Strategy for Information Markets/Social Games
The rise of casual gaming, or relatively cheaper pc games has grown quickly with casual games representing 2.25 billion dollars in revenue in 2008. Casual games include hits such as Diner Dash , Feeding Frenzy , and Bejeweled and have a demographic which is 74% female. Social and casual gaming is expanding rapidly. In 2011 Social and casual gaming received about half of all game related investments. casual games however oftern operate under the try before you buy business model. Users download a game then purchase a code to unlock the entirety of it's features. There is however especially in the PC arena, the problem of online piracy eroding profits. The game Ricochet:Infinity, had a player base in which 92% of users pirated the game. The piracy problem has lead to a revenue model which derives much of it's revenue from in-game ads and microtransactions in freemium games rather than from initial purchase price.
Farmville, is a farming simulations social network game released in 2009 by Zynga. It surpassed 80 million monthly active users making it the most actively played game in world wide, until it was later surpassed by similar Zynga game CityVille. The farmville user base has since deflated, in large part due to spam curbing efforts by Facebook reducing notifications to invite friends to participate. The revenue model for farmville comes from the purchasing of ingame items for Farmville cash, which can be bought using currency which can either be attained in game or instantaneously for cash. The strong network externalities, free entry and ease of access and automatic advertising brought about its rapid success. By integrating with facebook, it became much easier to establish a social relations in farmville. It also exhibits several psychological hooks which help engage the user base to the level where people start paying for in-game assets. For one many of the ways in which items are required are random and require a very intensive use of farm cash. You get between 5-6 farmville dollars for a U.S. dollar depending on the number purchased. They are used to buy decorative items for a farm. There is a slot machine as well as several other methods which give random rewards. They can also be used to purchase in came coins in order to speed progress through the game and customization. Farmville requires that you add a certain number of neighbors in order to expand, this provides strong network externalities making the desire to expand great. Neighbors can tend each others crops and send gifts to one another. The player base of Farmville is largely nonpaying however, and a small fraction generate most of the revenue from Farmville.
The advantage of freemium model is that it enables free entry, but the micro-transaction model can allow users to spend extreme amounts in order to maintain their standing in a game. One notorious instance of this is in the Chinese MMORPG ZT(ZhengThu) online. ZT Online was the most popular Chinese online game in 2007-2008. While there is not fee ofr entry, all items are gained by opening chests with keys that cost money real world money. Once chests are opened a roulette style indicator randomly selects the items from a an alluring list containing items of varying degrees. The rarest items having a very low probabilities of selection. This creates gambling mechanic for virtual goods, and an addicting and stratified power structure. Rewards for opening the most chests in a day further spur on users to spend large amounts on the game.
In the third quarter of 2007 ZT online had an average revenue per user of an impressive RMB 305.2 48.41 dollars This is particularly high for a freemium game and represents the fact that micro-transactions are an integral part of playing the game, woven in with the addicting psychology of gambling.
League of Legends
League of legends is an action strategy game released by Riot games in 2009. While matches take place between teams of 5(sometimes 3) in independent instances, there are several persistent elements to the game, such as summoner level runes and accumulated champions. Customizable character skins which can only be bought for the games virtual currency. AS with many virtual currencies, the appeal is twofold, not only does it add a small degree of separation from real world money, but virtual currency is generally purchased in denominations that differ from the prices of in-game assets. This results in an increased desire to spend with the sometimes perpetually left over money. The System is setup so runes, which raise the statistics of in-game characters, are purchased via influence points, a currency gained solely through in game play(Although boosts which multiply the amount gained from play can be purchased for riot points). There is also a second in game currency, riot points which can be only be purchased using real money. For each match the player selects a champion with which to play, they can either select from one of 10 free champions, rotated randomly on a weekly basis, or from a champion they have purchased. Champions can be purchased either through riot points or influence points. Purchasing them through influence points however is extremely time consuming and detracts from one's ability to purchase stat raising runes. This inspires players to spend money to permanently unlock champions they desire to play, as well as skins to customize the champions their favorites. Since skins can only be bought using riot points, players are paying to express their identity, sometimes $10 or more per skin. This along with a constant stream of new champions allows for some players to pay large amounts of money while others can buy few or no champions.
The company behind farmville, CityVille is one of the largest social gaming companies. In Feb 2012 they reported a revenue of $311 million with an average of $2 per user. With only about 3% of the users paying, Zynga relies on a small segment of large spenders to generate the it's revenue while the rest of the users provide the competitive environment will take place.
In order to foster a more competitive atmosphere as well as increase the overall play base, Riot games has invested heavily in the competitive scene. With a $5million dollar prize pool announced for the second season of League of legends, including a $2 million dollar finals. This move is designed to grow the userbase for league of legends as well as increase the number of hardcore users as they contribute largely per user in order to remain competitive. In February of 2011 Riot games was purchased by Tencent, a Chinese internet holdings company for $400 million dollars.
The stigma of paying for success
The important aspect of League of Legends is that while many trappings of success can be bought it has avoided the stigma associated with too much influence from money in the game. Stat changes from runes are only influenced marginally by the spending of money, and champions in the free rotation come from the list of buyable one's so there's no inherent disadvantage in paying for progress. This has prevented a mass disuasion of free users as one would see in games such as Zt online. The important part is to balance the act of encouraging payment while still providing incentives for free users to say on board, since a large player base is necessary to sustain itself in the tippy online market.