possible to be an enthusiast toward one genre while being more casual toward another.

F2P’s Secret Sauce

It’s tempting to think the price-point of $0 is F2P’s defining asset. But in fact, it’s no more (or less) than the ability to compete on the mobile platform. As I mentioned before, lots of people have mobile phones: and that number is expected to grow dramatically. But the majority of people who comprise this market are incidental and casual gamers, not inclined to dig deep into the app store to spend money on games of unknown entertainment value. To attract this market, your game needs to be on (or very near) the front page.

Pricing games at $0 was a necessary adaptation to an environment where mainstream popularity is vital. It drops all barriers to entry, but in doing so, diminishes the quality of the product.

The real strength of the model isn’t just the price point, but optimal adaptation to every level of demand. Specifically, it’s the ability to efficiently capture consumer surplus: the maximum amount of money any player is willing to spend on a game.

For example: if you’re selling a game for $20 but a wealthy or dedicated player would still have bought it for $60, you’re letting $40 go. This is a major weakness of the pay-to-play model, which some try to remedy with collector’s editions and other merchandise. High spenders are more than willing to spend $60+, but there’s a limited amount of money they can spend beyond that — and the rest of the market is discouraged by that price point. By letting all players in, and incentivizing them to make multiple, optional payments (whether impulsive or planned), F2P games are exceptional at capturing all the money they can, particularly from the wealthiest players.

Responding as a Developer

But it isn’t about capturing as much consumer surplus as possible. It’s about capturing just the right amount of consumer surplus for the audience you’re aiming at. In this, F2P isn’t optimized for everyone: the model is weakest when aimed at enthusiasts. They have the highest tolerance for barriers to entry, and the lowest tolerance for inferior gameplay. For this audience in particular, there are drawbacks to capturing as much consumer surplus as possible. Taking too much takes joy away from the customer, and diminishes their sense of having received a good value. When you want to maximize short term profit, you take all the consumer surplus you can. The most long-term move is to take only what is willingly given.

Compared to other groups, enthusiasts have a unique capacity for excitement about a quality product — that “throwing money at the screen” type of enthusiasm. There’s no monopoly on this, obviously, but they are the likeliest to get into this mode when they find something truly remarkable. Delivering high quality and high value is the formula for attracting enthusiasts.

But what makes them worth aiming at? There’s an order of magnitude more casual gamers than enthusiasts, and an order of magnitude more incidental gamers than casual (or will be in the near future).

For one thing, there’s a lot of risk in aiming squarely at the largest audience. Before you can think about comparing favorably with the competition, you have to figure out how not to drown in it: you’re only going to get to the front page if you get incredibly lucky or spend huge amounts of money on advertising. Enthusiasts may be the smallest group, but there’s a lot to be said for zeroing in on an audience that knows what they want, are vocal about good games, and are eager to support them. If you can deliver, there’s a lot of stability (and sustainability) in that model, a rare commodity.

AAA studios have a perverse obligation to maximize profit, so they have to aim at the largest parts of the market — employing the budgeting calculus of huge advertising campaigns, and gradually embracing F2P’s consumer surplus capturing mechanisms. Because of their huge budgets, AAA studios have to stand on casual gamers as a foundation, no matter how many enthusiasts they have.

Indie devs don’t have this burden. And without a massive advertising budget, they have to get lucky to see significant revenue from incidental and casual gamers on the app store. So unless you’re sure you can win in that arena, the way to compete is not to play a game of scale. Indie developers need to be Ferarri, not Honda.

There are never guarantees, but outside of a salaried position, making high quality (and perhaps also niche) games for enthusiasts is the best bet there is to make a living building videogames.

How To Price for Enthusiasts

Enthusiasts should be your core audience, your bread and butter. Casual gamers are your gravy, the mark of how widely received your game is. When it comes to designing gameplay, the pleasure of enthusiasts should be your only focus. If you manage to gather a large enough group of enthusiasts, you will end up approaching casual gamers without specifically trying to, from the top of the market downward (because enthusiasts tend to be vocal advocates for what they enjoy, and that sort of acclaim tends to spread). This type of categorization is more of a spectrum: by aiming at the choosiest of players, you’re also going to attract casual gamers closer to the enthusiast pole (naturally, this is just as true on the other side of the spectrum).

When it comes to pricing, therefore, enthusiasts aren’t your sole consideration. Remember that the majority of casual gamers don’t have the budget for too many $40+ titles. So to attract them, your game has to be one of the few they decide to spend money on: either by being that amazing, or being solid and reasonably priced (or, better, amazing and reasonably priced).

Build for enthusiasts, price for casual gamers. Casual gamers blink at a price of $60, but are much more amenable to $30 or even $10. Enthusiasts don’t really mind a $60 price tag, but if you’re playing your cards right, most of the revenue from enthusiasts comes from purchases made after the base game (expansions, development of new features, developer access, community status, soundtrack, artwork, etc). This is doubly true if you’re making an experience that players can expect to enjoy long term.

Responding as a Player

Vote with your wallet. Keep doing what you’re doing, and developers will eventually adapt to you in optimal ways. The trouble is, it might not happen soon enough — or perhaps you’ll disagree with their definition of “optimal”. Realize that you don’t have to settle for suboptimal gameplay: annoying micropayments, silly vanity items, and grind are tricks to capture a particular type of consumer. There is a better way, and it exists already.

Many casual players have never had the pleasure of being catered and listened to. If you’ve never had that experience yourself, consider attaching yourself to a game or project that caters to enthusiasts, and give it a try. See what the community and gameplay are like. You may be surprised at what you were missing.

There is an alternative to F2P, and it’s where the best experiences are.