Abstract

Abstract The shift from physical to digital platforms has turned entertainment from a commodity into a service. The video game industry has embraced this evolution for many years. However, until recently it was mainly confined to the digital distribution of games (such as subscriptions for MMO games; or multi-games platforms with new services such as playing with friends, automatic updates on Steam or Battle.Net platforms). Recently, a new prevailing business model known as Free-To-Play (or F2P) has completely reversed the logic of the traditional value chain, and therefore the relationships between players and developers. How does this F2P business model work, and just how organized is the new value chain? What is its economic structure? This paper proposes a conceptual framework for analyzing the micro-economic properties of the business model. It shows that the new value chain is structured around gaming experience as a service, and considers it"s the managerial consequences. Keywords: free-to-play, business model, video game industry, freemium, innovation Article Information Received: June 2013 Accepted: August 2013 Available: online December 2013 All trademarks acknowledged Copyright of the author ©2013 • Reproduction rights owned by The Computer Games Journal Ltd ©2013-14 1: Introduction The Free-to-Play (F2P) model has been increasingly endorsed by the video game industry in recent years. Many online games developers have switched their games models to a F2P model, or they are developing F2P games. The revenue model of F2P involves allowing players free access to the game, and encouraging them to buy virtual items in order to enhance their gaming experience. This model is also known as the micro-transactions model, since the revenue is sourced from the purchases of items by the player on an in-game online shop, and provided and managed by the game developer. The F2P model is also called the "Come-Stay-Pay" or "Play-to-Pay" model, in reference to the traditional revenue model entitled "Pay-to-Play" (P2P) (where a payment of a one-time fixed licensing fee (initial price) is first required in order to access the game). The term F2P is often used incorrectly in reference to other free models such as freemium, freeware and shareware models: The Computer Games Journal 2(3) Martinmas 2013 Copyright of the author ©2013 Reproduction rights owned by The Computer Games Journal Ltd ©2013-14 www.computergamesjournal.com 23 Freemium -this refers to online games with free available access up to a certain level, above which the player must pay a fixed price in order to unlock the full game. There are no microtransactions, so a freemium game is a P2P game with a demo period. Freeware -this refers mainly to copyrighted software, which is freely distributed for an unlimited time period, but with limited content. The product is essentially used as an advertisement for the enhanced, priced product. Shareware -this model is similar to the freemium model, except that the switch to a licensing fee is imposed following a limited period of use. Sulake, Tencent and Zynga were pioneers in the F2P market. These companies now boast impressive numbers of registered players and of global revenues. In January 2011, ten years after its release, Habbo Hotel (Sulake, 2001) had 200 million users accounts with an average spending per player and per year of €22 per year. In January 2011, Tencent was one of the most popular Chinese social networks with 250 million players. For the second quarter of 2012, Tencent"s online game revenues were US$864.4 million, and revenues from item-based sales within applications were US$345.7 million. In June 2011, Zynga had 148 million players. In 2011, about 15 percent of Zynga net revenues (US$91 million) were generated from virtual items sales. The Free-To-Play business model is regarded as an incremental and natural evolution of legal and economic events on microtransactions in the video game industry and virtual worlds, dating back to the late 1990s. Its adoption by new entrants and major developers in different games genres has produced a new form of industrial dynamics in the video game industry. This paper examines the notion of service around core economic properties and values for players and developers, and examines their managerial and game design challenges. The Computer Games Journal 2(3) Martinmas 2013 Copyright of the author ©2013 Reproduction rights owned by The Computer Games Journal Ltd ©2013-14 www.computergamesjournal.com 24 2: Free-to-play model: history, diffusion and recent evolution 2.1: The birth of free-to-play The origins of the F2P business model can be traced back to different trends in the video games industry history, which crystallized to form F2P. Real-Money Trades in Massively Multiplayer Online games Real-Money Trades (RMTs) were the first microtransactions to appear in the video game industry. They were conducted by players on a parallel market outside the game, and beyond the control of the game developer. RMT is considered either to be: (1) trading items for real money among players outside the game; or, (2) (to use a more comprehensive meaning), all kinds of trading items for real money, either legally or illegally (this includes F2P microtransactions). The RMT of virtual items emerged on a large scale back in 1999 in Massively Multiplayer Online games (MMOs) such as Ultima Online (Electronic Arts, 1997), Lineage (NCSoft, 1998) or Everquest (SOE, 1999). They took place mainly on independent platforms such as eBay. Allegedly, the highest price recorded was €7k for an avatar in World of Warcraft in 2007. RMT includes gathering built-in avatars or rare items through "gold farming" (i.e. repeating tedious actions). 9 However, MMO players may circumvent the internal economy of a game by purchasing the items for real money and by changing the nature of the virtual economy. RMT can increase the disparity among players, and split the player community into those who are engaged in RMT, and those who are not. It raises questions as to the fairness for players engaging, and not engaging, in RMT. RMT can degrade the game experience for non-RMT players, leading many of them to quit the game. RMT can also discourage players who like to sell items normally earned via gameplay, when professional gold farmers monopolize the game market. Copyright of the author ©2013 Reproduction rights owned by The Computer Games Journal Ltd ©2013-14 www.computergamesjournal.com 25 developers, and increased the "churn" rate of players. The game developers reacted by making the use of Waigua software more difficult (by designing the game to prevent the opening of the Waigua window; cancelling the leveling up of Waigua users; and by issuing threats of lawsuits). There have been scams and controversies associated with players using RMT, and some players have complained to the developers (e.g. about the non-fulfillment of "illegal" contract