Freemium Is Irresistable, Even For Successful Game Companies

The freemium debate continues to rage on. Some say it’s the future of how business will be run, while others say it’s synonymous with casual games (read: not for hardcore gamers). Now the tide appears to be changing for the latter group, spurred by the success of companies like Supercell (Clash of Clans’ maker) and King (which makes Candy Crush), that have inverted the model for free and picked up huge, dedicated gaming audiences in their wake.

Rajeev Chand, managing director and head of research for Rutberg & Company, said that one of the biggest drivers moving everyone to freemium is simply that in-app purchases are generating a whopping 70 percent of game revenues today.

Moreover, venture capital investment in mobile gaming was $224 million in the first half of 2013, as compared to $107 million over the same period in 2012, he said. He noted that this year’s investment has been buoyed mostly by Supercell’s $130 million round.

To look at it over the years, venture investment in mobile gaming was $185 million in 2012, $228 million in 2011, $118 million in 2010, $59 million in 2009, $35 million in 2008, and $14 million in 2007.

He explained: “The takeaway is that mobile gaming has seen a significant increase in venture investment over the 2010-2013 time period as compared to 2007-2009 because of the high profile successes and exits such as Rovio, Supercell, Ngmoco and Omgpop.”

Rovio makes the Angry Birds franchise, Ngmoco was acquired for $400 million in 2010, and Omgpop got acquired by Zynga for $200 million after its smash-hit, Draw Something (although Omgpop has since been shut down).

Chand said: “Freemium is here to stay… Gamers hate in-app purchases, but they are still playing and buying.”

Hopping on the freemium bandwagon

The trend seems to have resonated with several game companies, which are moving over to freemium models, in spite of having enjoyed success with traditional monetization models.

Boomzap Entertainment is an eight-year-old studio that has had many of its titles published by big names such as Big Fish Games and Reflexive Entertainment.

The company has survived, maintaining its full-time employee base of 85 on its stable of paid games that are generally priced at the $14 mark.

Its co-founder, Allan Simonsen, is vocal about “abhorring” the freemium model. And yet the company is breaking away from its tried-and-tested base to get on the freemium bandwagon.

Simonsen said the freemium trend is one that is hard to ignore, given the wild success of some of its forerunners..

With Boomzap relying on Big Fish for the “vast source of (its) income”, going freemium may allow it to diversify its publisher relationships, he said. “We have to find partners that have the right understanding and learn from them.”

The company released a freemium title called Brain Curve in May, and another which has been picked up by a publisher will come out later this month.

“We’re experimenting with pure free-to-play models, with consumable in-app purchases, and other in-app purchases like content add-ons,” he said.

Still, some factors may push against freemium’s reign in the long run, said Simonsen. For one, user acquisition costs have climbed up to about $5 – $8 for US and Japanese users, and there is bad sentiment in the industry, thanks to events like EA pulling the plug on its Playfish subsidiary, which wiped out a lot of users’ virtual currency.

“And personally, I prefer Shareware and the paywall, because I feel it’s the most honest relationship between the user and developer—I let you play, and if you like it, you give me money,” he said.

Another game maker, Witching Hour Studios is hardly considered a casual game maker. Its 2011-released title, Ravenmark: Scourge of Estellion, is a turn-based strategy game with a 30-hour story campaign that has won rave reviews.

Brian Kwek, co-founder at Witching Hour, said the company had to tweak its pricing before arriving at the relatively high price of $9.99. “We launched Ravenmark at $2.99, and people thought it was a steal,” he said. When it raised the price to $4.99 after packing in more content, people started to balk.

So the studio raised it again to $9.99 after another update, which ironically got people saying it was cheap again. “We got comments like, this would cost $30 on the Sony PSP or Nintendo DS (handheld consoles). This underscores the old idea that there’s a sweet spot to premium pricing and the consumer perception of value,” said Kwek.

In spite of its success with the first title, its latest sequel, Ravenmark: Mercenaries is a freemium game.

Kwek explained: “Since the market at large is being weaned on the freemium model, we think adopting free-to-play will help up transition to building a gaming brand with that wider audience who would not pay upfront.”

He acknowledged that the flip side of going freemium is alienating gamers who consider themselves above “casual games”. The game mechanics are set such that it doesn’t favor paying players, he said.

And getting itself in front of more users is the main goal of going freemium. The pay-off that Witching Hour hopes for is merchandizing and spin-offs such as a possible animated series, for example.

The team is aiming for a base of at least 300,000 active players, which will justify the cost of building it. The original Ravenmark attracted just over 100,000 downloads, said Kwek.

Check out the story trailer for Ravenmark: Mercenaries here: