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When creating a free game what revenue options are there and how successful are they? What are the pros and cons of different revenue models such as ad-supported, freemium, partnerships, merchandising, virtual goods, etc.?

If possible, give specific examples of games using different revenue models and provide data as evidence (otherwise it could get quite subjective).

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Community wiki? –  The Communist Duck Sep 15 '10 at 16:46
    
@TheCommunistDuck No, because answers require expertise, not simply "oh I liked Ultima 7 the best" –  bobobobo Jan 10 '12 at 17:07
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Related q here. –  user6365 May 14 '12 at 19:44
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4 Answers

up vote 8 down vote accepted

Monetization heavily depends on the platform, but for the iPhone specifically, freemium (specifically, buying into something that lets you play more effectively) has proven itself to be probably the most viable strategy for games in which it fits.

A few sample points:

  • http://gamesfromwithin.com/the-power-of-free - a blog post talking about revenue in a freemium app, with increased sales even after making the game non-free
  • ng:moco has switched all their future games to be freemium, and their shooter Eliminate showed up in the top 100 revenue generating apps despite being free.

Of course, in the iPhone marketplace, monetization of microtransactions is fairly easy since it's all handled through iTunes and most users already have a credit card tied to their iTunes account. I'm sure you'll see similar stories coming from Facebook once there's a unified way of purchasing things on there instead of a bunch of different mechanisms.

As far as ad-supported, there are conflicting reports on that matter.

Here's one that says ads are good: http://www.macrumors.com/2009/05/06/adwhirl-free-ad-supported-iphone-apps-can-very-lucrative/

And here's one that says ads aren't worth it: http://www.macrumors.com/2009/02/20/appstore-secrets-price-drops-usage-and-ad-supported-models/

Of course both of those are before iAd came out.

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I won't go as far as calling it an emerging revenue model, but recent 'pay what you want' campaigns have been big successes.

A great example is the 'Humble Indie Bundle', hosted by team Wolfire in collaboration with a handful of other indie developers. This model clearly works best if you have a big community following, preferably with many committed fans.

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Regarding the 'pay what you want' model, so far I've only seen it applied to games that already had measurable sales and public awareness. For instance, Crayon Physics had a sale on their one-year anniversary, after they had been selling at $20 for a year. It might be a good model for when a game's sales begin dropping, but I really doubt it would work for a startup game. –  Cyclops Sep 15 '10 at 16:28
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Don't forget about alternate revenue streams! More often than not, your game's source code is worth quite a bit to fellow developers. The more so the more popular your game is and the harder it is for the average developer to replicate your gameplay or parts of it.

You should license only the source code, and not the assets, to avoid spawning a myriad of look-alike copycats. You may still be afraid of copycats even using their own assets, in that case specify a "non-compete" in your license. But honestly, those who buy the source code either know better than to make a clone or are not experienced enough to keep up with you. It's also a great source of motivation to always stay ahead of the curve (others may see this as stressful though).

Selling one's source code can be quite attractive. I summarized the sales of my Line-Drawing Game Starterkit (not a complete game, but close enough) here: http://www.learn-cocos2d.com/2010/08/starterkit-price-drop-sales-numbers/

Quite easily I made more from selling the source code than I had if I had invested the additional 2-3 months to make it into a complete game that would actually stand a chance of making decent sales on the App Store. Other developers are more likely to value what you do than gamers. And they're definetely more willing to pay. And it changes your relationship with the customers from many angry nerds to few, grateful, like-minded individuals (few exceptions notwithstanding but the trend is obvious).

One notion to get away from: your source code is not a trade secret that makes or breaks your business. It's not something to protect at all costs. For the most part you sell a lot of effort, lots of insights and expertise to developers who like to get a headstart and/or learn from you. There's probably nothing they couldn't do, it would just slow them down / take them a bit longer to get to what you have already achieved. They trade money for convenience. It's a good deal for both sides.

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I like the alternative perspective presented here, viewing the code as an additional salable asset. –  Daniel X Moore Sep 16 '10 at 19:23
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It's worth noting that Flash already has a community that supports games targeted at generating advertising revenue for portals. The idea is to submit your game to http://www.flashgamelicense.com/ for bidding by sponsors.

The developer of Steambirds had some success with that model, as outlined here: http://www.gamasutra.com/view/news/27924/InDepth_Behind_Flash_Game_SteamBirds_Revenue_Deals.php

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