obligations by the other party, stolen accounts, etc.). A bigger problem was the use of illegal private servers containing leaked source code, to generate revenue without paying licensing fees, as well as illegal off-shore businesses built on RMT with links to criminal activities. It was estimated that in 2005, around US$200 million was generated worldwide through illegal sales in outlets such as eBay and Yahoo. Development of online virtual worlds with virtual consumption Virtual worlds like Habbo Hotel (Sulake 2000), Second Life (Linden Lab 2003) or the PlayStation Home (Sony 2008) emerged with internalized microtransactions managed by the developer with no entry cost for the player. In these worlds, people are encouraged to spend real money on virtual objects while visiting these social spaces. The motivations behind such transactions lie in the players customizing their experiences in these virtual worlds as they meet friends or other people. The environment is similar to a massive multiplayers online game, but it is not really a game. Habbo Hotel is a simulation casual game with no specific objective but to furnish a room in a hotel and to meet up with other players. In 2010, Habbo Hotel was available in 31 countries in their local languages; it had 16.5m unique visitors per month, 90 percent of whom were teenagers. In 2006, Sulake"s earnings were reported to be approximatively €44 million. The main revenue stream was from selling virtual items and furniture from a catalog, e.g. €0.85 for a chair, or €8.50 for a jacuzzi. Players could even design some items. The only constraint was the virtual currency, which could only be purchased using credit cards, mobile payments and scratch cards sold at brick-and-mortar outlets. In Habbo Hotel, the developer controlled the microtransactions. However, there were problems with the F2P model in terms of long-term profitability and its influence on young players. Indeed, many parents quickly complained that their children spent too much money on the game, by using their mobile phones to buy virtual items. In 2004, Sulake was obliged to set a weekly cap on the amount of money its users could spend in Habbo Hotel; in Finland, the cap was set at €7, an amount regarded as acceptable for children aged between 10 and 15). 15 In Second Life, players can sell the virtual items they have created e.g. real digital pictures. These RMT transactions are performed by players worldwide. PlayStation Home is a virtual world where it is possible to meet other people, and where premium content can be purchased from various stores (including actual brands such as Diesel) in a shopping complex using the PSNetwork Wallet. 2.2: F2P model: birth and diffusion Instead of charging users a subscription fee or inundating them with advertisements, game publishers realized that they could generate revenues only by selling virtual items, thus avoiding the use of fixed prices. The adoption of micropayments in Asian games, and later in Western social games, gave rise to the notion of the gaming experience as a service. The sale of supremacy goods (i.e. faster levelling items) was first introduced by the South Korean developer Nexon in 2001 in the game Shattered Galaxy (the first MMORTS or massively multiplayer real time strategy game), where an overpowered unit was sold for an additional fee. This proved successful, and Nexon went on to publish the MMORPG MapleStory (2003) with a microtransactions model. MapleStory had more than 92 million players in 2009. Nexon also pioneered many of the business infrastructures for the free-to-play model, such as prepaid cards. MapleStory changed the perception of online gaming as a business, andpaved the way to its widespread adoption in the West. Social games take advantage of friendships in meaningful ways within the game. They use social platforms or are directly published on these social platforms. Since the game contains players" information and "friends" lists, it can prompt the player to invite some friends, or to boast about their game activity in exchange for rewards. Social interactions enrich gameplay and contribute to the game experience (e.g. competition, co-operating, creating guilt, "gifting" and sharing), irrespective of platform, technology or genre. This is why social games often go "viral". One core economic feature of F2P is the use of a social platform to attract new players. 27,28 Regarding microtransactions, it is interesting to note that early F2P social games and/or simulation games such as HappyFarm process. The length of the session is dictated by the nature of the game (e.g. poker), or by the realism of the simulation game (e.g. plant growth, building, etc.). These are inner design-motivations of the game that increase monetization, an important fact to note for the design of F2P in general. The "second wave" -from P2P to F2P in Western MMO games MMO projects in the West suffered from real-money transfer attacks on their virtual worlds, making them less enjoyable over time. With the exception of high performance games (such as World of Warcraft, EVE Online and City of Heroes), many western MMO games based on subscription released from 2003 to 2012 had extremely high failure rates. They were either shut down quickly, or converted to microtransaction-based models. The objective of this section is to consider the different economic motivations behind the switch to the F2P model for MMO games in the last decade: Motivation 1 -Targeting the long tail and managing the end life cycle For example, Star Wars: The Old Republic (STOR) (EA and Bioware) was launched in December 2011 with development costs of (US$) 150 to 200 million dollars. This game experienced a quick decrease in subscribers within less than a year after its release (from 1.7 million, to less than a million subscribers at the end of July 2012). EA and Bioware adopted a hybrid model by combining a F2P model with a subscription model (US$14.99 per month), with premium access to certain content. However, the core experience in the resulting product is questionable; the game appears to be a demo for the subscription game (with slower progression, higher costs for everything, a basic user interface, reduced access to content except the story missions, and limited functionality. Some players complained about tedious game mechanics and gameplay issues (space combat as an example) and expensive prices (the weekly cost to play the game is such that it is cheaper to buy the game US$60 and pay a subscription fee of US$15 per month). There are possible mistakes here of assuming that players are not influenced by the price; as well as focussing only on monetization, and failing to deliver meaningful content. There is a managerial issue of balancing free core content to test game mechanics, with the payment settings. 