It is no secret that in-app purchases have come under a lot of scrutiny of late. Following on from Apple’s FTC settlement, a class action lawsuit has just been filed against Google on behalf of parents in the U.S claiming it is “unfairly profiting” from freemium games.
At the same time, Google has announced the inauguration of the “second app economy”. The era of paid apps, it says, has come to an end. In-app purchases will predominate more than ever. For perhaps not the first time, industry, regulators and media seem to be reading from slightly different hymn sheets.
It is true that platforms and their 30-minute “purchase windows” in which users do not have to re-enter a password have taken much of the focus. In the last two weeks alone, both Apple and Google have updated their platforms so as to facilitate greater in-app purchase control.
Yet it is not hard to get the sense that underlying much of the discussion surrounding in-app purchases is a perception that the underlying business model itself, freemium or “free-to-play”, is somehow a bad thing. A recent EC statement seems a case in point. Specific umbrage is taken with games that advertise products as “free” only to charge later and “free to download” games, which are not “free to play.”
A voice for the freemium model is difficult to find – even though it doesn’t take much inquiry to see the benefits. To the consumer it brings lower cost, choice and flexibility. Games can be customised to user need based on interplay between skill, time, sociability and willingness to pay. The vast majority of players (95-99%) spend no money whatsoever. Out of the minority that do pay, the majority spend between 1-5$ per month – far less than they would for a console game.
We should also not forget the role freemium plays as a commercially viable anti-dote to piracy. This is after all an environment where replicability is easy. It is striking that in China, where the high cost of Windows made piracy endemic, freemium has become the pricing model for virtually all games. China has led the way in spreading free-to-play across South East Asia and beyond.
There are broader forces at work. Consumer habits are changing. Users are often unwilling to pay for digital content up front. In the UK out of the 8m users that now download mobile games only 1.3m are willing to pay to download. Freemium tackles this issue through allowing games companies to first gain access to consumers via free-to-play and then engage in a dialogue with them, during which the consumer can decide whether or not they enjoy the game enough to pay for it.
Some customers, albeit a minority, are willing to spend large sums of money on particular products. This is why, as recent Swerve statistics point out, as few as 0.15% of gamers are capable of bringing in as much as 50% of in-app revenue.
Far from a burden, non-paying players are a vital part of the free-to-play process. They are a source of advertising revenue and viral marketing, a comparative value context and a means of finding those players who like a game enough to pay for it.
As Nicholas Lovell proposes, Freemium is part of a revolution in price and value towards individual customisation. In a market where most consumers will not pay for content, traditional pricing models based on “the average price, which satisfied the most demand” are no longer applicable.
Indeed, Lovell is not alone in suggesting, that ever lower hardware distribution costs alongside the rise of 3D printing and the easy replicability it brings to manufacturing, Freemium is set to become a major monetisation model for the physical as well as digital economy.
Platforms have taken steps to alleviate consumer concerns. Business models and the attitudes that underpin regulatory approaches towards them cannot remain in a stationary state. Perhaps its is time for both industry and media to adopt a more positive approach to a pricing model which may dominate the economy of the future.
Photo Credit: Game Fans