Gaming Monetization, Part 1 - Lessons From History
One of our core beliefs at MetaPortal is that to come up with creative new solutions to problems, you have to study history—past attempts, models—and learn about the many other areas of expertise from which you can import knowledge.
For this reason, in order to solve today's crypto game monetization and sustainability issues, we decided to combine our research on macroeconomics, governance (this is the latter part), and study the details of game monetization history to achieve a deeper understanding of crypto games. One step change.
Table of contents
- arcade era games
- high-end game
- sales decrease
- free game
- in conclusion
This segment will be divided by different game monetization methods, and then further divided into time, platform or geographical area.
Part 1 will be a retrospective highlighting key milestones in which the game has historically been monetized in different ways. Part 2 delves into how NFTs and blockchains can add value to the player experience without overly financializing it, while still offering new (and perhaps better) ways to monetize.
Note that the content here places more emphasis on how individual games are monetized rather than at the publisher/publisher level (i.e. not the Steam store).
arcade era games
The first ever computer game was a little program called Spacewar! Designed in 1962 by MIT students for the PDP-1 mainframe. In 1960, the system alone cost $120,000, was available only to selected universities and research institutions, and running the program consumed the entire processing power of the device. Albert Kuhfeld, who played the game at MIT, later recalled it in Analog Magazine:
"The first few years of Space Wars at MIT were the best. The competition was tough, the teachers were nodding kindly as the students tried their best to improve. The students learned computer theory faster than Faster, easier than they've ever seen before...the context of real-time interactive programming is taking shape", (perhaps indicative of the stage of on-chain games/crypto-native games we're in today).
It wasn't until the early 1970s that Nolan Bushnell saw it on Stanford's PDP-6 and understood its commercial potential. He and Ted Dabney recreated the game on a VCR, titled Computer Space, and it predated Pong by nearly a year, becoming the first commercial video game in 1971. These games are built into dedicated hardware arcade machines that can only run one specific game.
It's important to remember that coin-operated pay games are nothing new in the Western world and Japan:
“…slot machines [electromechanical games] had been popular in the US for decades when [Nolan] started it in the early 70s, and pinball arcades have a storied (and notorious) history in the US.”
The whole business model has not changed between video games and arcade games, but instead of shooting metal balls in boxes, they shoot rectangular laser beams on a two-dimensional screen. A manufacturer like Atari or Sega would first develop games and build machines for them, then sell them to regional wholesalers, who would then sell/rent them to local shops that needed arcade machines. The arcade owner then pockets all the coins earned.
While it might seem like an unfair model to contemporary gamers used to f2p, a pay-per-view model is necessary for this to work.
High upfront costs for all parties involved
It's a high-stakes execution for arcade game owners, since they must own and provide the hardware
Will there be traffic jams? Will people nearby be interested in the arcade and visit my store?
Lease a physical location, which means bearing overhead and other associated costs, such as maintenance
Is the arcade game I bought popular and trendy?
The physical size and technical limitations of the machines mean only 1-2 people can play at a time, so there is a monetization limit to the player base
Historically, people have been used to raves and EM machines...meaning this is the most logical way to monetize arcade machines. Coin monetization also means that game makers have a profit incentive to create more difficult/invincible games, so gamers keep coming back. With this profit incentive and the constraints of storage space technology, game makers had to use the same content (sprites, maps) but increase the difficulty to extend play time.
Arcades really hit their stride when Space Invaders was released in 1978. To this day, Space Invaders still easily ranks among the 5 highest-grossing games of all time by LTV, even after accounting for the lack of information and information lag on recent games.
By the 1980s, arcades had reached their golden age. Popular games like Pong, Space Invaders, Tetris, and Pac-Man will always be remembered as the original precursors of the game. The industry ballooned to $5 billion in revenue by 1981, but arcade gaming slowly began to die in the early 1990s and finally in the early 2000s as console and PC hardware gradually improved.
An important thing to note is how monetization, game design, technology, and distribution mediums all intersect.
In the case of arcade games, arcades (the way they were distributed and the technology itself) shaped game design to include game mechanics like life bars, ammo, and impossible difficulty in order to monetize the pay-per-view model.
While arcade machines and games influenced by arcade design began to die out in the early to late 1980s, more powerful and professional home consoles and PCs began to emerge. To this day, this era defines how games monetize themselves.
