'Freemium' beats advertising for online games

Danc at the Lost Garden blog has written up an excellent analysis of why Flash games are great, but represent "the ghetto of the game development industry" in terms of revenue generation.

Compared to the number of players it serves, the Flash game ecosystem makes little money, launches few careers, and sustains few developer owned businesses.

There is too much reliance on advertising and not enough on sustainable paid methods, or "offers" such as subscriptions, in-game consumables, and level un-locking to encourage people to pay--and create an actual business.

There is no need to limit yourself to any single one revenue stream. There are lots of different types of players and each player values something differently. Some players may be willing to buy a t-shirt. Others may want 5 stackable subscriptions. Others may just want a pretty new character with a panda head. When you restrict your game to a single revenue source, you miss out on gaining money from all the different types of customers that would have paid you if you had just given them the right offer.

The above quote is getting at the real heart of the "freemium" model--you have to find some reason for people to pay you, in addition to getting your services for free. Odds are you can find several, but the more options the better.

The key is to "tell the player what they are going to receive in return for their money. If people don't understand the promise of what they are buying, they won't pay." This rings true not only for games but also for software--especially open-source software that is often perceived as totally free.

Users often aren't aware that they can get something of additional value, and one of the main goals of the business behind a freemium product is to make that value explicitly clear.

The full article is definitely worth a read.

(Via Jeremy Liew)

Follow me on Twitter @daveofdoom.

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