Altabel Group's Blog

Freemium model: carrot on a stick?

Posted on: February 7, 2012

The current topical issue in mobile gaming industry is the freemium business model. If you’re not familiar with the term “freemium”, it essentially means the app is given away for free, but with some content available to buy within the game.
In terms of Android and iOS users, the ‘freemium’ model seems to be the reigning king of mobile gaming. Users are starting to prefer free games that offer in-app upgrades and purchases to unlock new content.
The obvious benefit of this business model is the ability to attract more users with zero cost-of-entry, while generating potentially limitless revenue via consumable items. Both of these factors have made freemium a sustainable and popular approach, especially in the gaming market, where in-app purchases account for 72% of App Store revenue.

However, freemium games are controversial because they entice players to spend money. Many games, for example, create absurdly long wait times unless the user forks over some credits. Others ensure that useful game tools are impossible to get without laying down some cash. Publishers of freemium games have even called on psychologists to help spark a greater desire for users to spend.

Findings released recently by Flurry – a mobile analytics agency – showed that mobile gamers spent approximately $14 per transaction in freemium games on iOS and Android platforms.

Perhaps of more interest is the amount of money that gamers were prepared to spend. Compared to the alternative model where a user typically pays a couple of dollars upfront for the game, once a user has been engaged via the Freemium model they were prepared to spend over $100 per transaction. In fact, contrary to some expectations, whilst 71% of transactions were $10 or under, the 13% of transactions over $20 accounted for 51% of total revenue generated. The suggestion is that the Freemium model merely allows users to decide whether they want to spend or not, and that once they’re engaged and prepared to spend, the revenue generated can be vastly more than the comparable fixed cost sale of the game upfront.

All in-app purchases can be divided into consumables [expendable items such as ammo, power-ups, etc], durables [lasting features such as a new vehicle, armour, etc] and personalisation [profile/character enhancements]. The results show that over two thirds of purchases are consumable items.

As a business model, freemium games are here to stay. What’s most important to understand is the psychology behind these games. In freemium games, consumers are experiencing compelling, immersive entertainment. They feel gratified when they progress, accomplish goals, create a unique world, and in some cases, show off to their friends. In exchange for this gratification, they are willing to spend real money, and lots of it.

Are YOU going to earn some money using freemium model?

Kind regards,
Anna Kozik – Business Development Manager (LI page)
Anna.Kozik@altabel.com
Altabel Group – Professional Software Development

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