31 In 2004, the game received 400,000 new subscriptions in the first ten months, and in 2006, had earned US$1 million in advertising revenue. The popularity of the game declined in 2008 after reaching a peak of two million subscribers (according to Funcom.com, 1 July 2008). Free entry into the game boosted its audience. A virtual currency (paid points) was introduced, which is either earned by watching advertisement or purchased.It should be noted that offering players the chance to purchase only cosmetic items is a means to keep fairness, and maintain a level playing field among F2P and non-F2P players. The Computer Games Journal 2(3) Martinmas 2013 Copyright of the author ©2013 Reproduction rights owned by The Computer Games Journal Ltd ©2013-14 www.computergamesjournal.com 28 Motivation 3 -To widen the hardcore players target to casual players For example, Neverwinter was recently purchased by a Chinese publisher, and is moving from a subscription model to an F2P model. To enlarge the audience beyond traditional hardcore players of Dungeon&Dragon, the publisher plans to simplify the game and focus on action and combat. This example highlights that allowing players free entry may result in a heterogeneous player profile, of gamers with different motivations. 33,34 Motivation 4 -To capture business and financial opportunities for already successful franchise For example, TERA (Bluehole Studio) is a fantasy MMORPG, which was launched in 2011 as an F2P in South Korea, but in 2012 became a subscription-based game outside South Korea. With the extension TERA: Rising (recently released in February 2013), the developer wants to test the reaction of the Western players to the F2P model. Players can purchase items in the in-game store or pay a fee (US$14.99) for "elite status" (extra dungeon rewards, bonus daily quests, a daily delivery of items and boosts, an elite mount, in-game store discounts, reduced brokerage fees, etc.). Other motivating factors There may be other reasons for developers to change a P2P game to a F2P game. It is perhaps not surprising that F2P was first introduced in MMO games (social or not) since the challenge for MMO is to bring in more players and keep the game growing and evolving. In 2009, microtransactions for digital items in video games became a mainstream Western online business. This happened largely due to the popularity of social games on Facebook. Also note that EVE Online, City of Heroes and World of Warcraft ("WoW"), both profitable MMO games with subscriptions, also included microtransactions in recent years. This is so the developers canbetter manage their services (e.g. to transfer characters from one server to another one), and boost their revenues by charging for limited edition items (such as pets, etc.). In conclusion, microtransaction motivations are not only dependent on the monetization model but also on the value they deliver to the player. More precisely, the player can enhance the gaming experience by entering into microtransactions. The free access is a means to capture new players. However, the final success lies more in the quality of the game and the value of the experience to the players, rather than in the choice of business model (even though it is free, STOR is a failure; even with a subscription fee, WoW is a success). The "Third wave": Recent evolutions of F2P model and its diffusion Since the F2P model is a young model, it is still changing fast. The maturing of the F2P model and the increase in quality of F2P games have driven its widespread diffusion across different game genres and usages. This is the third wave of F2P models. In the past, F2P games were perceived as cheap games with low production values. However, there has been an increase in competition between casual F2P games, especially with the entry of Triple-A P2P developers in the F2P arena. Now there are better graphics and deeper gameplay than before, even for casual games. With the maturing of the F2P model, traditional AAA developers are pushing into this market. A vicious circle appears: with more AAA developers entering the F2P arena, F2P games development demands bigger budgets and is more advanced. This will inevitably lead to more intense competition between traditional AAA developers and new entrants. Among traditional developers entering the F2P arena is Crytek, which is transforming radically into an entirely F2P game-based studio. Monetization will be supported by its social platform GFACE. Crytek released Warface in 2012 as the first social F2P FPS AAA-rated quality game. Another example is Activision, which founded U4iA games in order to release a F2P shooter. They have trademarked the term "first-person social" game. With Offensive Combat, they plan to satisfy core shooter fans. Ubisoft has acquired an F2P German game developer (Related Designs) to turn its core P2P IP (intellectual property) into F2P IP (including Settlers Online, Silent Hunter Online, Might & Magic Heroes Online and Anno Online). In March 2013, Blizzard also started to experiment with an F2P model in a project called Hearthstone: Heroes of Warcraft, a collectible card game on the iPad based on the Warcraft universe. Nintendo has adopted a two-headed strategy: it keeps a P2P model for franchises with an established base (typically Nintendo franchise games), and it may use the F2P model for new titles with no established base. 36-41 On the console market, only the PlayStation 3 has accommodated F2P titles (Free Realms and DC Universe Online). All these moves are forcing traditional video games companies to take more risks than doing business as usual (adopting a new behaviour or new organization, or new developing game methods). At the same time, new F2P entrants produce more advanced games because they target specific game genres (such as FPS or RTS) that are more complex than others. Over the past few years, there has been a growing diversity of F2P games genres, and an increase in the quality of the F2P games. (Rebel Entertainment, 2012). At the same time, some new entrants in the F2P market are bringing back classic boxed PC franchises. As mentioned, one recent success is the mid-core game (Clash of Clans) on tablets by Supercell, at one point generating US$2.4 million per day. 42 Competition is increasing among PC games, but it is also spreading to smartphones and tablets. Facebook has been helping facilitate mobile adoption for game developers with Facebook Connect. It allows games to be shared with friends and to make it easier for new players to register on mobile games. For example, 40 percent of 11 million downloads of Diamond Dash (Wooga, 2012) are on the iPad, and 64 percent of players came from Facebook Connect. Facebook Connect has enticed players" willingness to purchase virtual items (by a factor of 8), and around 50 percent of connected players spent twice as much money as non-connected players, according to Wooga. The theoretical literature focuses on players" motivations, and the impact of Real-Money Trades (RMT) on the player base. This angle is relatively old, and does not make explicitly clear the full On the other hand, the empirical literature addresses value/monetization and design issues, with a deeper focus on the inner mechanics of F2P. In this section, both complementary literature sources are examined, in order to provide a comprehensive theoretical framework so as to understand the foundations of the F2P business model. According to 45 The 3-stage "Acquisition-Retention-Monetization" framework is perhaps a good benchmark for investigating the value chain of F2P. Because it is not simply a fixed price (paid only once), the monetization stage is more complex than in a freemium game. The player can buy different items at different moments in the game in a continuous process. In these conditions, the F2P business model is based on both the efficient working of each individual stage, and on the efficient working of their dynamic relationships. 