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I'm trying to research the ways in which games make money. I want to know more about the models they use (free/premium, trial/subscription, free-to-play with micro-transactions, etc.). In addition, I want information on which models work for which games, what models are best for which age groups, etc.

I've tried my best to find information, and Google hasn't turned anything up at all. I think I'll stop by my University's library and see if there's anything there.

This may seem like a broad question, but I'm looking for links and titles of books, not typed-out answers.

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You should alter the title of your question if you want to focus on books/articles. –  benzado Apr 3 '12 at 23:00

4 Answers 4

up vote 23 down vote accepted

The main models I can think of are:

  • Charge per copy - the traditional "software licensing" model, you charge your customers a retail price to "buy" a copy of the software and the subsequent right to install or play it. This is still a dominant model for software of all kinds including PC, console and mobile device games, even after the introduction of other feasible models. Games of all genres from FPS to MMO to arcade and puzzle games use this model to great effect, but it's probably the least accessible method to the average one-man dev house.

  • Monthly subscription - The next most popular licensing model, regardless of what the software initially costs the user, they sign up for access to dynamic content on a monthly basis. This can be combined with an initial software price. MMOs are the foremost genre that benefits from this and there are a lot of examples; however, there are a lot of MMOs that do NOT charge a monthly subscription fee. Guild Wars is the one that comes to mind, because I played it specifically because it wasn't WoW.

  • Microtransactions - This is a relatively new model, first seen in MMOs and then spread to "social apps" a la Facebook. The idea is that the program may be free to install, free to play, but to get the "most" out of your game experience (or to progress quickly within the game) you can spend real money to buy in-game objects. The first I heard of this kind of thing, it was underground; Diablo 2 and WoW players would "grind" through dungeons constantly, acquiring rare items, that they'd then sell on eBay for real money with the trade consummated in-game. Blizzard cracks down on trades for real money between players pretty hard, but other game devs have embraced the concept for their own gain. Entropia allows users to deposit and withdraw money from the virtual world, and people actually make a living in the real world by running in-game businesses. Even Blizzard allows you to buy in-game gold with real money (but you can't "cash out" like in Entropia, and there are certain things that you'd be hard-pressed to spend any amount of gold to buy). Similarly, Facebook apps are a HUGE cash cow, with companies like Zynga and Maxis offering titles like Farmville and Sims Social where normal play is free, but you can pay for virtual objects to spruce up your little corner of the game (often, paying real money is the only way to acquire certain highly-desirable items).

  • Pay-per-play - Very point-of-sale-based gaming. Your customers pay you for a finite unit of play. Obviously arcade games are the first thing that comes to mind, but the model generally holds for online casinos, video poker machines, etc. However those are the main genres of games that use this model effectively; most users would balk at a game they download to their phone or XBox that charges their account based on the number of times they play it. However, pay-per-use is a valid model for certain other mobile device apps, such as for navigation, song identification, etc etc.

  • Ad-based - A lot of mobile device games are monetized using this model. Free to install, free to play, but the game display features product placement for which advertisers pay the rights holders. This can be straight up ad displays along the top or bottom of the screen, or it can be more subtly integrated into the game; an MMO based in the present-day or near-future might put real ads on "billboards" and charge advertisers for the online billboard space much like a real-world billboard owner would do. Basically any game with "real estate" that can be devoted to ads without disrupting gameplay would benefit from it. It's really taken off with mobile devices, as previously mentioned, because you as a game dev can put your work in the app store free for the downloading, but still make money. Certain genres like FPSes are less effective with an in-game ad model, as a dedicated place in the "HUD" for ads must be out of the way by necessity, and players are focused more on other players than background elements like an ad banner as a texture on a wall in the map. But, things like loading screens become a natural place for ads, because the user is just watching and waiting and so is a pretty captive audience for a full-screen ad panel.

  • Provider billing - You can make money from a game by selling it not to an end user, but to a provider who will then offer it to the end user using their own model (usually pay-per-play, but they may absorb the cost). Usually this is in the form of an arcade game that you sell to a business owner, who will drop it into their store as a change-catcher. However, the model may also work as a "drop-in" to an online website (as an embedded object, most likely a very simple puzzle game), by charging people who host game servers (beyond the cost of a license for the game server) or as a "benny" for subscribed users of some other service (sign up for Dish Network and get unlimited access to our MMO from your TV or a PC with an Internet connection). This would generally work for dynamic-content games like MMOs, and also for very simple "applets" that web portal companies can drop into their site as an amusement for a nominal per-play fee, or for free. However, there has also been money made in charging by the hour for access to retail games, with multiplayer environments hosted on private servers.

These are the models most suited to game development that allow you to profit from the game itself. However, there are other ways to profit from the IP of that game:

  • Merchandising - Doom, Quake, Mario, Zelda, Donkey Kong, Sonic, Sephiroth, even the Angry Birds are available on T-shirts, action figures, plushies, and in myriad other forms besides. Regardless of who makes the product, the owner of the IP is compensated for every item made in which the IP has been used.

