There’s a saying between game developers that goes along the lines: “People don’t want to spend $9 upfront for a game but they’re okay with dropping $100 on the same game, if it’s free, over the course of 4 months”. But why is that exactly? Why do free to play games make more money than paid games?
Your Answer Upfront:
Free To Play mobile games make more money than premium games due to the wider install base and their ability to monetize users through the use of multiple one-time in-app purchases, recurrent purchased and fidelity systems (like VIP Tiers). Premium games have a barrier to entry, that being their upfront cost while Free to Play games can monetize even non-paying users by using advertisements.
In this article we’re going to look at Free to Play and premium mobile games, explain how the monetization works, how it got to be the way it is, what the different types of monetization are and why they work compared to an upfront one-time payment. By the end of the article you should have a pretty good idea on why Free to Play games make more money than paid games.
What is the difference between Free to Play and premium?
When I say premium games or a premium gaming experience I refer to the act of spending X amount of dollars upfront to purchase a game, at which point, you get access to the game and all of its content (without DLCs or Expansions), without the need to spend any more money to bypass timers, gates or regenerate lives.
Free To Play games are games that have no upfront cost, that you can freely download to your phone or tablet. Usually these games have monetization avenues built right into them, like the ability to skip timers, purchase additional lives, characters, content, abilities or items. In some cases, this games offer advertisements for other games and products and may contain purchases that block the advertisements for a limited time (or forever).
History of purchasing games and game contents
Back in the 80’s when games started becoming more and more common there was one method of acquiring them that reigned king for decades: The premium option. You would go to a shop or browse a catalogue or, in rare cases, see an ad on TV.
- If you were inside of a shop (or a kiosk) you could walk up to a shelf, pick up a game in a big box and go to the counter and pay an upfront price for it.
- If the game was in a catalogue or on TV you would pick up the phone and call the number that appeared and talk to a sale representative for a few minutes, pass over your data (address, phone, name). At which point, you would mail them a check (or money in an envelope) and, after a few days of receiving the payment, they would send you the game.
- In some cases, the game you would purchase wouldn’t even be a full game, but a demo or shareware version and a separate payment would be needed to unlock the game’s content. (See, Free to Play has been with us since the beginning of the industry in some form or another).
As the internet took hold and credit cards became available, games began to be offered as downloadable titles. This streamlined the process of having to call and wait or drive to a store and search for the title you wanted (and in some cases, search through multiple stores to find it).
But this new avenue of purchasing games via the internet also opened up various new avenues of monetization.
Purchasing games and game content via the internet
In the mid 2000’s physical game retail stores and online stores were present and quite common. While retail dominated games purchasing (and for AAA titles, retail accounted for 75% of purchases up to as recent as 2018), the online web stores became more and more popular as means for purchasing new, smaller titles.
Very early on companies like Big Fish Games established themselves in the casual and social gaming space. The early ancestors of mobile casual games became available on such portals.
Soon such stores realized that it would be easier to gain more customers and fans by offering trial versions of their games for free to people, so they could download and get hooked by such games.
These games used to have a prompt that would appear after 15, 30 or 45 days that would block access to the game until you purchase a license from the store. Initially, you would go to the website, purchase the license and manually enter it into the game however games started bundling the purchasing options with the game.
What we call now In-App Purchases started rearing their heads in the mid-to-late 2000’s via games distributed through such portals.
In 2009 Apple introduced their In-App Payments API and that was when the modern mobile gaming market appeared. Slowly but steadily more and more releases avoided the Premium route and instead adopted a Free To Play approach.
How Free To Play games make money
Free mobile games earn money by selling in-game content via in-app purchases or through displaying ads to the players. How much they earn depends on how much money they spend in user acquisition in order to bring players into their own game. When releasing a free game on the market publishers and developers look at how expensive it is to bring users into their game and then analyze their own game and decide if it’s worth to continue development.
We’ll go over into more details on different types of in-app purchases in the remainder of the article but I wanted to let you know we wrote an expansive article on this subject previously. It’s a big read and if you want more in-depth details on it you can read the article titled “How Free Mobile Games Earn Money“.
Now there are a few ways in which developers earn money from a Free To Play games. The most common methods are One Time Purchases, to unlock new content (levels, maps, characters), Recurrent Purchases (subscriptions, VIP Tiers, weapon loans, etc.) and via Advertisements. Let’s go over them.
One Time Purchases
These types of in-app purchases were the first ones to appear. I’ve encountered my first one time purchases back when I was working at Gameloft back in 2010. The studio was working on a game called StarFront Collision, an RTS similar to Star Craft.
The game was supposed to be released as a free game with the first few missions available for free while the other missions could be purchased via in-app purchases for $1.99. The reasoning behind this was simple:
- It would cut down on piracy, since even the pirated copies of the game didn’t and couldn’t have the content unlocked and you still had to pay
- It would make it easier to get new players to try Gameloft games. They might not have been interested in RTS’s but if the game looked good and was free, why not download it and try it out?
