November 27, 2020

How Mobile Free-to-Play Games Make Fortunes

If you look at the top grossing and top downloads lists for mobile games in 2018-2019, you’ll find that every game on these lists is free-to-play (F2P).  They’ve been dominating the mobile market for the past 5-10 years, but how is it that free-to-play games make money and why has free-to-play become the most popular option for monetizing a mobile game? Even augmented reality has found its place in F2P with the success of Pokémon GO. The popular AR app has grossed an estimated $2.65 billion worldwide across the App Store and Google Play since its launch in July 20161.  Free-to-play games, as opposed to premium (pay-to-play) games, are games that can be downloaded and played without paying up front.

The F2P model is popular across all sorts of gaming, not just mobile gaming.  It originated from massively multiplayer online games (MMO) in the early 2000’s and eventually spread into many different genres.

In 2011, revenue from F2P games surpassed revenue from premium games on the Apple App Store2.  Much of F2P’s success can be attributed to the large number of players they acquire.  With premium games, requiring players to purchase the game before they can play limits the playerbase to people that are sure they want to spend money on the game.  Free-to-play games are often thought of as a funnel, where anybody that discovers the game can play it, and once they have played the game, they are funneled towards purchasing premium content.

According to one report on F2P games, half of the revenue for the games often comes from only ten percent of the players3.  Even though such a small percentage of the players end up paying, they often spend much more than they would have if they only had to buy the game up front. This F2P funnel monetization strategy is often called Freemium.

FREEMIUM

Freemium games allow players to experience much of a game’s content for free, but certain content requires payment to access.  These types of transactions are called in-app purchases (IAP).  Players won’t make a purchase unless they are engaging with the game on a regular basis and see value in the purchase, so one of the key factors for F2P games is player retention.  Unlike
premium games, which make the same amount of money regardless of how much the player plays the game, F2P games that keep their users around and keep them engaged are much more successful.  Because of how important this topic is to F2P games, there has been a lot of research performed on predicting player behavior and increasing retention.
According to a 2016 study on player retention, “Overall playtime and consistent playtime are the main determinants of retention. Total Rounds, Total Sessions, and Average Duration are the strongest positive predictors, whereas Current Absence Time, Average Stars, and Average Time Between Sessions are the strongest negative factors.”4 The results of this study showed that if a player is going to leave, they are most likely going to leave after the first day.  If someone engages highly with the game during the first day, they are much more likely to stick around.  It’s also possible to tell when a player is likely to leave based on how frequent they are interacting with the app.
Some of the most successful freemium games use decision trees and machine learning to analyze player behavior and create a system that notifies players of potential purchases or special deals at the most opportune times. A joint study by several EU universities found the following: “The more the player progresses in the game, the greater the potential for a purchase.”  Additionally, “If a player has previously bought an in-game item, they will be likely to purchase in the future as well.  Players that have bought virtual goods in the first three days are more likely to consume above average in the future as well.”5
By following similar models, developers of F2P games can create tailored experiences that increase engagement and provide better opportunities for gaining revenue.  For example, by analyzing player behavior, they can predict the expected lifetime value (LTV) of the user.  If the player’s behavior matches someone that may be close to purchasing, they can be shown specific ads, or offered discounts and promotions.  If a player has an expected LTV at the high or low end of the spectrum, then it is not necessary to advertise to them because it will probably not change their behavior and may negatively affect their experience.
Simply offering in-app purchases in a game does not mean that players will buy them.  The best mobile games have monetization integrated seamlessly into the core game loop by thinking about it during the design phase of game development.  Players will not make a purchase unless they see value in it.  Some of the most popular IAP’s are items that give instant gratification, such as paying to skip timers in order to unlock new content or get extra lives.  Another popular type of IAP is cosmetics.  These are especially popular in multiplayer games such as Fortnite, where players can pay money to unlock special skins and items that make their character unique.
Finally, due to the popularity of battle royale games, battle passes and season passes have recently begun to gain popularity in mobile games.  These types of seasonal passes are great for F2P games because they reward players for playing the game.  Clash of Clans’ season pass has been very successful:  “Supercell’s addition of a season pass subscription to its classic strategy title Clash of Clans earlier this year continues to pay off… the game just marked its highest-earning month since 2017, generating approximately $76 million in global player spending on the App Store and Google Play.”6
Freemium games are constantly adapting their in-app purchases to take advantages of changes in the market.  It is important to monitor purchases and player behavior in order to optimize the in-app purchases.  Adjusting IAP pricing and monetizing key features can be key to maximizing revenue, because even small changes have big effects when you are dealing with millions of players.
Although freemium is a very popular approach to monetizing a free-to-play game, it isn’t the only successful F2P model.

