The rise to prominence of the freemium business model is indisputable: freemium apps now comprise 77% of the App Store, up from just 4% in 2010. But despite this near-sudden and near-complete shift in commercial strategy, dissent still exists within the mobile gaming industry regarding the strength of the freemium model; some believe that freemium (called free-to-play in gaming) is merely a temporary fad that will soon recede, like a high tide.
I don’t agree with that sentiment; I believe the free-to-play model, when implemented correctly, produces the best experience for both players and developers. And I believe this Christmas will affirm the free-to-play model’s position as the prevailing business strategy in the hyper-competitive iOS App Store.
Most arguments against the efficacy of the free-to-play model revolve around the fact that the vast majority of free-to-play gamers (usually about 95%) never monetize. This is seen as a flaw in the model; surely a business to which 95% of customers don’t contribute monetarily, some argue, should be considered failed. But this line of argumentation is focused too intensely at the wrong segment of users: the point of free-to-play is to allow for the most engaged users to monetize to whatever extent they wish, and to capture more of those users – who are anomalous and not predictably acquired – through consummate accessibility (ie being free).
I believe the arguments against the free-to-play model will appear preposterous after the conclusion of this year’s holiday season, for two reasons: the unprecedented level of growth the iOS platform will experience in the run-up to the New Year, and the App Store Freeze.
A Bumper Year for Apple
Apple set opening-weekend sales records upon the launch of the iPhone 5 on September 21st, selling 5 million units in the first three days of the phone’s availability. This pace isn’t predicted to abate; analysts are forecasting 50 million iPhone 5 units sold in the weeks before Christmas. If realized, this would represent about 15% of all iPhone sales worldwide since the launch of the very first model through Apple’s last full fiscal quarter (which ended on September 29th).
These sales numbers are obviously significant, but they’re buttressed by predicted Christmas sales of the iPad 3 and iPad Mini (which likewise experienced strong opening-weekend sales and are expected to sell 30 million units over the holiday period) in supporting the conclusion that iOS products will form one of the largest gaming platforms ever known – approximately a combined 500 million devices. This level of scale favors the free-to-play model: with such a large potential audience, a game’s user base can reach the threshold at which the 5% of monetizing users comprise a significant absolute number. But more importantly, at such large absolute numbers, communities can form around games, leading to higher engagement (and, thus, monetization).
This is the giant logical hole in the anti-free-to-play argument: once a free-to-play game’s audience size has reached critical mass, non-paying users do provide value to the developer by comprising part of the community that serves as a gravitational field for retaining existing users and attracting new ones. And Christmas 2012 will introduce millions of new users to the iOS App Store – millions of new potential gamers who can download a game instantly and for free and become a member of that community.
The App Store Freeze
From December 21st through December 28th, as it does every year, Apple will “freeze” the App Store charts: whoever is at the top of the charts will remain so, and their apps will be the first seen by App Store inductees after they unwrap their brand new iPad Minis and iPhone 5s. This is a massive boon to those in the charts at the initiation of the freeze: in the period between Christmas and New Years last year, 1.2 billion apps were downloaded with 20 million new devices activated.
Readers from Northern Europe may see some familiar names in the Top Grossing chart for gaming. But what everyone will see is a majority of free-to-play games, some of which have been making headlines recently regarding their inconceivably massive daily revenue bookings. These games are unlikely to be unseated from their chart positions before the freeze, meaning they’ll benefit from the surge in activity the App Store will experience this year.
And with the surge in activity will come a concomitant surge in those inconceivably massive revenue numbers, which will accomplish at least one thing: silencing the notion that free-to-play games can’t monetize. If a developer books a million dollars in gross revenue in a day from a free-to-play game, the idea that the business model driving that game can’t work becomes patently absurd. Perhaps that particular benchmark won’t be reached this year, but surely some new daily revenue high watermark will be set during the App Store freeze. The last of the anti-free-to-play op eds will be written before Christmas
Free-to-play is a disruptive commercial innovation, and as all innovations are, it has been met with resistance by gaming’s old guard. But arguing against an abstraction and arguing against verifiable facts are two different things, and at some point the anti-free-to-play zealots will have to recognize that, even if their conceptual misgivings about free-to-play were correct, free-to-play games are simply making too much money for the model to be fundamentally defective. The first guy to dismiss gravity as a crackpot theory probably looked cautiously suspicious at the time; the guy claiming the same thing as he watches a space shuttle take off simply looks foolish.
About the author:
Eric Seufert is the Head of Marketing and User Acquisition at Grey Area Labs, the Helsinki-based mobile developer behind Shadow Cities. He blogs regularly at ufert.se.