46-48 3.1: The acquisition stage: from non-acquired user to acquired user The acquisition stage can be divided into two sub-stages: 1 the attraction of new players, which occurs outside the game, including viral marketing, advertisements or traditional marketing techniques to make people aware of the existence of the game and make them want to test it; and, 2 acquisition of these newly attracted players when they first experience the game. Since there is no cost of entry, the F2P player can sample and test the game at will (as in Freemium model). This feature is nowadays fundamental in order to gain an audience, since video games are "experience goods". A free access game attracts a larger audience, since there is a zero cost (financially) to doing so. The numerous and different prices thereafter are also a means to reach a wider extent of the market, and to gain a larger audience. However, as mentioned in sub-section 1.2, the cross-penetration of the F2P market by traditional developers and pure F2P developers make the F2P market more competitive and crowded. In this environment, free games and samples makes the product more visible, but the world of "free" games and downloads has become larger (e.g. Free App of the Day on the smartphone). Offering free games is no longer enough. There are too many games that look and feel almost the same, and there are now the big F2P franchises like Temple Run (Imangi Studios, 2012). In this environment, F2P success is highly dependent on (i) its general appeal (if the product is polished and fun enough, people will notice it); (ii) word-of-mouth among friends (or viral acquisition); and, (iii) how a game is marketed against the other games being released every day. The growth of the players" base often relies on marketing among friends; playing a free game is more attractive when recommended by a friend. A friend increases the visibility of one game and motivates someone to start to play and to keep on playing a game. This applies even to non-gamers. The F2P game design should make the invitation process easy and motivate the friend to play. One way to achieve this is to enable the player to ask for help from a friend (e.g. in order to send gifts, which are free for the player and are valued by the friend, the friend must subscribe to the game). However, the strategy of attracting new players must also rely on other means such as crossadvertisement (i.e. someone plays Game A, and a banner to play Game B appears in the window while he/she is playing)50 and from brands partnerships to attract an already existing community. 49 Consequently, even though an online game is free for the player, the communication campaign investments can be very expensive for the developer. In 2010, the Social Game Summit assessed that reaching one million active players per month costed about US$3 million. In order to make players test and enjoy their first experience of the game, the following design principles in the acquisition stage should be applied: Low barriers to access the game. Entering the game must be as easy, fast and smooth as possible. Hence the usefulness of platforms (e.g. "App" stores or Facebook) that allow easy transfer of the users" account information to register them for the game. The new player should not be asked to enter his/her bank card information immediately. Waxin (2012) also mentioned the role of the tutorial to arouse players" curiosity. 49,52 Low barriers to starting the game and understanding it. Starting a game should be easy to understand, and the game mechanics should be explained in a short and efficient tutorial. The basic actions of the game should be explained carefully and be easy to perform. Advanced functions probably should not accessible at the beginning. 49,53 The game is immediately fun and attractive. If a free-to-play gamer"s interest is to be retained, gamers need to feel that they are "getting the hang of the game". This is particularly true for the first twenty minutes. The game should be an emotional journey that keeps the player learning and enjoying the process. There should be some invitation mechanism and incentives, e.g. winning an in-game item, or a gifting mechanism. The players must achieve some success in their first actions to find it fun and feel an urge to continue playing. 54 These principles are not F2P specific, but appear more critical than in the P2P model, since the player is not "locked-in", and can switch easily to competitor games. When new players have registered into the game, the developer does not know if they will be nonpaying or paying users. The cost of acquisition for new players is therefore high because of the uncertainty of their profitability. It is more expensive to acquire new players than to maximize the retention of acquired players. However, a massive player base without a good monetization strategy is not profitable. Zynga is facing a problem with its monetization strategy: it acquired 240 million players at the end of 2011, but with only 2.9 million paying users. If a developer wants to increase profitability, it must balance the growth of the community of players with the means to monetize the The managerial issue here is about finding a balance between pleasing the more monetizable acquired players, and attracting more new players. However, even non-paying players create value for the global players" base (positive network externality). They increase the awareness of the game through viral marketing, and they are also recipients of advertising. The retention stage is closely linked to experimenting with the player in the acquisition stage. A player enjoys his or her first experience and decides to replay the game and becomes an active user. This retention is central to the structure of the F2P service: it is strongly linked to the traditional game design skills of developers. To maximize retention of free players, developers must design the game in such a way that the players become committed to the game. This commitment must be assessed regularly with specific metrics. The free access becomes a constraint on the design of the retention stage. Acquisition may indeed appear easier but at the same time, players do not feel obliged to try the game long enough to stick with it because they are not financially committed. The design of the game must therefore engage and re-engage players, or else they quickly lose interest. Engagement is the most critical factor here due to intense competition from alternative F2P games. 