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Opinion: Freemium is not shareware
Opinion: Freemium is not shareware
August 21, 2012 | By Tadhg Kelly

August 21, 2012 | By Tadhg Kelly
More: Social/Online, Design, Business/Marketing

In this opinion piece originally posted on the What Games Are blog, and reprinted in full with his permission, UK-based game designer and Gamasutra contributor Tadhg Kelly examines the difference between freemium and free to play business models, noting why the "moral" choice might also be most perilous.

This morning I read the sorry story of Gasketball. The game is an above-average puzzler in which you bounce a basketball off walls and other objects to shoot hoops. Like many such iOS games it's charming, pretty good fun (though not amazing I would say).

However, despite achieving 200,000 downloads, its developers have ended up homeless and borrowing money to survive. They released the game for free and using Apple's in-app purchasing model to allow the player to upgrade to the full game for a one-off price of $2.99. So far they've had 0.67% conversion (or 1,340 sales). Their reasons for only having one purchase are moral.

Like many developers, they believe that freemium business models are abusive. Their idea was to use the same system, but only have one payment. In other words they confused freemium with what we used to call shareware. Unfortunately it seems that nobody told them that shareware was never that great to begin with.

A developer with a noble idea of the player in mind thinks that if he can just get 1 in 10 users to cough up, then he'll do well. It sounds like this is the mistake that the Gasketball developers made. The reality is that free/paid conversions are usually much lower, on the order of 1 or 2% at best.

In the days of shareware software it was much the same, if not lower. Free download sites would distribute your game or application, with the idea that it would travel far and convert some. Shareware developers often hoped that they would see high conversion rates, but commonly would not. Even if software expired after 30 days etc, the number of actual converts was always on the very low side.

The reality of low try/pay conversion applies to even the greatest games. Far less people than you probably think will actually reach into their wallets in order to pay you for your work, but if they do cross that threshold then they are much more likely to do so again.

Repeat business is what makes freemium business models work. You go free to play in order to expose the core of the game to lots people in the hope of turning some of them into customers, and then you sell them something. And then something else. And something else. Once they buy one virtual item, they may buy two. Once they score one set of virtual currency, they will not think it bad to have another.

Not unlike the old arcades, some players spend lots of money and some endlessly eke out the value of one credit. Some even actually want to give you their money just because they like you, but if you haven't set up a way for them to do that then that money is just lost. Why charge $2.99 for an upgrade when you could charge $19.99, for example? Why, if it bothers you that much, not have a flexible pricing scale where they can buy the upgrade at whatever level they desire?

If you are struggling with the same moral question, then my advice is simple: Get over it. Repeat sales is a basic business model, used from fine restaurants to lowly casinos. The question should not be whether to accept or reject that premise (and so get hoisted on your own petard like the Gasketball guys), but how to approach it nobly or ignobly.

You don't have to be evil to sell multiple items to a customer who likes you.

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Jack Nilssen
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Thank you.

GameViewPoint Developer
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Totally agree, but there's still a large swathe of gamers who won't download a "free" game if they even sniff any IAP's or virtual currencies in it.

Robert Green
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Those gamers must be finding it harder and harder to find such games, since these days the iTunes store is completely dominated by freemium apps, and the ones that don't have IAP's are usually demos or just terrible.

To address Tadhg closing line, no, you don't have to be evil to sell multiple items to a customer who loves you, but you do have to put a lot of work into creating a game that supports such a model without being evil about it. As soon as you start planning your business model on selling virtual items and virtual currency, you're faced with a lot of incentives that, morality aside, can have a detrimental effect on the quality of the game.

Andrew Traviss
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How is this different from Trial Versions/Demos, which work just fine on many platforms?

As far as I can tell, the failure with Gasketball was that their messaging and placement was really poor, to the extent that many players had no idea there even even was more available than what was made freely available.

Aaron San Filippo
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The difference is that most app downloads are an impulse decision. People download a demo for a AAA game because they're unsure if they want to drop $60 on it. People download an app because they want instant gratification. Obviously the shareware model did work out OK for some companies - ID made a killing on Doom for instance. If Doom were $2, it would've been a different story.

Also keep in mind - "trial versions" on most platforms also have an instant buy option. I don't have statistics on this, but I imagine that the percentage of people who go through the trial version to purchase is actually fairly low (if this weren't the case, so many AAA games wouldn't ship without a demo version at launch.)
The "trial with full version included" model is basically missing out on that huge market of people who would gladly buy the app outright because it looks great, is recommended, or is featured.

Here's another way to look at it:

Trial version path to payment:
1. Find app in store, download (this is a decision process)
2. Actually launch app (this is a decision process)
3. Decide that you like it and it's worth paying for, and entering your password for (this is a decision process)
4. Find the option to buy, and buy.

Paid app path to payment:
1. Find app in store, buy it.

For the free-to-full method, you need to realize that by the time you get from step 1 to 4, you've lost *many* more users than you do in step 1 with the paid version. So by going free with a one-time payment as an IAP, you're basically wagering that the conversion rate times the revenue-per-user is going to be greater than the conversion rate of the people who see it in the app store and decide to buy, times the one-time price of the app. But for this to make sense, your revenue-per-user needs to be rather high.

We made this same mistake with our "Monkey Drum" app - we released free, with a limited number of IAPs - about $4.99 in total. When we released a "Deluxe" version months later as a separate product, our revenue increased by a factor of at least 20. Our conversion rate for the free version was about the same as Gasketball's.