  • Code Licensing - Valve Ltd got its start by buying rights to use the Quake II game engine from Id Software, then programming Half-Life around it. Valve now has their own engine (with the embedded Havoc physics engine licensed from another dev house) and are where Id was a decade ago, licensing use of the Source engine to developers who've used it for everything from other FPSes to arcade games to racing simulations. This is the primary way to monetize computer code other than licensing its end-use as a game program.

  • Sponsorships - Sponsored play events such as mass demos and tournaments are yet another way that money can be made from a game. The IP holders of the game(s) played during the event are, of course, entitled to a substantial cut of sponsor dollars. Usually, this is secondary to selling the game itself; the event is either a promo for the game prior to or at its release, or an incentive for people to buy and play the game (to get good so they can win the tourney). The majority of money made by the IP holder is thus made before or after such an event.

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"Provider billing" paragraph is incomplete, not taking into account flash game portals. They pay the developer in exchange for adding their logo into the game, and offer the game to the users for free. They might or might not ask for some kind of exclusive, and that depends on how much they are going to pay anyway. –  Lohoris Apr 4 '12 at 10:05
    
What about Donations? Many open-source games run on this (same for open-source non-games). I've seen this scheme on various fan-remakes of old games, and if you look at humble bundle as a donation, it shows to be viable too. –  Dorus Apr 4 '12 at 11:42
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Seems you left out arguably the most profitable types of games. Microtransactions, buying in game content via real world money or game credits –  brandon Apr 4 '12 at 19:47
    
@Dorus Humble Bundles are usually only for games which either have already had some degree of success, or are blantantly well done (possibly with kind-of-famous developers/studios): you can't create a game assuming you'll humble-bundle it. I strongly doubt random donation are really fully supporting any game, especially if you consider that micro-transactions are strictly more profitable and healthy than "donation". That said, it would be worth mentioning Kickstarter-like projects. –  Lohoris Apr 4 '12 at 19:55

For some actual stats, here is a detailed survey conducted on Flash games in 2009: http://wiki.mochimedia.com/w/page/15156195/Flash%20Games%20Market%20Survey

You' probably be only interested in some of the slides like below though (slide 18). enter image description here

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the fact that "don't make money" is only 25% makes me think this poll is slightly biased to developer exaggeration –  brandon Apr 4 '12 at 19:48
    
Do you think there should be more ppl that don't make money or less? –  XiaoChuan Yu Apr 4 '12 at 19:54
    
Just realized it's a multiselect survey so the percents threw me off. It's probably safe to say well over 25% of indie devs (which is usually flash developers) make nothing for their work. I still like your answer though. Just a comment –  brandon Apr 4 '12 at 20:41

Although it is meant for software selling in general and not just only games, I found this book very useful and clear (and it's free!): Don't just roll the dice, by Neil Davidson (He also has other free books which may be worth reading).

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I'm not sure about books on this but, there are plenty of MMORPGs that have gone from a pay to play model to a free to play model and have tripled even quadrupled the number of players they have on the game. I'm sure if you could find the games that have gone from P2P to F2P they will have numbers somewhere on their site of their success.

Here is the only list I could find of games gone from P2P to F2P(keep in mind it is a bit oudated and there are many more games that have done this):

http://mmohuts.com/editorials/pay-to-play-gone-free-to-play

As for age ranges it's pretty much self explanatory that F2P audiences are going to generally be a bit younger than P2P based on the fact that children don't have income. Again no real evidence on this.

I know Aion is an mmorpg that was P2P and is going F2P on April 11, 2012.

Games like Maple Story were very successful with micro transactions. Solely based on the ratio of P2P games to F2P games, F2P seems the more successful. Like I said the only real way to back this up is to look at the increase of subscribers games get when they go F2P.

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+1. DC Universe Online was a P2P game and when they went F2P the number of players increased around 10 times. Also HoN went F2P because they were not winnning enough money to keep going and League of Legends apparently is doing very good with the F2P system. –  Versec Apr 3 '12 at 17:57
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This is poorly worded. It's quite obvious that if you go free to play you'll have more players! What counts is if doing so will actually increase the revenues. –  Lohoris Apr 3 '12 at 18:18
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Well it seems these games are doing well or else they wouldn't still be running! As far as I know there is no way to get specific numbers of their revenue. You would assume that if they were switching business models they would do it because they will generate more revenue. From experience I can tell you F2P is more successful. –  Nick Crowther Apr 3 '12 at 19:05
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-1 The goal is not to get more players. I could get a thousand players on a game, and then go bankrupt in a day from server costs. What's important is making income. –  Jonathan Hobbs Apr 4 '12 at 1:58
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No one is going to do that though because it's pointless. I'm simply stating the reason why companies are going to F2P is to gather more members which makes more people want to play, which then makes people stick around and once that happens they start to buy things. A cash shop is used in all of the F2P games that I know of which is the main source of revenue. A cash shop allows players to buy cosmetic items or items that decrease the time it takes to gain experience etc. The baseline is if your game is fun it doesn't matter what model you use. –  Nick Crowther Apr 4 '12 at 20:04

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