17 The engagement strategy depends on the quality of the game design and the addictiveness of gameplay. These factors are under the control of the game developer -and of its competitors In the longer term; retention has an impact on profitability. More precisely, "Early Lifecycle Retention" (defined as the number of sessions played in the 3-7 days following a user"s first session) is a strong predictor of long-term engagement. Players form crucial first impressions about the game and get a sense of how they will play and interact with the game in the long-term. Cheng (2012) made a distinction between short term and long-term retention. According to him, 90% of long-term retention players of MapleStory who are still playing after 60 days are players who had more than 3 sessions during the first 3 to 7 days. 58-60 The findings from the literature suggest that progression is important, but that other design features in the game are required in order to get players engaged (regardless of monetization process): In an effort to retain non-committed players, it is essential to build some indicators "to listen to them". This is a new and specific feature of the F2P model. It can be easy to implement and to gather individual and aggregate statistics from players" accounts since F2P require players to be connected. The main useful metrics are explained in DAU (Daily Active Users) Number of players that played the game every day (e.g. Cityville = 10 million, MafiaWars 2 = 900,000). DAU drives monetization and is a more accurate snapshot. DAU/MAU = percentage of players that play the game every day It is useful to know if people play occasionally or are more addicted, and also to see the impact of an update. The best games on Facebook have a DAU/MAU above 20%, but the average is around 13% to 15%. The K factor reflects how many people will come and play the game as a result of currents" players" invitations to their friends. It shows whether players share the game with their friends, and does not take into account people who play after reading a post or who just find the game on the internet. With time this factor decreases. K-factor Churn rate = percentage of players leaving the game in a given period = (1 -retention rate) The retention rate can be assessed by opposition to the churn rate. Retention Rate The percentage of players coming back after their first play in a given period. Duration = 1 churn rate (in months or days) For example, a Zynga game duration might be less than 2 months. The monitoring of such metrics enables game developers to figure out how many people log on or off, as well as gather statistics about players" actions: every "kill" that happens; every death that happens; which areas are less visited, etc. With such data on millions of players, the design team can decide if any design changes are working as intended, or propose credible new changes. Metrics are constantly being used by designers to improve their games, and to segment the experience for each particular category of game players, in order to increase player numbers. 53,54 Friends " constraints in social games, invasive advertisement or unbalanced gameplay have a negative impact on player retention. Another cause of bad retention is an increase in the cost of acquisition: indeed, the acquisition cost is generally higher than the retention cost. Zynga"s churn rate is so high that it is continually needing to acquire new players in order to sustain its revenues from microtransactions. It may be said that this situation reflects a fundamental problem of managing players, which in turn may have different possible causes. One might be the profile of players of the casual game genre: are there too many non-paying users or too few paying users? Or could it be badly designed retention and monetization stages? These managerial questions are necessary for four reasons: 4,50,56,59 The Computer Games Journal 2(3) Martinmas 2013 Copyright of the author ©2013 Reproduction rights owned by The Computer Games Journal Ltd ©2013-14 www.computergamesjournal.com 35 it is less costly to keep a player than to continuously acquire new ones. For example, in the first term of 2011, Zynga's acquisition costs were US$15 million, compared to a total marketing budget of US$40 million; the major source of the profit is from returning players, rather than from newly acquired players; the more engaged the consumer, the more valuable is the platform; and, the increase in acquisition costs can arise not only as a result of competition; it is also a consequence of bad management of the retention stage. In conclusion, it is important to constantly check the metrics, and to monitor retention rates according to the profiles of players, and also to check that players are continuously engaged. If they display addictive behavior and find value in the experiences of the game, they will want to enhance their experiences through items purchases. However, all this depends on the value of the spending opportunities offered by the developer. 49,66 3.3: The monetization stage: from engaged users to paying users The basic premise is to monetize a player"s engagement by building a money-making strategy into the gameplay. In the "one-price-fits-all" P2P games, only the mean pricing target of the players is estimated. F2P monetization consists in making spending money fun after the gamers have experienced the game"s free core mechanics. From the developer"s point of view, the Monetization stage is the final step towards profitability and towards the decision to keep on investing in new game levels. More precisely, game design and mechanics must match monetization and marketing, so that more players become spenders, and spenders begin to spend more money (i.e. through repeated purchases). 