Interestingly, despite Atari's arcade success, it wasn't Atari who created the first home console. Seeing Atari's success with arcade machines in arcades, Magnavox decided they could emulate that success, but instead capture the domestic market. In a risky gamble, they created the Magnavox Odyssey, which went on to release 12 games in 1972.
Despite seeing great potential, Atari released their hit arcade game Pong in late 1975 on the Atari Pong home console. Its popularity has sparked a technology and content arms race among big players like Coleco, Magnavox, and Atari, as they now see the potential in this market. Some looked to technological innovations, like Fairchild's Channel F console, the first console to include swappable cartridges, rather than just built-in games.
Selling cartridges became the repeat sales point game companies were looking for, and it quickly became the industry standard. Since then, consoles and their respective physical games have followed the Razorblade model. Games in this era cost between $15 and $80 (not adjusted for inflation), depending on quality and IP, but people often pick up bundle deals for cheaper at electronics stores.
Unfortunately, this arms race and tsunami of innovation culminated in a complete failure for all: the Western Gaming Crash of 1983. During the two-year period from 1983 to 1985, revenue from home video games peaked at around $3.2 billion in 1983, before dropping to around $100 million by 1985 (a staggering 97% drop).
To people at the time, the video game industry seemed dead, a passing fad. Fortunately, Japanese companies such as Nintendo and Sega saw this as an opportunity to enter the Western market. This sparked a global rivalry between the two Japanese giants, leading to the creation of stunning devices such as the NES and Sega Genesis, as well as massive titles such as Super Mario (1983) and The Legend of Zelda (1986). IP.
In the early 1990s, Nintendo released games for between $40-$80, but ended up pricing them at $60 (not adjusted for inflation).
Nintendo's $60 price is used by major publishers to make high-budget games, and is considered by gamers to be the gold standard for high-quality games (because Nintendo makes consistently good games). This continued until "in 1994, Sony introduced the PlayStation game console and helped keep costs down by printing games on discs that were cheaper to produce". This ushered in the era of $50 gaming, a trend that continued with Microsoft's Xbox in 2001. The $50 price stayed the same until the PS3 and Xbox 360 era in the mid-2000s, when publishers suddenly realized gamers were willing to pay $60 again (which coincidentally coincided with the next economic boom).
Prices for AAA games have remained unchanged since then, despite significant increases in production costs and general inflation, as the $60 price tag represents a mutual commitment between publisher and player; publishers consider AAA games The development standards of the game are high, and players are willing to pay for the quality of the game (although some people think that the quality of these AAA games has slipped in the past few years and is no longer a sign of quality).
The unchanging $60 price tag for AAA games is also the reason people believe there will be DLC, microtransactions, and even gatcha systems in AAA titles, as companies look to find new ways to monetize without changing the price tag (e.g. Grand Monsters Auto 5 made billions for Take-Two Interactive).
The advent of computers such as the Commodore 64, Amstrad PC, and IBM PC marked the first wave of interest in high-quality PC gaming. Popular games of the era include Sid Meier's Pirates and Impossible Mission. Similar to consoles, the earliest form of monetization of these games was the sale of individual games available for purchase in stores, as physical copies on tapes, floppies, and CDs.
Over time, the consolidation of the game production industry into larger studios/publishers and better cross-platform implementation meant that AAA PC games were also subject to the same $60 psychological price tag. Obviously, the $60 tag doesn't apply to all games, even big publishers like EA and Activision, because the price depends on factors such as the IP itself, the type of game, its target audience, production costs, etc. A small but very important point to remember is that there is a huge secondary market for physical games (cassettes/CDs for consoles and PCs); as a physical commodity, household items for personal resale are subject to most national laws protection of. Unfortunately, developers and publishers can't make money from it, which has always been a sore spot for game developers.
The way high-end PC games are monetized remains relatively the same from here on out, and just depends on whether it's a big $60 AAA game or a small $20 indie made by a team of 3.