Over time, One Time Purchases of in-game content got more and more common. Instead of unlocking levels people could purchase weapons, armors or characters for their games. Pay for it once and use it forever.
Recurrent Consumer Spending
Recurrent Consumer Spending is the goal of most developers in the mobile-gaming industry and it’s a model that becomes more and more prevalent. It initially took the form of subscriptions, just like early MMOs used to do.
You would pay a monthly recurrent subscription and get access to the game. Over time this evolved to take other forms but one of the most common ones is VIP Tiers.
In mobile games you have a set, baseline economy for the game. Let’s pretend you’re playing an RPG. There’s a set amount of items you can find on a mob and a set amount of gold you can collect from drops. The same goes for mining for resources. Let’s call this the default Tier.
VIP Tiers offer a multiplier on top of the default tier that helps you collect items and progress faster. It’s an upsell technique used all over the web. You probably heard the words: “Good, Better, Best” before. Even apple does it when referring to their devices.
Here’s an example of a VIP tiering system for our RPG:
- VIP 1: 20% more XP, 50% more gold, 200% mining cooldown. Price: $1.99 / month.
- VIP 2: 35% more XP, 75% more gold, 250% mining cooldown, 500 gold for free / day. $4.99 / month.
- VIP 3: 50% more XP, 100% more gold, 300% mining cooldown, 1500 gold for free / day. Price? $7.99 / month
- VIP Bronze: VIP 3 + 5000 free gold / day + 1 EPIC Tier Item unlock / day. Price: $14.99 / month
- VIP Gold: VIP BRONZE + Free Epic Mount + 3 EPIC Tier Items unlock / day. Price: $29.99 / month
- VIP PLATINUM: VIP GOLD + Your Own House + 2 new Character Slots + 1 Epic Character Drop. Price: $49.99 / month.
These kind of offers and tiering systems are pretty common in mobile games but they are not the only ones. For example other types of games offer the ability to purchase consumables that disappear after usage.
A good example of this are Potions in RPGs. You pay $0.99 for a Max Health potion and once you use it, your health is restored to the max and the potions is gone and cannot be used anymore.
Some idle games (or clicker games or incremental games) that have offline earnings offer you the ability to “Skip Forward in Time” allowing you to pretend the time advance by X amount of hours. After using it, you reap all of the words as if you have waited that amount of times.
(By the way, if you’re wondering Why Idle Games Are So Popular on Mobile we have you covered! I wrote that article just a few days ago).
Advertisements
Advertisements are the most common monetization method in Free to Play games since they are the easiest to implement in a game thanks to the hundreds of services out there. The way they work is simple.
Every X amount of levels you play you get an interstitial ad. These are fullscreen ads that play for 15-30 seconds. For every view of the ad the developer gets a small amount of money from the advertiser. If you click on the ad and install the app or game advertised the developer gets more money.
However ads have a rather big diminishing return curve and it’s not worth it to bombard the player (you) with ads constantly because:
- It’s going to annoy you and you’ll quit the game forever.
- An advertiser doesn’t want to pay the developer to show the ad to the same user who doesn’t click on it.
Because of this, developers have gone towards a more sneaky route. They display the interstitials automatically rarely, maybe once or twice in a session. However, at the end of a level in the game they give you an offer: Do you want to double your rewards? Watch this ad.
Did you lose the game? Well you might do better with this car and it can be yours if you WATCH THIS AD.
(I wrote an article on “Why Mobile Games Have Fake Ads” so if you’re curious about the subject, it’s an amazing read into how some mobile game developers think).
Why Free To Play games make more money than paid games
Now that we know the most common methods that Free To Play games use in order make money let’s answer the question we set to answer.
Free To Play games make more money than paid games due to the wider install base and their ability to monetize users through the use of multiple one-time in-app purchases, recurrent purchased and fidelity systems (like VIP Tiers). Premium games have a barrier to entry, that being their upfront cost while Free to Play games can monetize even non-paying users by using advertisements.
Think of it this way:
- A premium game doesn’t get any money if the user doesn’t purchase the game.
- A Free to Play game can make money even if the user doesn’t purchase anything in the game due to displaying ads. So if a user downloads the game, it generates at least a tiny bit of revenue for the developer.
- Add to the ad revenue the possibility of getting a user to subscribe to a VIP Tier system + 4-5 consumable purchases and you can make 4-5x the amount of money a $9.99 game makes on the App Store (or play store).
Where To Next
You’ve reached the end of our article and I sincerely hope you know understand why free to play games make more money than paid games. If you liked this article we have many more just like it with original research and examples.
I write extensively about the mobile gaming industry, their tactics and how greed influences a game’s design. I believe that you might be interested in more articles on game monetization. So if you want to stick around, you can check out “How Do Free Mobile Games Make money“, “Why Do Mobile Games Have Fake Ads” and “Why Do Mobile Games Have In-App Purchases“.
There’s also a monster post (about 4000 words) that answers the question: “How Hard Is It To Make A Mobile Game“. It goes in depth with actual examples on how Experience, Resources and Financials affect the difficulty of developing and releasing new mobile games!
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