FREE WITH ADVERTISEMENTS

Rather than monetizing through in-app purchases, some free-to-play games make their money off advertisements.  This is the opposite of freemium, because instead of relying on a small percentage of players to make money, by monetizing through advertisements they get a little revenue from every player.  One of the most popular types of games that use this model is hyper-casuals.  Since hyper-casuals have the highest number of players and highest number of game sessions on the app stores, they are able to make millions of dollars in ad revenue.  Hyper-casual games typically use interstitial ads, which are ads between gameplay loops, as the main way to get ad impressions.  This works well for the genre because a typical gameplay loop of a hyper-casual is short and can be anywhere from 10 to 60 seconds.
Hyper-casuals aren’t the only F2P games that monetize through in-game advertisements.  One of the most popular types of ads are reward ads.  Reward ads give players some sort of in-game benefit in return for watching a 15-30 second ad.  According to a survey taken by Unity, “71% of players surveyed cite watching in-game video ads as their preferred way to ‘pay’ for a mobile game, trumping in-app purchases (IAP) and premium pricing. 86% of developers saw IAP remain unaffected, or even climb, after integrating rewarded ads into a game.”7 Reward ads encourage players to engage with the game and can even be implemented alongside IAP.  Since players get something in return for watching the ad, they are more likely to interact with it.  Also, rather than forcing interstitial ads on the player, reward ads give them the option to opt out.  Many of the most successful F2P games combine in-app purchases and reward ads.

NEW: SUBSCRIPTION MODEL

One new model that may become a popular option for monetizing games is through a subscription service.  Popularized by services such as Netflix and Hulu, subscription services are making their way into traditional games as well as mobile games.  Apple Arcade is a service that is supposed to release later this year, and Google Play Pass was recently announced for Android devices.  We don’t know much about how developers are paid for having games on Apple Arcade, but we know that Google Play Pass will pay devs based on how much their game is played.8 Although this model isn’t technically F2P, it may be an alternative for games that tried F2P and weren’t successful.

CONCLUSION

With the top free-to-play games raking in billions of dollars in their first 3 years, it’s safe to say that F2P isn’t going anywhere.  The strategy takes advantage of the fact that nearly everybody has a mobile phone and gives the consumer the choice on whether they want to spend money on the game after they have tried it.  As mobile hardware advances and mobile games continue to optimize their monetization strategies, we can expect the F2P market to continue to grow in the future.

REFERENCES

  1. Nelson, Randy. Pokémon GO Grossed More Than Candy Crush In Its First Three Years, On Track to Cross $3 Billion in 2019. <https://sensortower.com/blog/pokemon-go-revenue-year-three>. 18 July 2019.
  2. Valadares, Jeferson. Free-to-play Revenue Overtakes Premium Revenue in the App Store. Flurry. <https://www.flurry.com/post/113367742230/free-to-play-revenue-overtakes-premium-revenue-in>. 7 July 2011.
  3. Peterson, Andrea. “How two ‘free’ games made enough money to buy Super Bowl Ads”. Washington Post. <https://www.washingtonpost.com/news/the-switch/wp/2015/02/02/how-two-free-games-made-enough-money-to-buy-super-bowl-ads/>.
  4. Drachen, A., Lundquist, E., Kung, Y., Rao, P., Sifa, R., Runge, J., & Klabjan, D. (2016). In AAAI Conference on Artificial Intelligence and Interactive Digital Entertainment. <https://www.aaai.org/ocs/index.php/AIIDE/AIIDE16/paper/view/13995/13590>.
  5. Bauckhage, C., Drachen, A., Hadiji, F., Kersting, K., Runge, J., & Sifa, R. (2015). In AAAI Conference on Artificial Intelligence and Interactive Digital Entertainment. <https://pdfs.semanticscholar.org/9801/b69ac1faaffafecfea250ec65a5ac33cd8af.pdf>.
  6. Yeh, Oliver. Supercell’s Clash of Clans Just Had Its Best Month in Two Years, With First-Half Revenue Up 26% Over 2018. <https://sensortower.com/blog/clash-of-clans-revenue-june-2019>. 17 July 2019.
  7. In-game Advertising the Right Way. Unity Ads White paper. 2015. <http://response.unity3d.com/in-game-advertising-the-right-way-monetize-engage-retain-whitepaper>.
  8. Amadeo, Ron. Google confirms “Play Pass” subscription service for Android apps. <https://arstechnica.com/gadgets/2019/08/google-planning-play-pass-app-and-game-subscription-service-for-android/>. 2 August 2019.

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