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Download Code: How exactly do companies make money off 'free to play' games?

With free to play games, it's actually simpler than you think to make money off of freeloaders, and that may be the way most companies offer up games in the future.

Apr 04, 2012 • April 4, 2012 • 4 minute read • Join the conversation

Screen grab/OMGPOP.com

Each Tuesday in Download Code, Daniel Kaszor looks inside the business of video games with news, analysis and a peek at the week's major releases.

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With free to play games, it's actually simpler than you think to make money off of freeloaders, and that may be the way most companies offer up games in the future.

Last week, the head of mobile developer Ngmoco Ben Cousins said that there would be a free to play equivalent of the $60 Skyrim within two years . While this timeline may be a bit overly ambitious, it certainly fits in the trend of many developers putting increasing resources into free-to-play games.

So how do free-to-play games make money exactly? Below I'll lay out the obvious and slightly less obvious ways:

ADS

Many free to play games are powered by ad revenue. Recent mobile blockbusters like Draw Something and, to a lesser extent, Hero Academy monetize themselves through ads. Ads, however, aren't usually enough to make the endeavor worthwhile which leads to…

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MICRO-TRANSACTIONS

Game developers would rather players throw in a few dollars to buy things after they've started playing a game than to sell their eyeballs to advertisers. The micro-transaction model is so much more preferable, that many games (including the two I mentioned above) often offer to get rid of ads after a purchase of less than $3.

So how do micro-transactions work? Usually, a player can buy small things for low prices (often less than a dollar, rarely more than five), that enhance their play experience (such as more colours to draw with in Draw Something) or add cosmetically to their online avatar (profile pictures in Hero Academy).

On a recent podcast, Jeff Green, the editorial director for Pop Cap Games said that the company's popular Bejewelled Blitz game now makes significantly more money now as a free game with micro-transactions than it did when it was a paid game without micro-transactions.

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CONVERSION RATE

Of course, even with the lure of micro-transactions, not all players put money down. The creators of Zynga's Farmville said that only between 3% and 5% of players actually ever spend any money on the game . On top of that many measures which could theoretically increase this conversion rate, such as offering up premium bonuses that would give a competitive advantage, are usually violently rejected by the player base with cries of "pay to win."

However, depending on the game, it's often very feasible to not only make money off of the remaining 3-5% of paying customers. Sometimes a lot of money.

THE REST OF THE PLAYERS

So what's the use of the other 95% of the people who aren't paying anything to play the game? They themselves are actually a product — one the game maker is selling to the paying player base.

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Usually, what drives people to play multiplayer games are one of two things:

To have a wide competitive experience: With a far larger pool of players provided by the low barrier to entry on the game, the paying player is more likely to find opponents within his or her skill range and is therefore more likely to be satisfied by the game and continue playing (and purchasing micro-transactions).
Playing with friends: Many players want to spend online play time with friends. However, it's difficult to get online friends corralled together, and this is doubly difficult when said friends have to pay their way into a game. When the game is free, it's much easier to get a critical mass of people to give it a try.

THE COSTS TO PLAYERS

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So if a player tries out a free-to-play game and they don't pay micro-transactions, is the experience free? Well, not quite. As stated above, players who aren't paying aren't really customers anymore, they're contractors employed by the game company to provide opponents for the paying players. As such the developers want to keep these types of players in the game as long as possible. This means that it often takes much longer to achieve things as a "free" player than it would in a paying game or than it would for a paying player in the same game.

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Major Releases this week :

Xenoblade Chronicle s (Wii) (April 6)
Xenoblade Chronicles almost didn't come out in North America. Though game was praised as perhaps the best JRPG in the last five years, Nintendo almost didn't release it here. It took a huge fan campaign that netted thousands of signatures to get the game a release date. Here's a preview of my review, coming Friday: It was worth the wait.

Kinect Star Wars (Xbox 360) (April 3)
A motion controlled Star Wars game has been a dream since the Kinect was first shown almost 3 years ago. Now it's a reality. Early indications is that it skews a bit young, but regardless, it's going to sell about a bajillion copies.

Tech Desk Editor Matt Hartley when Darth Vader came by to drop off copies of the game

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