However, despite the same pay-to-purchase monetization model, the rise of digital distribution platforms such as Steam has changed the relationship between players and their games. The last but landmark shift in how players acquired games came in the form of platform-based digital distribution, with consequences that we're still witnessing to this day (this applies to consoles, too). While the high-end monetization principles of off-the-shelf games haven't changed, players' rights to their games have changed dramatically. It's worth noting that games sold on digital platforms are only licenses (DRM) that allow individuals to access them on the platform, so players never own the underlying game. With no ownership rights, the above-mentioned second-hand game market is shrinking as more and more games are sold online. As regulators gain a better understanding of digital distribution and DRM systems, laws are likely to change, and we're entering uncharted territory for game ownership.
Subscription-based gaming has long been synonymous with MMOs. Like early principles about how monetization interacted with game design for arcade games, MMOs and their differing operating requirements drove the need for subscription-based games. Subscription services are also often considered the first iteration of the games-as-a-service (GaaS) model, as they can easily be layered on top of other types of monetization.
Surprisingly, subscription services date back to the earliest days of consoles, when Mattel allowed subscribers to its PlayCable program to download new games to their Interllivison consoles by using cable TV in the early 1980s (1983 stopped shortly after the crash).
Japanese giants Nintendo and Sega then entered the market in the early 1990s. Satellaview for the SNES offers over 114 games, including remastered NES and SNES titles, to Japanese users via a satellite connection. At the same time, Sega launched the Sega Channel, which offered subscribers more than 70 games a month via a cable adapter. However, neither project really took off due to technical limitations negatively impacting the user experience (Sega later tried again with a Dreamcast console with SegaNet/Dreamarena services, but again failed due to technical limitations).
Sega failed, Xbox succeeded. Xbox launched Xbox Network (formerly Xbox Live) in 2002 for the original Xbox. Xbox Live is the underlying service with achievements, messaging apps, and Xbox trophies. The main selling points of this subscription service are:
- Allow players to play online multiplayer games
- Your one stop shop for all things gaming on the Xbox platform
- Trackable achievements and rewards for different games
- A digital way to store games and game items
Then, by design/welcome to lock the core experience of the game on the platform to multiplayer, it entice players to buy a subscription. Only recently (April 2021) has Xbox removed the requirement for some free multiplayer games like Fortnite to not require Xbox Live Gold to play, showing that players are willing to access multiplayer games.
Playstation later joined their Playstation Network (PSN) and PSN Plus services in 2006, providing a similar tier 2 service for games on platforms like Xbox. In 2012, the PSN Plus service added the ability for players to take turns playing older PS games, and Xbox quickly followed suit by adding it to their Live Gold service with older Xbox games. A few years later, Xbox adjusted its strategy and launched Xbox Game Pass, which includes not only Microsoft's games, but also games from other major publishers who are willing to sign on.
As opposed to consoles which focus on offering multiple game/service subscriptions due to the oligopoly of publishers and console makers, PC gaming subscriptions are often more focused on a single game due to the greater flexibility that PCs can offer.
While MUDs (Multi-User Dungeons) have been around since 1975 and ran on expensive mainframes like the PDP-10 (similar to Spacewars!), the first attempts at commercialization began on Kesami Island, a 12 Rough game for $/hour. These communities are still insignificant compared to later MMOs due to their technical/cost constraints, but offer a glimpse into the future potential of multiplayer games.
The first truly Internet-based MMO was Meridian 59, released by 3DO in 1996. Meridian 59 was the first 3D graphics MMO game and one of the first online role-playing games. While it wasn't as successful as its predecessors, it certainly made its mark as a "first" in the gaming world.
However, it was Ultima Online and subsequent Ever Quest that propelled MMORPGs into the mainstream of gaming consciousness. Many attribute the success of MMOs to "chat rooms with a graphical interface", with novel social elements being a major factor in their success. The success of early MMOs like Ever Quest and Ultima in the early 2000s prompted many studios to try to emulate them, but not many were able to handle the complexities of an MMO. What emerges from the struggle is that household names like Eve Online, Second Life, and of course World of Warcraft emerge from this struggle.
While every game has its own importance in this day and age, World of Warcraft really stands above the rest. The Warcraft IP is already an established brand, with an intricate world and plenty of lore to draw on from games, books, and other mediums. At its peak, it had a whopping 12 million subscribers in 2010.
