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Opinion: Freemium Has Won; Time To Move The Debate On
Opinion: Freemium Has Won; Time To Move The Debate On Exclusive
December 22, 2011 | By Nicholas Lovell

I think we can safely declare 2011 the year when the free-to-play model was comprehensively proven.

Zynga floated and raised $1 billion at a valuation significantly above that of Electronic Arts. That is an amazing achievement for a company that did not exist a few years ago and has made games accessible to hundreds of millions of new players by using a new platform and a novel business model.

(The poor performance of Zynga stock post-IPO and the negative sentiment from the analysts don't take away from this amazing achievement.)

Nexon floated on the Tokyo Stock Exchange raising $1.17 billion, even more than Zynga, for another freemium success story.

Meanwhile, on the Appstore, 57 of the 100 top grossing apps in 2011 in the US were free-to-play. (80 of the top grossing apps were games). I estimated that at least 9 of those games made $20 million in revenue. Which isn't bad when they are given away for free.

It's time to move on

I think it has been proved conclusively that freemium can work. Whether it's from huge companies like Zynga, Electronic Arts and Capcom or from startups like the makers of my two favorite games of 2011 Nimblebit (Tiny Tower) and Spry Fox (Triple Town), the free-to-play model is attracting players, making money and, in some cases at least, making good, enjoyable games.

So can we stop arguing about it?

There are some games that can still command a premium (I'm looking at you, Modern Warfare, with the fastest billion dollars in entertainment history). There is still a market for games at single prices, sold in boxes on Main Street, although I think that this is in terminal decline.

What is clear is that for people who make games for a living, freemium is a viable option. It remains, however, incredibly challenging.

2012 Will Be The Year Of Customer Acquisition

We've solved the problem of how to make money from free. We know how to do that. What is more troubling is making profits from free.

The heart of the issue is customer acquisition. It has become insanely difficult and expensive to acquire customers. There are 450,000 apps on the App Store competing for attention. Zynga's success has come from milking the early viral growth of Facebook and converting that into an awesome cross-promotion platform, although there are signs that this is struggling.

Apple shut down pay-per-install businesses that it feared were "distorting the charts," something that would have a traditional retailer snorting with laughter. Conferences were filled with comments like "the cost of acquiring a customer -- not a paying customer, just a regular user -- is around $1 - $1.50."

With marketing costs like that, making money is hard.

It's not impossible, but it's very hard. Developers and publishers will have to find new ways to acquire customers, to retain them, and to monetize them (I call it ARM Yourself). They will have to become as expert at marketing as they are at game development, if not more so.

But please, can we move on from the debate about whether freemium works. Because clearly it does.

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Tomas Majernik
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I think it works too, although You need to position Your game well. Position it for free to play market, or position it for "hardcore" gamers like Starcraft 2 for example. I belive if Starcraft 2 was free to play, Blizzard would make much less profit. So yes, feemium works, but You have to target big, yet specific audience.

Michael Lubker
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Starcraft 2 has a free to play mode with limited maps and only the Terran race, but you can still play with players that have the full version, unlike some demos which put you on a different server from regular players.

Rick Kolesar
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I don't think free-to-play has won and I don't think it has to "win". What has won is the ability to price your game at whatever price you want (if that means free, then fine). Gone are the days of every game on the shelf being $50. Game makers now have the freedom to adjust their prices on the fly and react to an ever changing marketplace (and customer base).

And saying "free-to-play" has won when it's such a new idea is a bad thing. Letís see 2-3 years down the road if the companies can make profits from their game a not live off investment/IPO money.

Vin St John
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I think it's just a poor choice of words. The full title says "Time to Move the Debate On", and in the body of the article it seems evident that the debate was not "Which is better - premium, or freemium?" but rather "Is freemium a viable revenue model?". In the case of the latter, the 'pro-freemium' side has indeed won the debate.

But I wholeheartedly agree with your opinion.

Ian Bogost
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Is this article a strawman?

Making money from free but not profits from free = "it works?" It shows that high-leverage speculative financial instrument businesses like Zynga are fine, but does that count as "working?" Does that justify "moving on" from the debate?

Christian McCrea
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Forget it, Ian. Its over! The debate - and remember, it was a debate - is over. There's winners and losers, because this is business, and other models lost. Now people need to know how to pivot. This is the crucial moment. This is YOUR moment, Ian. You need to pivot. Get good at marketing.

A complex business model with dozens of ways to make profit is in terminal decline, and this relatively new thing that also makes money, thats not in terminal decline. They buy plenty of coin packs in Eurasia.

Matt Mihaly
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Been over a long time, Ian, with all due respect. I've been hearing the same arguments against it since I invented the freemium model in '97, and they aren't any more compelling now than they were 10 years ago.

It works in everything from small indie companies (like my Iron Realms Entertainment - over 50 successive profitable quarters with 100% of revenue coming from freemium) to giants like Nexon, Tencent, and Zynga.

There's no argument to be had around whether it works, since it quite clearly does for a wide range of games companies. There could be an argument, as a couple other posters have mentioned, about whether freemium is ethical, but I've yet to hear anyone on the 'other side' of the argument come up with a new point on that front in over 10 years.

Nicholas Lovell
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I think it means that there is little merit in the endless "they're not games", "it doesn't work" etc.

I'm much more interesting in talking about how to make work *better*: more profitably, more creatively, more entertainingly, with fewer issues about ethics and so on.

Nicholas Lovell
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I am actually always interested in debate - just not the same debate. Discussing free-to-play with people who disagree with me is a faster way of learning and improving than discussing it with people who agree.

Weston Wedding
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Nor does a year prove a business model, unless you really limit your view to the extreme short term.

