Missed Revenue: The Console War Against Free-to-Play

Consoles have much to learn from the PC and mobile games sectors. The latter is arguably transforming the entire games industry, in part due to its broad user base and largely because it actively implements flexible monetization models, which originated from the first free-to-play PC games back in 2001.

At a steady but slow pace, both PlayStation and Xbox have introduced a selection of free-to-play titles albeit without much fanfare nor the headline grabbing stats some PC and mobile free-to-play games have touted. Understandably, free-to-play is not the first priority considering record-shattering GTA V sales and the strength of COD: Ghost and other major franchises. Not to mention the recent hardware sales boom this past holiday season; retail is clearly still the driver of the console game market. However there is no denying the rise in popularity (and revenue opportunity) of F2P across game segments – from Candy Crush to Clash of Clans to the PC juggernauts CrossFire, League of Legends, Dungeon Fighter Onlineand World of Tanks. $1.5B in combined sales for the first two titles listed here in 2013 (SuperData). These titles exemplify a fundamental shift in consumption and spending amongst core gamers, and the console market must take heed.

From the most basic of all monetization strategies, consoles are ill prepared. Perhaps the most important aspect of free-to-play monetization is simply allowing a gamer to pay. Consoles across the board simply do a bad job at allowing gamers to give them money. Sure credit cards are great in the US and for those without credit, it’s easy enough to buy a pre-paid card; but in Europe and other territories where credit is not favored, gamers are left with few or no options at all. This results in a nearly 60% missed revenue opportunity in Europe and an even greater number in other markets around the world such as Latin America. Allowing players to pay is the first fundamental rule of free-to-play monetization.

I offer this simple plan to the console market:

1. Localization of Payments

The first step in optimization is the localization of payments—consoles need to give players a way to pay.

Game publishers who want to sell their content on a global scale often struggle when choosing among payment methods, often settling for credit cards only, which on average represent a missed revenue opportunity of 50-90 percent in an international context. With localization of payment methods, publishers can jump-start their global digital sales in a quick, cost-effective way; while consumers benefit from the product’s global payment coverage that allows them to buy digital goods with their preferred payment method no matter where they are located. Localized payments are intuitive and are essential to monetize free-to-play games.

2. Target the Right Audience

Free-to-play gamers get hooked fast and, since there is no cost up front, the acquisition funnel tends to be wide. The challenge is to move them from player to payer as efficiently as possible (while preserving the fun, challenge and fairness of the game).

Developers first need to understand their user base and define them into cohorts based on a) game play patterns such as character class selection b) engagement level c) monetization level d) influencer level and e) acquisition channel. Only then can they create offers and prices targeted to users based on metadata gathered in the segmentation.

Offers given should be tracked and optimized by segment, creating merchandising campaigns to incent heavy users or influencers to stay with the game (mitigate churn) and generally develop promotions to reward accomplishments. Further tracking and optimizing should be done on a continual basis; and rewards should continue too, in a pay-to-play model. This method turns players also into payers. These techniques are fundamental to increasing average revenue per paying user and mitigate churn.

Wargaming.net CEO Victor Kislyi summed up the cycle well, when speaking about the company’s 15^th anniversary:

Like movies, there are lots of genres: there are horror movies, there comedies… the same for free to play, there are different genres, different audiences, different platforms like iPad, PlayStation, PC. So your free-to-play has to be tailored for your particular game and your particular audience. And it’s always changing, it’s never perfect, so it’s never ending research and development.

3. Applying Tools for Monetization

Finally, the current model for most console developers is packaged goods-based instead of services-based. Despite the contentions of “monetization managers” within a given publishing company, switching to a successful services-based model begins at a studio level with the buy-in of the design and development teams. For success game mechanics need to offer both a compelling game play experience that dovetails into the overall business strategy.

With a games-as-a-service approach, the console market can ensure that developers are given the appropriate set of actionable insights and tools to understand how game play, measurement and optimization work together with design, in order to develop an effective funnel from payment conversion rates to increasing ARPPU and promoting retention. Analytics, management and merchandising tools are critical, in order to continue driving lifetime value and exceeding acquisition costs with healthy margins.

By employing these techniques, from the publisher to the development studio, we will see console games having the kind of free-to-play success that their mobile and PC cousins are enjoying today.

--

About Live Gamer

Live Gamer’s mission is to stretch the boundaries of what’s possible and profitable in the ever-evolving economy for digital goods, content and services on a global basis. With the vast capabilities of a dynamic, talented and global team, Live Gamer delivers a broad set of e-commerce solutions to clients across industries including games, media and entertainment and finance and technology, all around the world. 

Headquartered in New York with offices around the world, Live Gamer is led by a strong management team with proven success in the digital space. With more than 120 enterprise clients transacting in more than 180 countries, Live Gamer’s goal is to be the partner of choice for monetizing and optimizing new streams of revenue for leading digital businesses today.