These subscription-based MMOs initially justified their $10 or $15 monthly server maintenance costs and the promise of regular content updates/live events every 2-3 months; largely this was down to players and developers an excellent symbiotic relationship between them. Larger game-changing additions to the game require players to purchase expansion packs, as has been the case with many World of Warcraft expansions over the years.
This model worked well for a while until microtransactions came along and became commonplace with the F2P model and advancements in the mobile gaming space. In the early 2010s, many MMOs added cash shops where players could buy unique cosmetics like armor modifiers or with fiat currency (World of Warcraft launched in 2013), and some even moved to free-to-play entirely. While microtransactions allow companies to better monetize, they also act as a double-edged sword, as pay-to-win (P2W) and content erosion slowly erode player trust.
DLC has been around for a lot longer than most people realize. They have existed since the early 1970s in the form of new purchasable card packs or tabletop maps that players can buy to expand on the original series. As the transition to video games began, game makers saw the same monetization scheme and adapted it to a new medium called expansion packs. Expansion packs are add-ons that add massive content to the base game such as new game systems, maps or more content, completely changing how the game is played. For example, Brave New World added an ideology system that completely changed how late-game Civ V plays. Over time, due to advances in in-game technology, lower player standards, and higher costs, DLC now typically includes:
- New features such as additional characters, levels and challenges
- Items to help you progress through the game, such as weapons and power-ups
- Additional touches such as character outfits and weapon skins
- Season pass gives you early access to upcoming DLC
DLC is now considered a negative simply because many companies no longer try to justify their price tags. Also, despite a clearer separation in the past, DLC is increasingly associated with F2P microtransactions, mostly for the reasons above and a smaller price tag to entice people to pay.
Early DLC on PC came in the form of purchasable CDs that players could load to access new content for the original game. Some games even offer free DLC, like Total Annihilation, an RTS game from 1997 that released new playable and downloadable units online every month. Interestingly, some have speculated that adding DLC was an early way to encourage players not to sell used games.
However, DLC quickly fell into disrepute as developers and publishers took multiple approaches to better monetize their games.
Bethesda's $2.50 Horse Armor, which was expensive at the time, was the main reason for the problems with the DLC's execution. Essentially, Bethesda wants to cash in on the free player-made skins market with its own official product, but Oblivion is a single-player game that makes purely cosmetic DLC pointless. Cosmetic DLC is often a way for players to show off in social settings). The act caused a riot among players, but despite the outrage it caused, it worked out well for Bethesda. (This vest is cursed, and it was made by Bethesda itself more than 10 years later).
Worse still is the advent of "On-Disc DLC," in which content exists physically on disk but is now locked behind a digital paywall in order to further entice players.
Another way companies are starting to tighten their grip on profitability is by making sure physical games aren't being sold second-hand. The most egregious phenomenon occurred in some online games in the late 2000s or early 2010s, when certain publishers presented DLC-like content in the form of "online passes". Players must purchase a new game to obtain a one-time serial number that unlocks multiplayer features permanently tied to that 1 account. Anyone who bought a used multiplayer game with this system had to pay the publisher a reactivation code (usually around $10). This slowed down second-hand sales of these multiplayer games dramatically, and killed the rental program entirely overnight. Unsurprisingly, EA was the strongest supporter of this implementation and included it in a range of their sports titles such as NHL 11, PGA 11, and Madden NFL 11 (of course, Ubisoft was quick to follow suit).
Thankfully, gamers around the time have in unison stood up and protested this tactic en masse. Ultimately, EA and others pulled out and removed the online pass system after a few years, marking one of the gaming community's frustratingly few victories against gaming companies' anti-consumer behavior.
Unfortunately, the rise of digital distribution has made it easier, more frequent, and seamless to divide and separate content through DLC, which has made players more desensitized and more receptive to it. Add to that the fact that games cannot be resold on digital platforms, and many would argue that the gaming industry is the ultimate winner in this fight.
Unknown to many, downloadable content has been around since the late 1970s. Namely, the Atari 2600's GameLine service allowed users to temporarily download games using a phone line. However, the service was struggling even before the 1983 video game crash due to lack of product-market fit, high cost-per-play, and poor user experience, so when the 1983 crash happened, Gameline was wiped out entirely.