49,66 The basic principle of the F2P economic model is to give the player the choice of a gaming experience based on the free choice of items. Gaming experience as a service is perfectly tailored to each player. Instead of paying for access, you pay for the experience and the extras that you value, depending on your profile, the type of achievements in the game genre, etc. Making paying fun means being able to pay at any time in order to customize and enhance the gaming experience. Of course, the definition of "fun" may be different in a casual or puzzle game. The great challenge for developers is to find some way of personalizing the experience of gamers, and to make players feel they get good value for what they"re spending, and that they are supporting a game that they enjoy. Cosmetic or vanity items These are purely aesthetic (and possess no functional value). The value of customization is part of the experience for the player: clothes, appearance, on-screen representation, as well as any animations and sounds associated with them, the name and its writing/color, or the label of a good. They can be used as symbol of a group of players. Power or performance items These elevate a player"s offensive and defensive abilities (e.g. upgrades to weapons, vehicles and attacks; enhancement to character health and stamina). Their purchase depends on the player"s level. Booster items These accelerate progression speed (doubling experience points), and make the game easier to play by helping the player to bypass constraints (one more life) or by speeding up gameplay elements (e.g. faster building or repairing structures in a tower defense game, or increasing the speed of vehicles in FPS games). They are usually short-life or time-constrained items (one-time usage). Functional or comfort items They customize the user interface to manage data. They are tools used to create and manage guilds or to get access to specific statistics for high level players. They can erase some stats about the player (e.g. number of failures) or can do automatically some tedious tasks (feed the pet, water the garden). They include renting multi-players private servers to play with friends or paying for storage space to store songs library. For example, in South Korean online FPS Special Force, players can purchase items to record a replay of a match (Lehdonvirta, 2009). User-generated items These are created by players. The distinction between functional items, power/performance and booster items is important because booster items raise fairness problems in F2P games, and can deter even committed players (thus having a negative impact on retention). Another type of item which enables an even more customized/stylish experience is the usergenerated content item (Lehdonvirta 2009). These user-generated items can be placed on a marketplace to be sold to others. However, the possibility to create content by "modding" players of the F2P should be embedded in the design of the game and revenues shared between developer and players (for example, Team Fortress 2 by Valve). Customization can also strengthen the emotional bond the player has with the game, and the communication regarding his identiy and values to others. For example, in World of Warcraft, players can design and purchase a guild tabard (a symbol of membership). 21 There are five main inner/personal motivations which drive players to enter microtransactions in relation to the gameplay and the genre of the game: Copyright of the author ©2013 Reproduction rights owned by The Computer Games Journal Ltd ©2013-14 www.computergamesjournal.com 37 advancement in a status hierarchy -to fit in with other players, to increase reputation; emotions/immersion -to experience new content, to explore, to relax, to escape, to enter an adventure; feelings -to build friendships, to make gifts to other players, to socialize and help others, to collaborate in teams; customization and self-expression -to stand out, to collect items, to create items, to build imagination; or, progress/achievement -to gain an advantage in competitive settings and to keep up with coplayers. Hamari and Lehdonvirta 13,50 Finally, the designer needs to strike a balance when considering the types of items to sell, the gamers" motivations to purchase them, the gameplay and the genre of the game. The difficulty lies in the limits of an approach based on individual preferences forgetting social, economic and contextual factors. 21 Monetization should not merely be a substitute to "negative actions" such as tedious repetitive tasks (or "grinding"), burdens (to clean an animal or to empty trash of the streets at each connection), or highly difficult objectives in the game. These negative actions can be skipped by purchasing "comfort" items. Because time is a scarce resource, some players are motivated to buy such items in order to conduct these tasks. For example, players can buy an automated merchant character that will conduct trade on their behalf while they are offline. However, it is not fun to have to complete compulsory tedious tasks and to be obliged to purchase comfort items to skip them. The player may feel that is another burden. In the same vein, having a too difficult puzzle to solve with the possibility to purchase an item to resolve it or skip the puzzle, makes the player feel like a prisoner of the challenge because he or she cannot solve it based solely on skills. 13 There is a risk of the developer becoming obsessed by monetization. The developer could make the challenges too difficult (e.g. Mafia Wars 2 (Zynga, 2011) was unplayable without friends). Or the free core experience may not be convenient and might not meet the expectations of players relative to the game genre (e.g. there may be payable instant travelling when the virtual landscape is very large; or selling enhanced interfaces for high-level players in MapleStory). Another indirect compulsory purchase in some social games is to propose to players who need to level up to invite friends instead The retention and monetization stages are closely interdependent. The developer is torn between entertaining the players and testing their frustration -both the free core players, and the paying extra players. To avoid monetizing frustration, the designer must strike new multiple balances in F2P games that were not an issue with traditional P2P games. If the purchase becomes compulsory, the basic challenge of playing the game can lose value, fun and motivation. So how exactly can a developer design the F2P game as a service? The notion of "service" refers both to value and to customization. Each player has a personal feeling of the challenges and of the gameplay constraints. Some will try to find out solutions by themselves even if they are complicated (but still possible in the gameplay) without requiring any items. Other players (who may be more lazy or time-constrained) do not bother to find out, and after few attempts, they will choose to skip the level and buy an item. Having the choice of the speed of progression in the game and to pay for it is indeed a service. An F2P game must cater for both paying and non paying players. Paying for items must add to the quality and the excitement of the game. However, there is a borderline between "natural" gameplay constraints and "exaggerating" burdens, which are not so easy to assess. Some examples of "positive" frustration generating fun include: 11, The designer must also strike a balance between the power of skills or items earned in game, with the power of purchased items. Within RMT or F2P games, there is one game with different experiences, depending on whether or not players choose to purchase items. Under some competitive environments, monetization can be unfair, and be detrimental to the game environment. Miller and Daw (2013) define "fairness" as a reasonable balance of power between paying and non paying players: "A skilled player with only the free weapons can and will beat a new player that has all the items unlocked." More generally, fairness deals with providing the same enjoyment for all profiles of players while checking that the players spending a lot of money on items (the "whale" gamers) do not discourage other players. 