Freemium Monetization with Paywalls

Niklas Herriger |
2014-05-05
How do your players like your paywall?

With the incredible success of the freemium monetization model in the mobile space, Game Economies (or more accurately: Virtual Economies) have become the go-to monetization method for the entire industry. Even the conservative console market is starting to use the freemium model in some games with Sony reporting promising numbers relating to PlayStation 3 and 4.

At the same time, freemium has become a new evil, creating the so-called "paywalls" which are essentially obstacles that prevent users from progressing further into the game without paying money. These paywalls are as appreciated as the Berlin Wall once was. Players are complaining left and right about being taken advantage of, and in some circles the concept of "free-to-play" is considered to be nothing short of fraudulent. All of a sudden, people are happy to pay for apps, and the formerly hated banner advertising is "tolerable," while IAPs (in-app purchases) are the devil's children.

Is Freemium good or evil?

The truth lies somewhere in the middle. Sure, there are examples of games that try to milk players for every last cent. EA recently attracted an outrage when it released a new version of the beloved classic Dungeon Keeper. For TouchArcade to give a classic like that a 1-star review, something clearly went very wrong. Another article actually stated that "Dungeon Keeper isn't the first example of a business model completely destroying any semblance of gameplay or fairness from a mobile title. and I'm pretty certain it won't be the last." EA had tried to milk its players, and they paid dearly for it.

But there are also countless examples of carefully crafted freemium games that enrich all of our lives with awesome playing experiences that are truly free to play. And while the right design of a freemium game and especially its money-generating virtual economy largely depends on the game's genre and specifics, there are some commonalities that seem to differentiate the hated games from the loved ones.

Paywalls

If a game's virtual economy is almost exclusively used to make money (as opposed to generate depth and fun), chances are high that this will be noticed by its players fairly quickly. People hate the feeling of being taken advantage of, and they will object if it persists. From a game developer's perspective, it might seem unfair for players to be so unforgiving in light of the fact that they downloaded and played a great game that cost $100K (or $1M) to produce completely free of charge. But this is just an app developer's life.

Exploitation

The best way to ensure being trashed for "exploitation" is the excessive use of paywalls. They come in countless forms. Unsophisticated paywall games try to monetize their players right away, thereby accomplishing nothing short of driving them away before they even had a chance to get into the game. Clever paywall games, on the other hand, cash in on the same principle as a 2-hour TV movie that doesn't bother the viewer with ads for the first 30 minutes (the point in time when you are "invested" in the story) and then hammers him with commercial breaks every 8 minutes until the very end. Similarly, games manage to "lure" a user in and then try to monetize as aggressively as possible once the user has reached a certain point of engagement. They then put 95% of their content behind the paywall and choke the player to a complete standstill unless he pays repeatedly. Only really engaging games can get away with this. We all know of certain match-3 puzzles that have even made our moms pay for IAPs...

Pay-to-win

In some free-to-play games, players who are willing to pay for special powers, weapons or other features gain a significant advantage over those playing for free. This "pay-to-win" concept can be considered a paywall variation. It becomes particularly relevant in scenarios where players compete with one another directly (multiplayer games) or indirectly (leaderboards, highscores). Some argue that players are not forced to spend in order to progress, while others say that the fact that sheer game skill can be completely outweighed by financial commitments will make true fans abandon a game, thereby hurting both its reputation as well as profits in the long run.

Energy Systems

Another variation that has recently become very popular is the so-called "energy systems." They inhibit the player by only allowing for a certain number of continuous rounds of play before requiring "recharging." Example: think of a racing game where the player's 8 gasoline units in the gas tank represent 8 rounds of gameplay. Once empty, the energy (tank) recharges itself through passage of time. Players can avoid that detour by spending money to either recharge (and oftentimes simultaneously enlarge) the tank or eliminate the restriction altogether.

Energy systems have however also been the subject of frequent complaints, mainly because they seem to be completely artificial instruments of restrictions in most games that are only geared towards monetizing the player. For that reason, some people actually call them "soft paywalls."

Selling an enhanced experience

Virtual economies can also serve different purposes, and it is equally sad and unfair that many games that do not deserve the "exploitation" label are thrown into the same category just because they are free to begin with, feature a virtual economy and offer some sort of IAP.

The biggest difference is this: games in this group predominantly view game economies as a tool of generating fun and content depth. The virtual economy aids the gameplay, rather than obstructing it. Parker's classic board game "Monopoly" is a great example for an entire game that is solely based on and around the concept of a virtual economy.

By the same token, video games employing virtual economies have been around for at least three decades. Do you remember the items Link could buy in the little store in "The Legend of Zelda" on the NES in the 80s? Yep, 100% virtual economy, even back then! At the time, there were no App Stores, no IAPs and not even the Internet. Neither Nintendo nor anybody else could capitalize on their virtual economies. So why did game developers implement virtual economies in the first place?

The answer is simple: to give the user a better experience, to make their games longer lasting and more engaging, or simply put, to make their games better! We have all played games where we couldn't wait to get the new gun to finally take on that endboss, where we played all night to make enough coins so that we could afford the new engine, or the armor or the magic potion the next day. Virtual economies motivate, they give us things to aspire to. They are therefore an awesome tool for making better games.

So how do we create great freemium games that keep players happy? By allowing them to organically make sufficient virtual money by playing the game to sustain themselves in the virtual economy. And how can we monetize them simultaneously? By offering them the various opportunities to either enhance their playing experience or accelerate their game process by virtue of spending actual money. Buying an upgraded weapon, a pack of time boosters, a coin doubler or unlocking a new world, all these things, if done right, enhance (improve) the playing experience and provide true rewards to the player. And players who feel rewarded don't feel exploited.

Conclusion

For the vast majority of freemium games, a paywall concept is not suitable. More often than not game developers end up not only facing enraged users, but also harming their very own financials by trying to monetize players too early or too aggressively (or both), thereby simply driving them away before they ever spent any money.

If you have a truly sticky game and want to make the most money you possibly can, there is no way around paywalls. Despite all the complaints, paywalls are not per se wrong. We have heard producers in major game companies say that "you are not monetizing aggressively enough if you have anything above a 2.5 star average review." Others say that if you do not get the occasional curse from your players, you are not engaging them heavily enough. It all depends on the developer's individual perspective and goals. And, if implemented into the right game, there can be no doubt that paywalls are responsible for many of the Top Grossing games out there today.

But you can also monetize your users without exploiting them. Your game economy will be appreciated if it offers an enhanced experience or accelerated progress for money, not the ability to progress at all. Always allow players to move through the game without having to pay money if they are willing to spend ample time. Yes, you might not monetize as well as with a more rigorous approach and leave some money on the table. But you might have also done yourself a great favor and monetized your game perfectly by withstanding the temptation to overdo it. Either way, your game will probably be much more liked, and you might make up for the decrease in initial monetization by increased user retention and therefore increased LTV (user lifetime value). Moreover, there is strong chance of improved user acquisition courtesy of great reviews. After all, these are the factors that are largely responsible for how much money you make at the end of the day. A game is kind of living thing, and it gets better the more carefully all competing interests are balanced.