Things didn't change much on consoles until the advent of Xbox Network (formerly known as Xbox Live), the idea of DLC was first implemented in the OG Xbox, but really flourished and fleshed out under the Xbox 360. The Xbox Store on the Xbox Network is a powerful way to trade in and buy anything from small grooming deals for $1-5 to Halo map expansion packs for $20. Many refer to this service as the first appearance of microtransactions as we know them today. They also pioneered the use of store credits, back then "Microsoft Points" requiring users to buy physical gift cards to earn points to avoid bank fees, something that every video game distribution platform like Steam or EA has copied since then .
Implementing sales taxes on tradable items is a long-standing practice, so it's no surprise that similar implementations exist in game worlds.
This method of monetization is by far more unique than the others because it usually only works if 3 requirements are met (in descending order of priority):
- Game developers have a stable and controllable platform to run the market, which allows players to have a built-in wallet and be able to use fiat currencies to transact and store value
- The platform hosts a large number of games with mechanisms (often decorative elements) that encourage players to participate in the marketplace
- Items obtained from playing games are often random, with varying rarities
Historically, players would trade in-game items offline. This constitutes RMTing, and is why you'll see accounts or online items being auctioned off on eBay, or dubious sites willing to facilitate trades between players. Even in the earliest MMOs, people were willing to participate in the market using real-world currency to get what they wanted. Unfortunately, eBay officially banned the sale of digital goods in online games in 2007 due to the risk of copyright infringement and disrupting the in-game economy. With only a few exceptions, Second Life is a notable exception because:
It's considered a simulation rather than a game (as it has no end goal or "end game" gear)
In-game items created for Second Life are considered the property of the player, not the game, and thus have full rights to their items
Due to the unique properties of blockchain, we believe that cryptography can add real value at this point, which will be discussed in Part 2.
In-game item trading is especially evident in games with large cosmetic arsenals, as is the case with Valve's Team Fortress 2. Rather than shying away like other developers, Valve wants to embrace and monetize the exchange of digital goods. Fortunately, not only do they have the vision, but they also have the tools to do so. A great game and a big platform to facilitate this endeavor. Valve launched the Steam marketplace in 2012 because of a thriving in-game hat trade economy that knew it existed outside of games (everyone knew you couldn't play a game without wearing a hat). Combined with their Steam Workshop (a user-generated content sub-platform launched in 2011 that allows players to create skins, mods, and map creations for select games), it was an instant success. While item trading started with Steam's official games like TF2 and CSGO using their respective items for trading, other games on Steam from third-party developers either added their own tradable content, or even allowed players to sell homemade content to on the market.
The market includes a buyer's fee of about 15%, which is enough to deter market arbitrageurs without discouraging participants from participating in the transaction through excessive taxation. While fees may vary, typically 5% goes to Steam and 10% goes to the publisher. By introducing an official marketplace for players to trade, Steam protects players from black market transactions on the black market, while creating a steady stream of revenue for themselves and third-party developers.
By 2015, Steam reported paying out just over $57 million to community creators alone.
Free to Play (F2P)
Free-2-Play was a completely new concept that really pushed the masses towards gaming and appealed to a completely different user base than its predecessors. The mobile market has exceeded all expectations, both in terms of global player numbers and revenue, and continues to grow at a phenomenal rate.
Shareware is a model that offers paying users the ability to distribute a version of software with limited functionality or restricted content behind a paywall. This model was a way to combat piracy of productivity software from the mid-1990s to early 2000s, but it also made users the distributors of the products they condoned, an effective sales method. The original Doom was a hit game that used this distribution method. While some parts of the game are technically free to play, it still requires players to pay for the full game up front, and free users to pay and unlock the rest before developers can monetize the game. Shareware discs are available in stores, and players can send codes to friends to use and try them out. If they like it, they can have a physical copy mailed to them after sending a check to the publisher.
east meets west
The first F2P games arose out of a string of successful MMOs in the West that targeted children, such as Furcadia and Runescape. In the early years, with limited monetization capabilities, they turned to using user-generated content (UGC) and volunteers to keep content fresh for players, while monetizing through a freemium model with some perks like exclusive servers and grooming.
Meanwhile, in the East, Nexon released a game called QuizQuiz in 1999. It was a quiz-like MMO for kids, and they obviously saw the potential in the format and released Maplestory in South Korea in 2003 with the same format. The F2P model has resonated enormously with the East Asian market. However, these early Asian free-to-play games were clearly pay-to-win (P2W), but Asian users saw it as the norm and weren't bothered by the discrepancy.
