Evolution of Free-to-Play Video Games

These days, it is almost impossible to watch television, browse the internet, or look through store catalogs without seeing ads for video games and game consoles.  But prior to the release of the Nintendo’s NES console in 1985, many people believed that video games would slowly die after the introduction of personal computers (PCs). The average consumer believed that it would be useless to have a system designed specifically to play games when a PC had the capability to run many different functions (wired.com). But Nintendo stepped out to lead a gaming revolution. Thanks to Nintendo’s release of the NES console with the iconic Super Mario Bros as their flagship game, the video game frenzy began.

Soon after, the console gaming experience quickly evolved with Nintendo, Sega, and later Sony making their marks with innovative hardware and blockbuster titles. Then, roughly 15 years after Nintendo’s NES release came the next gaming revolution, the introduction of online gaming. Having the ability to play a console game against someone on the other side of the country was unheard of before the Sega Dreamcast (1999), the first console to feature online capabilities.

Sony’s PS2 and Microsoft’s Xbox consoles followed suit, and this opened up a whole new world of possibilities for the future of video games. After the immense popularity of the Xbox and the PS2, it was clear that the video game industry was moving toward more online functionality. 

The World of PC Gaming

While the console market evolved, the PC market had its own path of evolution. Many computers now are so advanced that they have the ability to play video games at much higher quality than any video game console. This has persuaded many consumers to ditch the standard console and consolidate to using their PC. The PC gaming market is anticipated to grow to over $23 billion dollars in 2017. The PC market has sold more copies of games than the highest selling console game by over 100,000 copies (Forbes.com).

Today’s PC’s are always connected to the internet, which makes online gaming much more accessible. As of 2009, 72% of American households played video games on their computer (extremetech.com). This ranges from playing chess online to playing popular titles online. PC gaming has become popular among gamers due to the availability of laptop PC’s and upgradable hardware and software. If consumers wish to make their computers faster, they will only need to upgrade a piece of hardware. If consumers want to upgrade their video game consoles, they will have to wait for the newest generation of consoles to become available. 

Free-to-Play Gaming Market

Today, some of the most popular PC games in the world are available to play completely free. A couple examples are RIOT’s League of Legends and Valve’s DOTA 2. On any given day, an average of 27 million players are playing League of Legends and approximately 67 million unique users play the game in one standard month (polygon.com).

How could a video game company such as RIOT make any profit when they offer one of the most-played video games for free? The answer is quite simple. RIOT uses “in game purchases” to add cosmetics to a player’s in-game experience. Valve’s DOTA 2 uses similar in-game purchases. Free downloadable games with in-game purchase options are becoming more and more common. These purchases can range from in-game cosmetics to entirely new add-ons that extend game play.

Now, more and more people are playing video games on their mobile devices. In fact, hundreds of thousands of mobile video games are being released on the Apple App Store a year (kotaku.com). This gives consumers a wide variety of mobile online games to play. One of the most popular mobile online games is Supercell’s Clash of Clans, a free-to-play strategy game where players build a medieval base and invade other online players’ bases for resources and in-game currency.

This game offers in-game micropayments designed to boost your ability to give you an advantage over other players. At the end of 2014, Supercell reported an annual revenue of about $1.8 billion dollars. This means Supercell makes roughly $5 million dollars a day off of Clash of Clans (androidheadlines.com). Micropayments add up, especially when there are millions of people downloading an app that is free to play. Many online games for mobile devices have adopted this free-to-play strategy while incorporating in-game purchases. It is very rare now to download a free game on the App Store and play it without seeing options to spend money to boost your in-game abilities. This is a recurring theme in the video game market and does not appear to be fading any time soon.

The bar graph above shows the age distribution for online video game players in the United States in 2016. Surprisingly, the “50 years and older” group (26%) is nearly tied with the “under 18” group (27%) for second highest age group playing online video games. One of the main reasons that the 50 years and older group is so high is because of the availability of free “app” games on smart phones and tablets. A good majority of games for mobile devices are free to play, and this is very attractive to those who do not wish to make big purchases to play video games.

Marketing Implications

The numbers don’t lie. The free-to-play gaming strategy that offers in-game purchases has proven effective. The best part about the free-to-play games is that these companies rarely need to spend money on advertising due to word of mouth. RIOT does not advertise League of Legends, yet they have one of the largest playerbases in the world. They actually have other eCommerce companies advertising for them! There are hundreds of thousands of articles and blogs that talk about the game. This can draw the attention of consumers looking to play a new game, and the “free-to-play” status gives players more incentive to at least download and try out the game. 

This is a great example of how inbound marketing can work wonders. Bloggers and video game reviewers are constantly sending potential new players right to RIOT’s webpage where they have a call-to-action to download the free game. One of the most popular ways to bring new players to an online video game is through a referral program. Many free-to-play games offer incentives to those who are able to bring in new players. League of Legends is a great example this. RIOT will give current players in-game rewards depending on how many newcomers each player brings in. These can range from in-game currency to free cosmetic skins that can only be obtained by using the referrals.

This free-to-play strategy can impact business greatly depending on the quality of the game. If the company is offering an extraordinary game that is gaining popularity, then the chances of having a high pay off from the free-to-play strategy are great. On the other hand, if the game is subpar or does not gain much popularity, the company may see this strategy as financial suicide. There are plenty of mobile games that offer in-game purchases but do not have a level of quality to continue to draw attention to potential users. On the other hand, there are a large number of mobile apps that make most of their revenue from the in-game purchases. As stated earlier, Clash of Clans is one of those free-to-play mobile games that has tremendous popularity.

Looking Ahead to the Future of Free-to-Play Gaming

In-game purchases do not have to be purely cosmetic. The very popular video game series, Call of Duty, currently offers in-game purchases to extend gameplay or create a whole new story arc to play. While Call of Duty is not a free game, lowering the price of the initial game purchase could mean a significant rise on in-game purchase transactions. Consumers will be much more tempted to make in-game purchases if they enjoy the game and spent little or no money to download it.

The chart below depicts a small survey of 76 respondents who played League of Legends in the Cleveland/Akron area. Of all respondents, 89% admitted to spending some amount of money in the game.

It seems likely that the video game industry as a whole will continue to shift toward the free-to-play or low-cost strategy while offering in-game purchasing options. Consistently releasing new in-game purchase options (new maps, levels, in-game cosmetics, etc.) keeps a game from getting stale. Gamers may be more willing to continue playing if the game continues to update with new offerings. These types of changes can have almost no limit.

While the free-to-play strategy seems risky, companies like RIOT will continue to generate very high revenue and spark the interest of other big name companies in adopting this strategy. Gamers develop strong relationships with video game brands they love and will freely advocate for those brands on the company’s behalf through electronic word-of-mouth marketing, as RIOT and other companies have learned.

Editor’s Note:

For research on consumer referrals of brands through electronic word-of-mouth marketing, check out this study: “The Effects of Interpersonal Tie Strength and Subjective Norms on Consumers’ Brand-Related eWOM Referral Intentions,” 
JIAD Vol. 15, Issue 1, 2015)