The following 10 revenue models allow some or all of their associated games or virtual worlds to be played for free. The ordering is quite unscientific and I’m sure I’ve missed something obvious or messed up a detail. I leave it to the Internet to correct me.
1. Virtual Item Sales
A familiar revenue model first established in Korea and now the dominant model in Asia. Nexon – makers of KartRider, MapleStory, Audition and more – are widely seen as the leaders in this area, doing $230M of gross revenue in 2005 (the most recent year for which they’ve released figures), with 85% of that revenue coming from virtual item sales.
Virtual item sales is the practice of allowing users to purchase functional, decorative, or functional and decorative in-game items for use in and out of gameplay. A virtual item system usually uses two currencies – an attention currency (users earn virtual money via in-game activities) and a real money-based currency (users buy virtual money using real money). Typically, 5-15% of users opt for the latter currency and the influx of real world money is what provides the virtual item sales revenue stream.
What’s so compelling about virtual item sales is the unlimited ARPU (average revenue per user). According to Daniel James, CEO of Three Rings, some hardcore Puzzle Pirates users have poured more than $10,000 apiece into the game via virtual item purchases. To reach that contribution level via a World of Warcraft-style $15/month subscription would take a user 55 years.
While extremely shaky sources peg the overall size of the virtual item sales market at $1.5-2B this year, without an NPD-esque measurement organization there’s no way to verify that number.
2. Subscription Tiers
Runescape, the Java MMO from Jagex, is one of the leaders in the tiered subscription space. A tiered subscription model allows users to play the core game for free, but those that desire access to elite weapons or other game content must pay a small ($5/month) subscription fee. Over 1 million of Runescape‘s 6+ million users have opted into the tiered subscription program, grossing $60M annually for Jagex.
Dungeon Runners, an NCsoft free to play MMO, offers a similar $5/month subscription package that affords players access to the elite items, a bank and the ability to stack potions. It also gives subscribers server queue priority.
3. Advertising
Several different forms of game-related advertising revenue streams have popped up in recent years. Firms such as Massive, IGA and Double Fusion do big business in in-game advertising for clients such as EA, Activision, THQ and Microsoft. Game ad agencies typically serve up static ads (ads that ship with a product and never change) or dynamic (ads that are updated in real time via the Internet) within game products that are contextually appropriate for advertising (i.e. sports, racing, or contemporary shooters).
The size of this conventional in-game advertising market is currently pegged at $100-200M, according to well-placed industry sources. However, the number and quality of games with dynamic advertising enabled is escalating dramatically. So much so that Yankee Group predicts the in-game ad market will reach $732M by 2010′s end.
But other, more emergent forms of in-game advertising have been at the forefront of enabling free to play. Examples include:
4. Real Estate or “Land Use Fees”
Second Life is the biggest legitimate player utilizing this revenue model whereby virtual land is sold leased to individuals. Monthly lease fees range from $5 to $195, depending on the size of land in question. Users may also purchase their own island for a one-time fee of $1,675 in addition to a monthly fee of $295.
Approximately 70% of Second Life‘s revenue comes from land sales and maintenance fees. Of course the virtual land ownership revenue model doesn’t come without headache, as the Bragg vs Linden suit has proven.
Entropia Universe uses land auctions as a revenue stream, but a recent headline-making $100,000 land sale has been called into question as the successful bidder is an employee of Entropia‘s developer, MindArk.
5. Merchandise
In what’s become a phenomenon of Furby proportions, Webkinz plush toys and their associated Webkinz World have taken the pre-teen set by storm. Users purchase a $15 Webkinz plush toy at retail and enter a secret code to activate the associated virtual character in Webkinz World. Beyond the retail plush toy purchase, there are no additional fees for playing in Webkinz World.
Two million Webkinz toys have been sold since April 2005, with more than 1 million of those users registering their pet online. That’s more than US$20M in retail sales in just 24 months. Products such as Bratz/Be-Bratz are quickly jumping on this bandwagon.
Another successful merchandise-based revenue model is collectible card games, or CCGs. Neopets launched a CCG in 2003 and just recently MapleStory became the latest free to play game to go this route, announcing a partnership with Wizards of the Coast. Consumers purchase real-world MapleStory collectible cards that come with codes redeemable for exclusive in-game content in the MapleStory MMORPG.
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About
Adrian CrookAdrian Crook is a game
consultant and 15-year industry vet. He’s produced and designed award-winning, million-selling products on platforms from console to Web. A veteran creative producer, he’s as comfortable writing a social game GDD as doing biz dev and strategy work.
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