Seeing the success of the new model in the East, Western developers began to consider emulating it in new and existing games, but tweaking it so that there is no P2W element. The desire to transition from a subscription-based model to a F2P model is particularly evident in the MMO genre. Transitions are often difficult and risky, but games that manage to do so successfully profit socially and financially, like Star Wars: The Old Republic and The Rift. Here's what Rift's creative director Bill Fisher had to say after transitioning from subscription games to F2P games:
"The impact on the player base was huge. After the free-to-play game launched, our daily active users grew by about 300%. There was a huge amount of re-engagement. Players who had been inactive for 14 days or more returned at a rate of 900%. It's amazing," Fisher said. "Revenue has grown more than five-fold. We're creating a product that people can love, not just to make money. We're not going to employ mechanisms to try to scam people out of their money."
This wave of success has sparked even more interest, and this time developers are more focused on creating new games than revamping old ones. This momentum, combined with the budding MOBA concept at the time, gave rise to games based on the F2P concept such as League of Legends, Dota 2, and Smite. League of Legends in particular proved that a magnetic core gameplay loop can keep players coming back to the game again, and it's entirely possible to make $1 billion a year from free-to-play games using free-to-play monetization strategies.
The rise of cell phones
While this F2P transformation is happening in PC gaming, the rise of F2P mobile gaming began around the same time as the advent of smartphones. The earliest mobile apps would charge you a flat fee to download a game, like Doodle Jump's $2.99, but through experimentation and iteration, app developers found it was better to monetize the few people who actually liked your app than to charge extra Easier and more profitable. Charging a fixed premium fee would greatly reduce the potential user base. Especially for apps that reach a broad audience, have new content (like games) on a regular basis, and aren't must-have apps, switching to free is a no-brainer.
In the late 2000s, two major game makers entered to change the field. One was Zynga, whose game Farmville propelled Facebook's financial growth and traffic to new heights, while redefining gaming in controversial ways. Some in the industry believe that Zynga's games are hardly games. Others have likened it to Skinner's Box in game packaging, because of how Zynga keeps players engaged with their apps.
Another is Supercell, whose strong marketing and social-focused games will take the world by storm with hits like Clash of Clans and Clash Royale. Both giants are proving that mobile phones can reach audiences like soccer moms or middle-aged white-collar workers who aren't traditionally considered "gamers." This newfound demographic will soon be labeled "casual gamers" or "mobile gamers."
Whaling - Top 1-10%
This article by Jon Radoff perfectly distills the economics of the F2P model, showing how and why it works. If you have time, we highly recommend reading this article.
TLDR, even though in-app purchases in games are becoming more and more the norm, most F2P players won't spend money. Therefore, it is important to capture a small percentage of players (so-called "whales") who will play with the right IAP strategy and product to incentivize players who are willing to pay more.
As F2P has matured, the industry has perfected a positive feedback loop where content is focused on attracting, maintaining, and maximizing the small set of people who are willing to pay.
This isn't inherently evil, or even unexpected; it's only natural for for-profit companies (especially public ones like Acti-Blizzard or EA) to turn to this route to monetize their player base. However, this feedback loop continued to disrupt games in the quest for further monetization, with Diablo Immortal redefining the gaming industry at a new low.
Many in the industry believe that without regulation, profitability methods will not improve or change. We believe that cryptocurrencies can provide unique features that incentivize monetization adjustments that neither prey on paying whales nor exclude free players. In Part 2, we discuss what incentives we can create in games that use crypto, how they could change the current landscape of F2P gaming, and use data to strengthen our hypotheses.
In-App Purchases: Ads, BattlePasses, Gatcha, Lootboxes, and Galore
As mentioned earlier, the two main ways F2P games generate revenue are through the sale of cosmetics - targeting social players for status purposes and players who really want to support the game visually, and selling convenience to players.
Convenience transactions include:
- Pay to skip ads (while those who don't pay to watch ads still generate revenue)
- Buy XP rewards to level up faster
- Buy insurance so X doesn't disappear after a while
- Paid to skip content
- Buy better gear (P2W field if the game has PvP)
In addition to monetization, these are strategies to attract players and serve as player retention mechanisms. All of these strategies are in-app purchases. As the name suggests, this means that players can seamlessly make purchases within the game to enhance their gaming experience.
