Video Game Monetization Strategies

The purpose of this article is to provide a lens for understanding and evaluating monetization strategies in games. It’s a topic that requires considerable effort to understand due to the complex and interconnected nature of various approaches. In order to assess the ethics and quality of a strategy, the details matter a great deal. I hope this tour provides a framework that will help facilitate productive discussions for the gaming community as we navigate the challenges of building and maintaining a sustainable environment for gamers and developers. There is an important related topic of in-game currencies, but it will not be addressed in this piece to reduce scope. Topics covered include identifying the ways game content is sold, assessing direct content purchases versus random content purchases (loot boxes), cosmetic content versus gameplay content, content that offers a competitive advantage, the cost of purchasing content in money versus time, and viewing this space through the lens of behavioral psychology.

The most traditional monetization approach is to sell a game in its entirety for a single purchase price. In addition, developers sometimes release game expansions that offer additional game content for a fixed price. As digital distribution has become more popular, this has evolved into downloadable content (DLC), which can deliver large new expansions or small content upgrades for a fixed price. As games have become increasingly online, multiplayer, and designed to live indefinitely, new monetization strategies have been developed. Some games offer subscriptions where players pay a monthly fee to play on the game servers. Other games offer a free-to-play model, where players can play some of the game for free, and are able to purchase premium content that somehow enhances the experience. This premium content is generally purchased in bite-sized chunks, known as microtransactions. These microtransactions can provide permanent content that lasts indefinitely, or consumable content that can be used once and then must be repurchased. Games have experimented with many combinations of these various monetization strategies.

Regarding microtransactions, content can either be purchased directly or through randomized content packs known as loot boxes. When content can be purchased directly, it is much easier to evaluate the value of the transaction. Randomized content is more difficult to assess because the player must purchase the content before knowing what she will get. Loot boxes frequently contain content of different rarities, such that highly sought after content is very unlikely to appear. In addition, even within the same rarity tier, some content is considered more valuable based on its popularity or strength in the context of the game. Some regions such as China requires developers to publish the probability distribution of their loot boxes, which significantly increases transparency. It doesn’t however address the difference in desirability for content of equal rarity, but is clearly a step in the right direction. Questions to ponder: What is the value proposition of taking away control of what content players can purchase? Should players have the choice to purchase content directly in addition to having the option of loot boxes?

Purchasable content generally falls into two categories, cosmetic content or gameplay content. Cosmetic content provides an aesthetic enhancement without impacting gameplay. Cosmetics allow players to express their personal taste and style, and can also serve as a status symbol, especially when cosmetic content is associated with a player’s skill ranking or social standing within the game. Gameplay content could mean improved gear/equipment, upgrades that directly increase character strength, or temporary boosts that work for a while and then wear off. When microtransactions are purely cosmetic, it means that players who choose not to monetize receive the same game experience, which is especially important in competitive games. When players are able to purchase gameplay upgrades that increase a player’s strength relative to other players, it creates a class disparity where paying players have a competitive advantage over non-paying players. The percentage of players who choose to monetize in free-to-play games is generally below 10%, creating an environment where the vast majority of active players play with a disadvantage. Questions to ponder: What are the long term implications of the increased churn and damage to player trust when players are able to purchase power? What is the difference in player perception of loot boxes that contain cosmetic versus gameplay content? What is the difference in perceived value of permanent content versus consumable content?

Free-to-play games typically allow players to slowly earn content by playing the game without requiring them to pay. This section will get the most wonky, but I will use a concrete example in an effort to make it more understandable. Imagine a game that allows players to earn 1 loot box for every 1 hour they play. A loot box can also be purchased for $1. Therefore an engaged non-paying player might accrue 1 box per day for a total of 30 per month. A paying player could spend $30 each month to keep up with the non-paying player without putting in the the time each day. In this environment, the rate at which the non-paying player earns content compared to the cost of the content is understandable, where one can imagine a non-paying player keeping up with the pace of a monetizing player. Imagine a different game that requires 10 hours of gameplay to earn 1 loot box. A loot box can also be purchased for $5. In this game, a non-paying player who plays for 1 hour a day will only earn only 3 loot boxes per month, while the player paying $30/month earns 6. In this scenario it will be very difficult for the non-paying player to keep up because the paying player purchases twice the content that the free player earns.

This example is meant to illustrate that the price of the paid content relative to the amount of time required to earn the content is VERY important. If the ratio of cost versus time is imbalanced, non-paying players will be at an unrecoverable disadvantage. To state it another way, requiring a large number of hours of play per loot box makes it very difficult for non-paying players to keep up. It’s worth noting the paying players have no upper limit to the amount they can spend, while the number of hours a player can play has an absolute limit. Questions to ponder: What is a player friendly ratio of the time it takes to earn content relative to the cost of the content? If loot boxes require many hours of gameplay to earn, what are the engagement implications for requiring many sessions that result in no reward?

