I’ve been toying with thoughts on the “Free 2 Play” movement (“F2P”) for a few weeks now, as I find the whole thing to be fascinating.
In short, F2P is exactly as it sounds: you get a game, a program, or a web-based service for free, and then your free use of it is subsidized in some way. In some cases, it can be through advertisements. In other cases, it’s in the form of “micro-transactions.” I’ll hit both of those separately, as I think they both contribute in different ways to how the internet is changing, or has already changed, e-commerce.
It should be noted that most people would look at “F2P” as applying solely to the realm of online video games, yet I think its trends extend into other media and have for a long time.
Advertising
The ad-supported model is probably the oldest form of these changes, as we’ve all been exposed to it for generations now. Very few of us could pay for all the programming on any given television channel, yet the advertisements and marketing that go into each program help subsidize it to make each program cost practically nothing to us. In the early days of the internet, when web sites like Yahoo! and AOL were trying to figure out how to make money from consumers and not rely as much on investors, we started getting ads displayed on pages. They started out being banner ads at the top of the screen, and were mostly un-obtrusive. Then, our good friends Adobe established Flash as the go-to web media platform, allowing for moving advertisements. Combined with other web-based technologies like Javascript, the dreaded “Pop-Up” ad gained popularity.
Most large web sites will tell you that their advertisements don’t make a large enough dent in their revenues to fully cover their services. We have come to understand this primarily in the “old media” sense, including magazines, television networks, and newspapers (more on the latter in a few days). In the case of television networks, while Hulu still displays ads during commercial breaks on their programming, the revenue they make from those advertisements barely puts a dent in the costs of production and marketing of a TV show. Quite a few people use the service, but it isn’t exactly paying for new shows.
Enough people got annoyed with pop-up ads (and installed pop-up blocking software in their browsers…) that their development has slowed down, however advertisements still subsidize quite a few web sites, and now, mobile phone applications. You can buy Angry Birds for $1, or you can download a version for free that has small ads on the bottom. Amazon recently announced that they’ll knock off $25 from your purchase of a Kindle e-reader if you get an ad-supported version that displays advertisements on the home screen and screen saver (thankfully, not between pages of your book).
Microtransactions
This is the new way of making money. And it makes quite a bit of money. Mostly, microtransactions have shown up in “the game space,” including free-to-play MMOs like Lord of the Rings Online or Free Realms, and free-to-play games on Facebook, including FarmVille. In general, these games are all free, so you can usually play the majority of the content of the game simply by downloading it, or loading it up in your web browser. However, there are some portions of the game that you can pay a small amount for.
In Lord of the Rings Online, for example, you can “die” and resurrect yourself where you died once per session – after that, you can only resurrect at the nearest town, requiring you to run back to where you were, potentially taking from a few minutes up to an hour. Or, you can pay a small amount, like $0.50, to resurrect yourself again in that location. To many players, that $0.50 is well worth the cost to not have to spend the extra time running back to that location.
In FarmVille, you are growing your crops and getting your friends to do things for you. You need to water your crops in order to earn in-game currency, and this must be done within specific time restrictions. Having your friends visit your farm for you, however, can help take some of the load off your tasks. Of course, you can also visit your friend’s farms and carry out tasks for them, as well. If you don’t want to wait for your friends to do things for your farm, you can pay a small amount to have it done sooner so you don’t have to wait.
This is the idea of the microtransaction. You spend very small amounts of money, or you don’t spend any at all. Statistically, this ends up working quite well for the company. Zynga is the company that makes FarmVille, and more recently, CityVille. The latter had 61 million monthly users last December, helping contribute to the company’s $850 million revenue in 2010. For Lord of the Rings Online, their developer, Turbine, released statements saying that their revenues tripled since going free-to-play. Where players were once spending $15/mo to use the service, they increased the number of people playing the game and actually made more money, having the users spend less.
Effectively, this is the idea of “selling on volume:” get more people to use the product by making it free, and you actually make more money doing it. When interviewed, Turbine will tell you that almost 50% of the users for Lord of the Rings Online pay absolutely nothing, with only a small subset paying a little…and a smaller minority paying a lot. The extreme minority ends up paying for the extreme majority’s fun.
Stay tuned for F2P – Part II, appearing on Friday. I’ll try to apply these two models to media in general, including newspapers, television, and so on. Then again, I’m no expert in these matters, so…take it as you will…