Battle passes and skins usually fall under the grooming tab, but depending on the implementation, battle passes offer paying users not only unlocking additional grooming, but also unlocking faster XP progression (and thus a convenience payout). Done properly, the Battle Pass has proven to be an incredible player retention system.
The Lootboxes and Gatcha systems use RNG to allow players to earn game content, not to earn it by playing the game or otherwise. While they're not exactly new, implementations of these systems in video games have only come about in the past decade. In the West, one of the most successful early implementations was the addition of FIFA Ultimate teams to FIFA 09. In EA's 2021 filing with the SEC, they revealed that Ultimate Team earned $1.62 billion in fiscal year 2021, which is equivalent to 29% of EA's net income for the entire fiscal year. It's worth noting that loot boxes and gatcha systems have recently started to become the focus of regulators around the world, as countries are now considering whether opening loot boxes/gatcha is gambling and the impact of these systems on minors. Some pointed out that the model is ironically similar to pay-per-turn arcades (minus the legal physical constraints of arcades), and that the games industry has come full circle on how to monetize its content.
If there's anything to be learned about this part of free to play, it's that with the right content, real-time ops management, marketing and proper user segmentation + targeting, it's very possible to monetize a small portion of the player base to reach the remaining free to play players cost of.
Although not every game can achieve this step, for many IPs that make it bigger, this is undoubtedly the ultimate goal. The profit from developing branded merchandise, especially for evergreen IPs, is simply too great to be passed off. If you don't believe me, just grab a Pikachu and put it on any household item and see how much you can get for it.
In the past, only the biggest IPs from major companies like Nintendo or Microsoft could be merchandized, but thanks to the long tail of the internet, lower distribution costs and a surge in gamers, any game with a large audience can now be effectively merchandized and marketed to their player base.
For example, Deep Rock Galactic is a cute, labor-loving indie game (no Pokemon, of course) that's reasonably priced at $30. While this is just a guess, there is no doubt that considering the 30% cut in revenue for distribution platforms (Steam, PSN, etc.), their publishers take about a 20-30% cut in revenue, 20-30% in overhead and other miscellaneous cost. Meanwhile, here's an official generic black hat with the DRG logo for $25, 100% owned by the developer.
If there's one takeaway from this section on F2P gaming, it's that with the right content, real-time ops management, marketing, and proper demographic segmentation + targeting, it's very possible to monetize a small portion of the player base to reach the remaining free players cost.
For example, Deep Rock Galactic is a cute, labor-loving indie game (no Pokemon, of course) that's reasonably priced at $30. While this is just a guess, there is no doubt that given the distribution platforms (Steam, PSN, etc.) take a 30% cut in revenue, their publishers take about a 20-30% cut in revenue (?), 20-30% overhead and other miscellaneous costs. In the meantime, here's an official generic black hat with the DRG logo for $25, 100% borne by the developer.
In-game ads are a niche but interesting way to monetize by selling ad space that blends naturally with the game so it doesn't ruin the player experience (so it doesn't appear irrelevant in many free-to-play games advertisment). Just like having product placement in movies, it makes sense to have product placement in games. However, implementing an IGA is not an easy task as you have to consider factors like relevance/context, targetable player base your game will appeal to, medium of presentation, etc. As a result, many brand deals are with real-world games, such as EA's FIFA billboards. However, with more game development and more brands turning to the internet, we're excited to see the IGA protocol come to life.
Hopefully this provides a concise but still comprehensive look at how different games from different eras have monetized themselves.
Finding sustainable ways to make money is a daunting task. This is all the more difficult for the gaming industry, which has historically struggled to price games properly while managing player expectations. In the past few decades, game companies have been looking for better ways to monetize their products, constantly pushing the boundaries and testing the limits of consumers.
To be honest, if you use a picture to summarize this article, it should be like this:
But it's not all doom and gloom. We believe that the next generation of games utilizing blockchain can monetize games in less predictable ways by creating more sustainable incentives between developers, publishers and players.
In the second part, we will start to explore these potential profit methods, and draw historical lessons from them.