The art of selling software has evolved drastically over the years. Up to the late aughts, most software developers took the conventional route of bundling their application into CDs or DVDs. If they wanted to entice potential buyers, they would distribute their software in a shareware format — a free demo that comes with either an expiration date or with limited functions that can be unlocked after the user purchases a registration key.

But those days have come to a grinding halt. Thanks to the adoption of high-speed internet and cloud technology, many indie studios and even major developers have shifted their sales models to digital distribution platforms like desktop-based Steam or mobile app stores such as Google Play. Some large enterprises like Adobe and Microsoft have opted to market their products via a subscription-based model.

These online models have made it simple for developers to sell and distribute software, but it has also, in turn, created a saturated market, making it an uphill battle for studios to generate revenue or attract downloads.

In response to this trend, new pricing strategies have been devised to help developers monetise. One of them is the freemium model.

An example of this would be free-to-play (f2p) game that allows players to complete the main quest at no cost, but lets them purchase optional features like in-game currency or rare character costumes with real money. Another great example is cloud-based music subscription platform Spotify, which lets users listen to music for free but with advertisements in between songs.

Developers use the freemium model in hopes that users will convert to paying customers, or that their applications will gain more eyeballs and hopefully bring in more users.

What created the market conditions for the freemium model?

If you look at the history of the f2p market. It only really took off when high-speed internet proliferated. It became simple for players to download an illegal copy of the game. This changes the purchasing behaviour of consumers: they are not likely to commit full price to a game unless they are sure of its entertainment value.

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Another factor would be the surging popularity of mobile games. Since smartphones became a commodity a few years ago, the barrier to entry to video games have been lowered. Whether hardcore gamers like it or not, more developers, such as Konami, are focussing their attention on making mass-market, mainstream games.

The market shift towards the f2p have yielded strong sales for game publishers. If you look at the Google Play store now, the list of top grossing games now is dominated by f2p games such as Mobile Legends, Clash of Kings and Pokemon Go.

Another excellent example would be the multi-platform-based battle royale game Fortnite. In April 2018, the game generated a whopping US$269 million in revenue just by players purchasing cosmetic items that provide no competitive advantage to their experience whatsoever. Don’t underestimate how far players will go to create personalised versions of their online avatar.

The gaming business is ultimately a volume business. You want to maximise the scale and reach of your game, If you put a price point on what you are doing then the competition will just undercut you by lowering their price point or make it free. People may not even want to try your app, and so the freemium model is the most ideal way to proceed.

So how do you design your game around the freemium model?

From a development perspective, it changes thing a lot. For a premium game, you are more focused on reviews scores from the community and journalists, or working with the media to create a buzz.

When you have a free game, you are much more dependent on your ability to market, target and acquire users and then analysing the performance marketing data. There is a lot data to be generated in using a freemium model and, unfortunately, not all creative people understand how to harness its value.

You also have to decide which parts of the game should be free-of-charge and which parts should be exclusive to premium users. Part of being responsible developers is to find out the right balance between what’s critical to the game’s experience and how you monetise additional features that does not detract from the core gameplay.

For example, if you let players pay to get an advantage over their opponents, that might alienate a significant portion of your user base and soon these guys might quit the game permanently.

The key to creating a successful freemium game is to carefully analyse user insights and feedback to improve your game.

Mighty Bear studios: A case study

Mighty Bear Games, a Singapore-based games studio, has adopted this model for its upcoming MMORPG (Massive Multiplayer Online Role Playing Game). e27 interviewed its founder and CEO Simon Davis and its producer Abel Tan to speak more on why they chose to go with this route and how to successfully implement such a model. The responses are edited for clarity.

How did you leverage your user data insights to design your game?

We sit down every morning and we look through from the day before and track what users are doing at every step of our game. We knew, for example, there was a problem with the loading times with one of our tutorials and we were losing about one quarter of our gamers during the tutorial just during the loading issues: they thought the game had crashed because the loading time was so long.

So by having data, we managed to identify this problem very quickly and optimised for it. But it means that we spent a lot of time looking at data and analyse the patterns and see where we can optimise.

That’s one of part of the game we managed to take our conversion — the number of users that downloaded the game in a specific use case rose from 4 per cent to nearly 50. And that’s a 10x increase just by doing multiple test and doing the data and refining. This jump in conversion was achieved within a 4-week period.

How do you track users’ patterns and behaviour and decide what kind of premium content to create?

You see the user data for the game at which point the gamers are monetising. So are they monetising when they reach level 10? What is happening at level 10 and what is the game doing that is making users monetise? You look for the patterns and helps to look for the motivations the players have when they do monetise? Then we can see how we can fulfill those desires in other parts of the game.

We speak to players every day and every time we push an update, we can see the impact in real time the update has on players’ moods how often they are logging in and the actions they are doing in the game.

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So if we push a premium update out and the feedback we are getting from our players is bad and the amount of players returning each day is declining. You can see from the numbers that they are not happy — then we don’t do that. We always try to add premium content that fits what players are asking for.

Looking at the data also helps us to identify the gaps we may not be serving or a section of gamers we are overlooking. One example is that we have been focussing on just the combat system of the game and although we are monetising great there, but there’s a whole section of players who love to collect, who love to craft, or love to dress up their characters.

That tells us that maybe we can build games and systems in that segment of the game that we can monetise or convert even more players than we just focus on our area. Using data helps to drive a lot of decisions.

We have a MMORPG. In these games you can go fight people, go on quest, do collection stuff. The game serves different views and behaviours. So looking at those gaps helps us because sometimes we focus too much one area, especially if we think there’s a weakness in this area and we compensate.

And we don’t just monetise via in-app purchases though, we have video advertisements in the game. But it is important to insert the ads a manner that is not jarring to the gameplay experience

One way to do it is you wrap the video ad in the context of the game’s story. So, for example — and this isn’t in our game — you go see a fortune teller in the game and she touches a crystal ball and the vision comes in a form of a video ad. It is all about contextualising.

We also want to build systems inside the game that makes players want to get the ads. We want players to go like “here’s an ad, I want to watch this so I can get this in return” or “I’m going to get 2 times the amount of currency or reduce the time it takes”.

But at the end of the day, we don’t want to bombard players with ads as well. We never force players to watch the ads — all our ads are opted in, so I think that makes a difference as well.

Image Credit by Ravi Sharma on Unsplash