A closer look at revenues in free-to-play MMOs

The free-to-play business model in the MMO industry is one that lets users play a game for free in hopes that a percentage of that userbase will opt to embrace microtransactions, allowing F2P game operators to potentially bring in more revenue per month than they would maintain through subscription fees. We periodically see announcements of yearly revenue from some of the larger companies, but these figures are typically announcements of average revenue per paying user (ARPPU), emphasis on 'paying'. But how much money are free-to-play MMOs really making? This is the subject of an article at Gamasutra written by Paul Hyman titled, 'What Are The Rewards Of 'Free-To-Play' MMOs?"

Hyman catches up with Raph Koster (Metaplace), Daniel James from Three Rings Design (Puzzle Pirates), and Jeremy Liew from Lightspeed Venture Partners (a funding source for F2P MMOs) to discuss the microtransaction model.

Gamasutra sits down with Raph Koster to discuss Metaplace, and he explains some of the benefits of offering the title as free-to-play. Namely, F2P titles don't have to cope with the costs of box sales and distribution that subscription games typically must. He also emphasizes how word of mouth brings in users rather than a huge marketing budget, and the fact that gamers are willing to try something that's free. There's nothing to lose, but along the way they might see something they like offered via microtransaction. Since those offerings can often be less than a standard $15 monthly subscription fee, they might be enticed to pay a few dollars for an item, or even a service.

One of Metaplace's own twists on microtransactions doesn't involve the sale of virtual goods at all. Koster cites the example of paid events; users can pay to temporarily raise their concurrent user cap from 10 to a much higher limit, perhaps 100, allowing that user to host a party or event.

Microtransactions, of course, don't make sense for all games to incorporate, and it's generally the smaller companies that are able to succeed with this business model. Jeremy Liew from Lightspeed Venture Partners tells Gamasutra, "The business policies that made big companies so successful can sometimes blind them to the things they now need to do to become successful on the other side of the disruption. It's hard for them to change; small companies transition much more easily." Liew also points out that there is a different mindset when a gamer approaches a free-to-play MMO, as opposed to the higher expectations that person would have after having spent $60 on the box.

Also notable in the Gamasutra piece is that Daniel James, CEO of Three Rings Design, breaks the silence that other companies maintain about their bottom line. Puzzle Pirates brings in roughly $50 monthly per paying user, he tells Gamasutra, amounting to $230,000 per month in microtransaction revenue. While only 10% of the Puzzle Pirates user base are paying customers, these 5000 players are the game's source of revenue. Look at this in contrast to the game's stated figure of 7 million registered users, and you can see how statistics regarding registered users can be misleading.

This is something James would like to see change, and in general he calls for greater transparency in the free-to-play sector of the MMO industry. He says, "There seems to be a perception that there is a business advantage to not being transparent. But I disagree." Although this openness may have some downsides in terms of competition, he adds, "the more information that circulates the startup and games community, the more people will share their data. The rising tide will raise all boats. If I can shame my fellows into parting with their data, we'll all benefit."

Paul Hyman's article at Gamasutra is a good read, with some of the leading industry figures sharing their perspectives on the free-to-play model.