games

How free-to-play video games make $2 billion

We all know that superbowl ads aren’t cheap. So picture this, I’m watching the super bowl, and an ad comes on for a mobile game app bearing the headline “Free to play”. I didn’t think much of it, until another “free-to-play” game app was advertised and my son told he me loves it.

What am I missing here?

You’re telling me a company has enough money to cover the $5 million tab for a 30-second Super Bowl slot and they are giving their product away? No way.

Some of the top examples are RIOT’s league of legends, Valve’s DOTA 2, or Supercell’s “Clash of Clans”. On an average day, League of Legends usage reports top 26 million users per day.

Now I’m more than familiar with how well the disruption of free software and applications has launched companies like Google, Slack, Discord, Dropbox, the list goes on. But how do you monetize a free game? Most free software gives you the option to upgrade to a subscription or the free trial ends after a period of time and you have to pay to continue to use it. All that into consideration, I can’t remember the last time a company like dropbox paid for a super-bowl ad. Just how much are these free-to-play games bringing in to bankroll such a heavy marketing plan?

Are they offering a limited feature trial? No. You get the whole game for free.

Do you have to pay after 30-days to continue playing? Nope. It’s free now and forever.

So how do they make their money? Micro-transactions.

These games offer tiny in-game purchases for as little as fifty cents… and boy do they add up. So I did a little research. At the end of 2014 Supercell reported $1.8 Billion (with a B!) in revenue! That means that pricey super bowl ad I saw was paid for in a day’s worth of micro transactions!

League of Legends, on the contrary, hasn’t ever used mass marketing, yet they have the largest player base in the world. They are a free-to-play game, that doesn’t market, and gives $1,000,000 USD away every year to the winners of their massive online tournaments. All fueled by word-of-mouth.

The numbers don’t lie.

This innovative approach of free-to-play video games has proved more than once that it is a lucrative business model. Times sure have changed. When I was a kid, I would feed quarters into an arcade machine before the counter ran out and I would have to start my game over. It’s a testament that the revolution of the internet has changed the possibilities of new-age business models. Even old-school video companies like Nintendo have aimed to bring classic nostalgia to the free-to-play model.

It isn’t a surprise that these models haven’t been tested earlier than a few years ago. As humans our brains are terrible at calculating the implications of 26 million people opting to spend 99 cents to change the color of their character, or buy a small competitive edge in a popular video game. By nature we are terrible at exponential math calculations. That’s why you shouldn’t try to come up with the “next big idea” in isolation.

These free-to-play games are a success because the revenue is crowdsourced.

You can also crowdsource innovation.

Sometimes the smartest person in a room is a group of people. There are no limits to what groups of minds, when entrained toward a common goal, can achieve. If you’re looking to propel yourself to an innovative future, the best place to start is with your very own staff.

Ask me how to tap your staff for some great ideas. They are dying to tell you…