Then again, this article is another aimed at a debate that doesn't even obviously exist outside of Nicholas Lovell editorials about freemium models.

The debates about freemium are of ethics and whether freemium SHOULD exist. Not whether it can succeed from a financial perspective. People were having that debate a half a decade ago.

Nicholas Lovell
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I don't think it is a just a year. Zynga and Nexon's IPOs are the culmination of years of work. The iOS success is on the back of a steadily rising trend of free-to-play top-grossing titles (it was 34% when I took a snapshot analysis in November 2010; it was 57% for the whole of 2011).

I'm pleased if you think, however, that there is no debate about whether F2P works: I take that as great news.

On the ethics point, I agree. I don't think F2P is innately unethical, anymore than charging $60 for a game and locking some content away from paying players unless they are "good enough" for it. There are definitely ethical issues, though, as I mentioned in a previous column (
__Thats_Not_The_Question_For_FreeToPlay.php) and I think that we will see a lot of debate about ethics in 2012.

Which, as long as it isn't hysterical, is a good thing.

Michael Joseph
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"anymore than charging $60 for a game and locking some content away from paying players unless they are "good enough" for it."

Except of course the fact that the content is not locked away. It's just not. It's not locked away anymore than obtaining a license to pilot a jumbo jet is locked away from a quadriplegic or the visuals of the movie Avatar being locked away from Stevie Wonder.

Michael Lubker
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Is there anything unethical about people selling the blades for razors or the games for consoles at a high price? No.

The market will bear what it will bear.

Robert Green
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Nor does having a lot of entries in a 'top grossing' chart in any way mean that great games are being made. It's the time of the year when 'game of the year' awards are being handed out, and I have yet to see any traditional gaming sites say any of their favourite games this year were freemium.

In fact, many of those 'games' barely even count as games at all - they have no win/loss conditions and require no skill on the part of the player.

Which is not to say that Mr Lovell is wrong, just that as someone who has been playing videogames for decades, the idea of retail games being replaced by these freemium 'games' is quite troubling.

Matthew Mouras
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"quite troubling" or "plainly a silly notion"?

Michael Lubker
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Game without Win/Loss conditions have been around for a long time... and been some of the top selling games ... (I'm talking about Maxis/Sims not to mention many many others)

Elliott Belser
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League of Legends. The single biggest success story of the freemium market, with literally millions of players and the single biggest e-sports scene outside of Starcraft.

Robert Green
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@Michael Lubker

Perhaps I should have been a little clearer there. There's a difference between a game which has no end point and doesn't force you to follow a specific goal (like the sims) and a game in which there is an implied goal, but you cannot fail at it.

Imagine a game like WoW, where it was impossible to fail a quest, only to change the speed at which you beat quests, where the fastest way to beat them is just to spend real-world money, and where the motivation of the developer would then be to encourage you to take that option.

That kind of thing exists, and it can be very profitable, but I hope you can see why I'm hesitant to call it a game.

Michael Joseph
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Wal-mart is winning. So what.

The debate was never really about whether freemium games could make money.

The core of the debate was always about quality, exploitation and other dubious business practices and models. That debate is never going to go away so long as there are major players out there with no regards for goodness.

The question is, will that real debate be a constant albatross around their necks. Maybe. If it's in their interest to turn over a new leaf they will silence their critics and maybe turn them into proponents.

EDIT: Oops. Just saw Weston Wedding's post above. What he said!

Victor Perez
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Nothing is proved with Zyngia, right now is just a potential business... but not a true. Nobody remember the dot com bubble?? We will see...

What is proved is the online selling instead of box selling.. that is true. Do you want to survive? your game must have a online distribution format...

And Free to Play, it is not true.. someone pay... the new ways to brings customer to your products as giving free playing time or any other way .. that is MARKETING men... Online Marketing.

Just think in Online.. but do not try to imitate the latest "business success", because sometime it is not what it seems to be..

Michael Lubker
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The only market in a bubble is the console market. If anyone should be accused of unethical price gouging, its console games.

THQ is around 80c, Activision just lost a 1 billion EURO credit line... wake up!

Luis Guimaraes
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Far as I know EA was doing quite well with it's play4free portal, specially Battlefield Heroes. Also, Infinity Blade have basically covered it's development costs with in-apps only, having the selling price mostly for profit. And dozens of asian companies have been surviving for so long focusing on freemium model.

James Coote
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F2P = opportunity cost.

$1 today is better than $3 in 6 months time. Furthermore, you have all the costs to run a F2P game while you're wating for that $3 to come in.

I think what we will see is a hybrid F2P-Freemium model, where players can pay to unlock everything now or just pay as and when they need an extra item here or run out of gold and need a little extra there.

Jamie Mann
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"Zynga floated and raised $1 billion at a valuation significantly above that of Electronic Arts.

(The poor performance of Zynga stock post-IPO and the negative sentiment from the analysts don't take away from this amazing achievement.)"

Um. Yes, yes it does, actually.

The value of an IPO is mostly driven by hope and hype. There was this little thing a few years ago, called the dot-Com bubble that you may have heard of...

Beyond that: has Freemium really "won"? I've absolutely no doubt that it's currently profitable, but what about the long term? What happens when there's more competition? Again, I seem to recall a time when internet advertising was a high-profit system... and when everyone jumped onto the bandwagon, the click-through values dropped like a rock. You can still make money from it, but you have to work a lot harder than you used to - and there's a lot of disreputable companies poisioning the system and driving end-users to use tools such as ad-blockers.

Or how about MMORPGs? For a while, they could do no wrong, either. Or social games - they've dropped from their peak. Or...