The Rise of Freemium

As we’ve probably all noticed by now, there’s something a little wonky about iDevice gamers’ attitude towards pricing. We have huge appetites for new content, we get super-amped about the latest and greatest games coming down the pipeline… and yet, we’ve been known to complain vociferously when developers charge more than a couple of bucks a game to keep the lights on.

As a result of that constant downward pressure on pricing, iGaming offers arguably the best value proposition for consumer entertainment around. However, it’s also been clear for some time that there had to be a reckoning on the supply side. Otherwise, a lot of talented devs who were unable to make any appreciable money would simply give up and move on to other projects.

It took a while for the App Store petri dish to produce a solution to the problem: the freemium model. After a tentative start, the developers, publishers, and social promotion networks that populate the iDevice ecosystem are warming up to freemium in a big way–and it’s starting to change the face of iDevice gaming in very significant ways.

The freemium model is easy enough to understand. Other things equal, customers are more likely to download a game when the price is right (free). Then, once they’ve decided they like it–or, better yet, can’t live without it–the developer can start charging them for bits and pieces of gameplay that they wouldn’t otherwise have access to.

A lot of downloaders will never pay a dime, of course. But as long as the free download gets a larger number of people in the door than a 99 cent pricetag would have, and a large enough percentage of those downloaders start buying up 99 cent level packs, trinkets, magic stones, or what have you, you’ve got a winning strategy. Average revenue per user (“ARPU,” for all you aspiring MBAs out there) starts to climb over the nominal 99 cents, and the iDevice games business suddenly looks like a much better idea than it used to.

Developers have had the tools necessary to build freemium games since last summer, when Apple enabled in-app purchasing in iPhone OS 3.0. Almost nobody made use of the capability, though–a few developers added in-app purchases to a couple paid games, and that was it. The craze didn’t really kick off until ngmoco brought out the first wave of games custom-built for the freemium model: Eliminate Pro and Touch Pets Dogs. These games combined opportunities to pay extra with a very strong social component–the magic elixir that drives freemium addiction. Eliminate Pro surged to the top of the Highest Grossing charts on iTunes, and the game has been afoot ever since.

Unsurprisingly, the freemium game no longer belongs solely to ngmoco and its Plus+ network. Competing social discovery networks like OpenFeint and Scoreloop are hard at work polishing their own plug-and-play freemium solutions.

For instance, Aurora Feint announced the OpenFeint X version of its social platform a few months ago, which is still in internal Alpha, Aurora Feint Vice President of Marketing and Developer Relations Eros Resmini told us in an email. “X is our extension of the OpenFeint platform that will allow game developers to build and run social games without managing a server farm,” Resmini explained, highlighting the fact that doing freemium right can take serious resources. Hence, the clear commercial opportunity for the social platform specialists.

Scoreloop recently unveiled its own freemium package, which is now a part of its Core Social SDK. “Freemium is a great model because it is a very fair one for the end-user. They can start playing the games for free and then decide whether they want to pay for it to get more,” Marc Gumpinger, Scoreloop CEO & Co-founder told us in an email. “When combining this approach with downloadable content or virtual goods, developers can create great games that revolve around individualization and ever advancing new experiences with their friends.”

This is what freemium’s gonna do to the App Store’s ARPU limitations, son!

Game publisher Digital Chocolate recently released the freemium Fantasy Warrior Legends in collaboration with OpenFeint. DChoc Founder and CEO Trip Hawkins believes that the freemium model has great promise on the App Store because it’s so easy for consumers to buy stuff. “You can look at a payment method as a question of its ‘lift to drag ratio,’” he noted in an email. “The iPhone can get a variety of customers to buy in a variety of ways across a variety of types of content. But without ‘one touch’ payment for a game you would need to have a game design that can take the player to a deeper level of engagement and commitment before they would be willing to endure the ‘drag’ of filling out a payment method.”

Game design, then, is the true key to freemium, as it is in all other monetization models for games. Freemium won’t be very effective if it’s shoehorned into a game that’s not explicitly designed to take advantage of it, and it certainly won’t save games that aren’t any fun to begin with. But given the rate at which new freemium toolsets are coming out, as well as the rapidity of evolution in freemium game design, it seems as though the model is here to stay.

That’s good for developers, and what’s good for developers is also good for gamers in the long run–whether you feel like paying for it or not.

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