Inside Social Games

Free-to-play MMOGs are becoming increasingly common these days. By building revenues around sales of digital goods, developers can avoid making users pay for monthly subscriptions. If users become hooked on the free version, they are more likely to purchase virtual goods and services to monetize their experience.

But it’s hard to measure how successful this revenue model is based on how the industry culls data. Typical revenue reports deal primarily with average revenue per paying user (ARPPU). Rarely do these reports look at non-paying users, or average revenue per user (ARPU).

In a recent article in Gamasutra,  Paul Hyman talked with industry leaders such as Daniel James of Three Rings Design, Raph Koster of Metaplace, and Jeremy Liew of Lightspeed Venture Partners to hear their perspectives on this model. While all three brought some interesting insights, James’s take was based on specific numbers he shared.

According to James, his firm’s Puzzle Pirates game brings in roughly $50 a month per paying user. This equates to about $230,000 per month in microtransaction revenue. A subscription version of this game, by comparison, pulls in $70,000 per month. James estimates that about 10 percent of his user base has ever paid the company for their experience.

“The pivot number,” says James, “is not the $50 ARPPU, but the $1-2 ARPU [average revenue per user that Puzzle Pirates generates].” He says an ARPU of $3 would be considered great, while $0.20 would be cause for concern.

More costs are built into operating subscription-based games versus free-to-play. Free-to-play games are generally easier to manage than mainstream MMOs like Everquest or World of Warcraft.

Raph Koster of Metaplace pointed out that companies utilizing this model also don’t have to deal with the costs of box sales, distribution, or significant marketing. Free-to-play games spread through word-of-mouth and, more recently, the social graphs of various social networks. Since they are free, non-gamers are more likely try them as well.

Jeremy Liew of Lightspeed says free-to-play titles represent an opportunity for younger, smaller companies. According Liew, a lot of larger companies (EA for example) become locked into their everyday routines. Though traditional methods have been successful for them, it “can sometimes blind them to the things they need to do to become successful.”

Free-to-play games that monetize through virtual goods and are distributed across social platforms are increasingly common today, and we expect to see more in the coming years. So long as the creators can create an interesting, dynamic world, they will reach that $1-2 ARPU mark.

Read the full article here.