11, 18,73 This issue may be less problematic with MMORPG games that attract players with different motivations, particularly games with no clear endings or absolute losses and wins. Players may feel less pressurised by the competition and may tolerate items-based unfairness. This is particularly true of Asian-Pacific MMORPG and especially South Korean MMORPGs that are designed in such a way that success in Player-versus-Player (PvP) depends more on inventory items than a player"s stat values or skills levels. 11,17 The problem here is not a question of price, or of weaker players being disadvantaged. F2P games grant access to those who normally cannot afford to pay monthly subscription fees. It is rather the issue of balancing the competitive advantages of players (especially in PvP games) between the power of their acquired items, and players" skills, so as to make paying and non-paying players more equal. 17 Pay-to-win (PTW) motivation is also a consequence of design: the game might contain too much "grinding"; the impact of power items may be too strong; or, the power items are all purchasable. In economic terms, to keep the game fair (and fun), the developer must tackle player dissatisfaction which can occur with Pay-to-win games, by placing more value on player skills, and making the choices of items for sale more strategic. There is a maximum where both buying behaviour and player engagement are maximized. 68 The e-shop should be used by players to broaden their gaming experience without affecting the gameplay itself. Supremacy goods typically include booster or power items. Non-supremacy goods generally take the form of cosmetic items that do not provide clear competitive advantage in a game. There are gray areas, such as functional items that give players tactical advantages. Some developers have addressed pay-to-win behaviors by (i) imposing some constraints in the choice of item (e.g. selling only cosmetic items, whereas most powerful items can only be earned in game); (ii) controlling the number of purchases of power/booster items (e.g. to purchase one booster item per hour/per session/per day); or (iii) controlling the duration of the item or the session so as to minimize its impact. These constraints can affect revenue in the short run, but may ensure a greater community of engaged players in the long run, who will be more inclined to purchase items. However, such time or resource constraints could be regarded as a design option (to minimize the impact of PTW behaviours) and not only as a marketing strategy to maximize monetization. For example, in Farmville, grinding is a design feature used to create a level playing field, and to prevent the game being dominated by more knowledgeable players who have more time to spend. In other games, player actions may be limited by slowly renewable but limited resources. A time control may prevent one player from getting ahead of another player just because he/she has more time to play. In e.g. food, weapons, cars, clothes, etc.). Item vanishing is also a means to encourage players to repeat-purchase and to prevent players from trading. In South Korean free-toplay games (e.g. by Nexon), paying players are encouraged to trade their gameplay advantages for in-game currency to non-paying players. This fosters a fairer distribution of items among players. The e-shop management and its in-game marketing, as well as game future developments, rely on dedicated metrics to assess their profitability. Marketing and innovation strategies are built on observations of the game as a "managed market" with consumption and production functions. With the F2P model, profitability depends on the number of players, the percentage of paying users (conversion rate), and the amount of money spent by players each month. A list of metrics is provided in LTV (Lifetime Value of a player) = duration x ARPU If a player plays for about 12 months and if ARPU = €1.5, then LTV = €18 These general metrics being applied to the individual player define the spending profile of each player. An aggregate mean can hide some high variations in willingnesses to pay among players. Since the player is free to spend any amount of money on virtual items, fans (or those having little time to play and who want to level up quickly) will spend more money than others (who will spend a little just to enjoy the service). The distribution of profiles may vary according to games and genres. Based on the consumption behavior of each player inside the virtual world, the developer can target the right offer at the right consumer at the right time. Microtransactions are contextual and dependent on game genres. 17,55 However, inner motivations based only on the gameplay may be not enough to target through a monetization effort. External motivations based on the design of the e-shop (or in-game microtransaction store) include the pricing strategy, the information delivered by the store and the degree of intrusion. These will also have an impact on the final purchasing decision of the player. According to Shokrizade (2013) and 18,71 Finally, because making a financial payment takes something away from the player and might seem dull, it should be seamless. Developers should provide trade windows, tools for item transfers and different means of payment. In addition to selling existing content, the developer must constantly create new levels and items. The development of an F2P game is very specific. An F2P game is brought into the marketplace earlier than a P2P game (by which time its main core mechanics are there. According to 82 The developer might be tempted to copy successful core mechanics in different games, but that may result in "cannibalization": instead of increasing the players' base, the existing base is moving from the older game to the newest one, perhaps forcing the old game to close. Zynga has encountered this problem by developing only resource management games with little effective differentiation. The iterative development stops when the user acquisition cost (CPA) is inferior to the lifetime revenue/value per player (LTV) (often because of a decline in the player base or in player activity). However a brand image may be strong inside a big and active player community, making the decision to close a non-profitable game a difficult one. For example, Valve is facing this situation: because of its big hardcore players community, it is obliged to maintain servers for running Counter Strike and Half-Life 2 at its own expense, and to keep on updating Half-Life 2 almost 10 years after its release. 