Justin Sawchuk
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It seems like they dont only have 1 IAP.

Aaron San Filippo
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I'd love to see some more statistics on the actual success rate of the shareware model. What was a typical conversion rate? Doesn't this economy change when you're asking $30-60 for a full version?

Also, I think "get over it and just ask for repeat payments" is one possible path - but just selling a paid app is another. Free apps may account for 20 out of the top 25 grossing apps - but two guys running an indie outfit don't need to compete on that level to thrive.

Shawn Allen
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I feel like this article fails to understand what the article it is referring to was about. As has been mentioned, a big reason why they probably failed was because of how hard it was for anyone, even close friends, to actually buy the game.

We'll never know if having a better placed button to buy the game up front would have done better for these guys, but I don't see the point of attempting to dissect an issue while ignoring the whole article about it.

I will agree that freemium is a beast that is hard to tame, and is not always a solution.

David Marcum
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From the linked article it seems Mikengreg's problem starts here:
" I wasn’t even aware there was anything to pay for to unlock, and when I learned I could buy the game to support the developer I went looking for that option in the game’s menus. It took me a few minutes to figure out how to pay for the game, and I was specifically looking for the menu. There’s nothing shocking about the low amount of paid sales; the value proposition is never made explicit." And perhaps they gave too much of the game away, as the article suggests.

This seems like a poor choice for a case study on, if a one full payment model can work these days.

My IPod was full of these games and I would trash the games that asked me to buy something and then buy something else. But my anecdotal story does not a case make. And neither does this article make a case for why the demo-then-buy model doesn't work.

The author has his P.O.V. and found this to be a story that he could easily make his case. But it's not like the F2P model is hard to understand. Everyone understands it and not everyone likes it. I don't. This is me -- I made a fun game. Pay me for it. And I promise not to nickle and dime you, I promise my design decisions are based on whether your enjoyment level will go up, not will your account level go down, again and again and again and again...

Ian Adams
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First, everything you say is true. Second, Gasketball absolutely dropped the ball on explaining to players what unlocking the full version means, and why they might care. Even in the new version where they "fixed" monetization, they basically have a play book of how not to convert someone to a paying user. I liked the game enough to give 'em three bucks, but I'm not shocked most people don't.

Brian Stabile
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No doubt the numerous articles written about Gasketball have gotten it plenty of 'pity sales'. However, it's a shame that this market is so hard to just make rent money, even if you have thousands of users and rave reviews. It's a big gamble - no one really does 'middle of the ground'. You either catch on with the public majority that actually DO spend money on apps, or you squeak by on pennies a day. We as game designers need to think of a new way to show our fans and customers that while we won't twist their arm to kickback some money to the developers of games they actually enjoy, they should realize how their contribution helps keep indie developers in business, and they should want to do it on their own volition.

Lars Doucet
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I agree with the main thrust of this article that developers shouldn't be scared of more flexible pricing models.

However, I don't think a compelling case has been made from the above evidence that shareware is fundamentally flawed. I'm not saying I think shareware is great, either, I'm just saying the article doesn't make a good case against it - My game Defender's Quest has been doing pretty well with a "shareware" model. I guess that's a counterpoint to Gasketball's experience.

My real point, however, is that anectodal evidence pro and con is not enough to make a real assessment on this issue. Ideally, we need more developers to share their numbers. Is it just your marketing strategy? Is it the platform (iOS vs PC, etc)? Or is it something fundamental to asking only one price?

My big, honking, unscientific guess is that Gasketball ran up against two big problems: platform expectations (iOS), and failing to make the case for the upsell. My speculation is that those two variables could be as big or bigger a problem then their fixed-price strategy.

Anyway, I know this was a short blog post so it's not fair to pick it to pieces, and I'd like to finish by saying I mostly agree with it :)

nicholas ralabate
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Lars, I feel like a fool for not knowing this but what do you mean by "platform expectations"?

Lars Doucet
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Ah, sorry :P

The expectations and attitude of a particular platform's audience. PC gamers are a different breed than iOS gamers, for instance. With the right pitch, you can charge $10 or more for a downloadable PC game, but nobody could get away with that on iPhone. That kind of thing.

Brad Borne
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Maybe the game needed to be 'amazing', and the monetization method is actually irrelevant?

I mean, 200,000 free downloads is nothing. I know there's less friction there, but for anything that's free, 200,000 units downloaded, whether it's a demo, online Flash game, or freeware, just isn't enough to hit critical mass.

For 3 bucks for yet another physics game (and no offense to them, the game does look like something I'd enjoy), that's really not a bad conversion rate. Guess I'm just not seeing a strong argument against the monetization model.

Jeremy Reaban
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I dunno - while squeezing customers for as much money as possible might work in the short run, in the long run it's going to simply turn people off. I think we're already nearing another video game crash (or at least recession) and this is one of those things that can turn a bad situation into something worse.

And I also fear it's going to bring in government intervention - especially when games are targeting children and/or use gambling.

nicholas ralabate
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Jeremy, as the WSJ reported last month the FTC is indeed "consider[ing] new rules" related to in-app purchases although my money is on them taking a hands-off approach no matter what administration takes office in November:

Mark Venturelli
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Such a charming little game! Glad to see that the developers learned a hard lesson about not being ashamed of earning money, hope there's still time for them to make the money they deserve.