In the app, you’ll typically find three types of games: one which is ‘pay to play,' the second is ‘in-app purchase (IAP)’ where you pay for the upgrades in your game and lastly the ‘free games.' With free to play games, it’s actually simpler than you think to make money and that is the way how most companies are making revenues of freeholders by offering free games. Gartner estimates that 94.5% of all app downloads will be free by 2017.
Free games make money by selling you, and they are doing it in few different ways which are listed below:
Ads: Evaluating player landscape, game developers put ads into their free or in IAP game. The vast majority of users (97.8% according to a Swrve study) will never give a dime. Advertising allows monetizing these players. Every time an ad is shown inside the game developers will make money. On the other hand, developers can easily track how much they’ll get paid for every 1000 views through eCPM (effective cost per mile).
Microtransactions: When a game is not working, some people quit, and others just change the rule. They spend their credit card to their game’s life with the very small transaction which is called microtransaction. This model is very much preferable compared to ads that many games often offer to get rid of ads after a purchase of less than $3. 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 one dollar to buy five lives) or add cosmetically to their online avatar and in many other ways.
For example, Jeff Green, the editorial director for Pop Cap Games said that the company’s popular Bejewelled Blitz game now makes significantly more money as a free game with microtransactions than it did when it was a paid game without microtransactions.
Conversion rate: Game developers need to start converting users into payers. Without conversion, they actually don’t have a business. The fundamental difference for a free-to-play game is that conversion rates are very low compared to a traditional business model.
Conversion rates vary wildly from game to game and platform. But not all players put money down. The creators of Zynga’s Farmville said that only between 3% and 5% of players ever spend any money on the game.
So now the point is what’s the use of the rest 95% of the people who aren’t paying anything to play the game? They themselves are actually a product. Players who aren’t paying aren’t really customers anymore, but they’re contractors employed by the game company to provide opponents for the paying players.
Developers also want to keep these 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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