83 In-game marketing can have two negative effects on consumer behaviour: (i) it can increase the price sensitivity of players; and, (ii) it can break a player"s immersion in the game by being too intrusive. Price sensitivity With a partitioning of prices, consumers can better assess the value of each item (as opposed to having to pay an all-inclusive price, and which can make players more suspicious of "small prices"). Players may also be unsure if they cannot assess the future total cost which is progressively revealed as the customer advances through the purchase process. Constant uncertainty about how much money it costs to buy items make players distrust the game mechanics. This leads to frugal spending and less enjoyment of the items purchased. To decrease price sensitivity, a virtual currency (or hard currency) can be introduced in the game as opposed to soft currency (which is earned in the game). Hard currency is bought with real money at a specific exchange rate that is volatile with time and the marketplace. This can blur the relationship between the value and the cost of in-game items. 13,50,68 Intrusion The second limit of in-game marketing is the intrusion upon the player. Microtransactions are criticized because having to spend real money frequently can break immersion in the game. Based on their studies of MMO games in Taiwan, Lin and Sun (2007) posed the question: "Do cash purchases affect a player"s immersion, enjoyment and fairness?" Making players purchase virtual items can foster distrust in the game, because some players can literally buy their playing capabilities. These authors suggested that (free) game players" immersion is affected by them mentally calculating costbenefits and exchange rates, which in turn interfere with their enjoyment of the game. 17 However, there is no academic consensus on immersion and microtransaction. Having conducted a survey in Japan in 2006, and following statistical tests, 26 The notion of immersion should be taken into consideration when game designers insert payment options, advertisements, or design the game mechanics in such a way that they compel the player to buy items. Payment should not be enforced upon a player in a middle of a strategic action in the game, as this breaks the player"s motivation to keep playing. Another common flaw that hampers the gameplay experience is to delay the player from progressing or doing something unless he/she pays up. 73, The F2P model fits well with in-game advertisements because of the high numbers of visitors, and because free-to-play game players are less averse to advert intrusion in the game. Frequent F2P game updates also make it easier to change advertisements. Advertising is also pushed by peers when there is competition among friends; or when, after successful actions, the paying equipment of the player is showed off. 86 Other methods might include the following: 3.4: Summary Acquisition, retention and monetization stages should all be designed in order to attract new gamers, to convince them to stay, and to spend money in order to enhance an enjoyable experience. This requires the F2P model to offer a free and comprehensive core game experience to attract the players, and a consumer-driven purchase of extra services for engaged players to customize their basic free experience. This proposition leads to a new role for the game developer who manages real-time game design and the economic issues (as based on specific metrics at each stage). The developer has to balance conflicting gameplay factors for each of these three stages. Examples include: growth of the gaming community versus more monetization of existing players; free-to-play games versus profitability objectives; a balance of earned items and purchased items; The F2P business model is based on the management (by the developer) of a double on-demand dynamics between real-time consumption and real-time production of game content, based on specific metrics. The microeconomics of the F2P model is a mix of traditional gameplay design principles, and of a new form of economics of different monetization strategies. 4: Conclusion The F2P model formed from the merging of different historical trends in the online gaming and online worlds markets. The F2P model is now very popular among both new entrant developers and major (more traditional) players of the video game industry. The aim of this paper was to gain an understanding of the inner structure and mechanics of the F2P model, based on existing knowledge. This addresses a major gap in the existing literature, which does provide a comprehensive economic vision of the nature of the F2P model. It was found that F2P mechanics rely on both macro-and micro-structures of the service. The macro-structure of the F2P service consists in real-time management of on-demand production and on-demand consumption of the gaming experience. This management is based on a micro-structure built around three stages that are now popular in F2P literature: acquisition, retention and monetization. This paper highlights the dynamic relationships among these three strages, whereby design and economics are subtly intertwined, and whereby games company managers must strike different balances. On the consumption side, the player has free access to a basic enjoyable gaming experience (or "free core" experience) and enters the monetization stage in order to enhance this core gaming experience. The player does not pay for the game in itself, but for the value of a different, funnier, faster, stronger, nicer or more competitive experience. On the production side, the F2P model requires a very different mindset to that behind conventional P2P games, and is a difficult and challenging model as a service operator. The developer must constantly monitor the game economics (based on metrics) to manage the growth of the player base, whilst maximizing the profitability of this base, which in turn may have conflicting goals (e.g. value vs. fun/entertainment). The F2P game appears as a living organism or a kind of permanent prototype, that continuously adapts to players" changing behavior and usage of items within the game. Managing an F2P game requires both short term alterations (enhancement of existing contents) and mid-term alterations (new contents). 5: Further work This paper is a study of current literature, of generic F2P macro-and micro-structures, and as such, offers a comprehensive theoretical foundation for further studies on the F2P business model. In order to test this framework, and to understanding better the micro-structure of F2P,further research of different and recent games genres will be conducted.