Behavioral psychology is a subject relevant to everything that involves people, making it one of the most powerful, cross-cutting, lenses, by which we can analyze a topic. Entertainment is an industry that aims to delight and surprise. At a fundamental level it taps into the way our brains work, on a conscious and unconscious level. From heartwarming family films to a survival horror game, in order to invoke the desired experience, creatives must understand behavioral psychology. It’s important to remember this as we assess the ethics of various business practices because this topic is pervasive, and applies to all mediums and business models.

Regarding microtransactions and loot boxes, operant conditioning is an extremely important concept to understand. Skinner’s classic experiment is summarized as follows. If a rat presses a button and receives food, it will quickly learn this relationship and press the button when it is hungry. If pressing the button does nothing, the rat will stop pressing it. If however, food comes out at only sometimes when the button is pressed, this will create a compulsive behavior whereby the rat will constantly press the button. This behavior is very durable, meaning that the rat will continue pressing the button for a very long time, even if the button is disabled and no longer vends food. This is the phenomenon that explains gambling addiction and related behaviors. It also offers an uncomfortable insight into why games might be increasingly offering loot boxes instead of selling content directly. It’s important when assessing the ethics of a monetization strategy to look at it through the lens of behavioral psychology. Strategies that take advantage of this apparent defect in our wiring are suspect and should be closely analyzed. An example of a malicious practice is the ‘near miss’. An example is a game that shows potential rewards on a spinning wheel. Frequently the wheel is packed full of extremely rare content, giving the appearance that these items are likely to be won. The wheel might slow down near the end, tantalizingly hovering over a highly coveted reward. Then the wheel ticks one further and the player is rewarded with a common, uninteresting prize. This is a particularly pernicious practice because it is a complete fiction. The real probability of earning those rare prizes is vanishingly small, and the odds implied by the contents of the wheel are designed to entice players to spin one more time. While I have aimed to withhold judgment on particular practices for much of this piece, I will state strongly and clearly that exploitative practices like this are ethically and morally wrong and should be actively shut down. Companies have been fighting against being held accountable to gambling regulations because the rewards of these slot machines cannot be converted back into cash. This is a ridiculous loophole because the exploitation is occurring on the front end, where people are being manipulated to spend real money on a cycle that takes advantage of the way our brains are wired.

I will conclude with a few case studies to test whether this framework helps assess the merits and potential pitfalls of specific strategies. I hope that this piece will facilitate a more thorough assessment of monetization practices and help players hold companies accountable for practices that exploit or otherwise obfuscate what ought to be a clear transaction of trading money for goods/services.

Hearthstone

Hearthstone is a competitive collectible card game (CCG) created by Blizzard. It pits players in head to head matches that last ~5 minutes.

How game content is sold

Direct purchase versus random chance

Cosmetic content versus gameplay content

Purchasable content that offers a competitive advantage

The cost of content in money versus time

Lens of behavioral psychology

Conclusions

By offering the core experience for free, providing a consistent and understandable path for unlocking content, and allowing players to earn content at a pace that allows non-paying players to stay competitive, the overall experience is quite player friendly. Offering an easy to understand path for obtaining specific cards, and probability tables designed to ensure players obtain rare cards at a consistent pace, demonstrate an orientation of prioritizing the player experience ahead of the monetization system.

Star Wars Battlefront II

Star Wars Battlefront II is a game published by Electronic Arts. It is a large scale action shooter that includes single player and multiplayer experiences.

Note: EA announced on 11/16 that based on community feedback, they are suspending all microtransactions as they are “listening, adjusting, balancing and tuning”. This case study is based on the design of the system that was intended for launch.

How game content is sold

Direct purchase versus random chance (loot boxes)

Cosmetic content versus gameplay content

Purchasable content that offers a competitive advantage

The cost of content in money versus time

Behavioral psychology

Conclusions

Combining a full purchase price that does not provide all content, progression offered only through random loot boxes, loot boxes containing content that provides a competitive advantage, a very high time investment required to unlock content, and no mechanisms for direct content purchases, results in a less player friendly experience. Potential improvements could include a progression system unrelated to loot boxes for gameplay content, a friendlier rate of earning content unlocks, and the ability to directly purchase desired content (though this may fit more naturally into paid DLC post-release). Within the last couple of days it sounds like some of these improvements may already be coming.

For additional discuss around loot boxes and related topics, join Derek Lyons and I in our recent podcast episode discussing the topic (link)

Disclaimer: The opinions and voice of this article are my own. I have never been involved in any monetization discussions or projects at my employer, nor have I seen any non-public information about our approach to monetization.

The original version of this article can be found on medium here