Free to play gamers will pay for power-ups and self-expression, but not for new content

A recent report from PlaySpan looks at purchases of virtual goods in the last 12 months. The key conclusion is that building a business that aims to sell extra levels just ain’t going to work.

The survey of 2,425 respondents identified that free-to-play web games generated the highest revenue ($75 on average) and that virtual currencies were the most popular purchase. But the report unveiled a number of valuable insights into what works and what doesn’t in the world of microtransactions.

Methodology

Let’s start with the methodology. (Ben Goldacre would be proud).

PlaySpan operates the PlaySpan Marketplace, Spare Change, and Ultimate Game Card. The respondents therefore include people who pay for their virtual goods with credit cards but also those who buy payment cards in stores. As a result, it runs the gamut from young children to credit-card-wielding adults. This is a comprehensive survey, but since buying habits for children may be very different from those for older casual gamers, the results should not be treated as gospel for business planning purposes.

I’ve asked the company for full definitions of their game categories. (These are interesting in their own right as a way of breaking down web-based games)

• Free-to-Play Games – Virtual worlds that do not require a paid monthly subscription, such as Runescape, Silkroad Online, and War Rock
• MMOs – Virtual worlds that require a monthly paid subscription, such as World of Warcraft, Final Fantasy XI, Warhammer Online
• PC Games with Online Play – Any PC game with online capabilities, such as Orange Box and Battlefield 
• Console Games with Online Play – Any console game with online capabilities, such as Madden and Call of Duty
• Social Networking games – Facebook and MySpace games, such as Mafia Wars, Mobsters 2, and Sorority Life
• Casual Games – Web-based games through services such as Pogo, BigFish, and iWin

These aren’t games from small publishers, either. PlaySpan’s clients include K2 Network, Turbine, EA, IMVU, Bigpoint, and hi5 and the games they work with include RuneScape, Ragnarok, Knight Online and War Rock

The survey took place between July 15 and July 31, 2009 and asked respondents about their spending habits over the preceding 12 months.

Most popular digital goods

Analysis

The first element that leaps out of this chart is that virtual goods players will not pay for new “content”. Maps/levels represent the least popular category for purchases, both in terms of number of transactions and by dollar spent. If your business model involves building a core game and then selling additional levels, you’re in trouble.

No surprises that in-game currency is the most popular element. We can essentially discount it from any analysis since it can be used to buy any of the other categories. It’s a bit like saying that because people often buy Euros when going on holiday that the most popular item sold in airports is banknotes.

So we see other big categories:

• Performance enhancement: both weapons (40%) and power-ups (29%) increase a gamer’s ability
• Self-expression: Wearables (32%) and Virtual Gifts (20%) are both items of self-expression

The data is global (PlaySpan operates in 180 countries), so we can’t generalise by culture here, but it is clear that gamers will pay meaningful money to improve their in-game performance. In fact, they’ll pay more for that than they will pay for self-expression.

The web games that are generating the highest revenue

Analysis

Every one of the respondents had purchased something in-game in the last 12 months, which means, for example, that we cannot extrapolate to the proportion of users who purchase *anything* in an MMO from this data. But there are some interesting datapoints:

• Casual games are hard to monetise by virtual goods (I think we all knew this)
• Paid-for MMOs, with regular subscriptions, can still persuade some players to pay an average of $60 for additional virtual goods.
• A free-to-play game can extract an average of $75 from a paying player. If we assume that the average player plays a game for nine months, that’s an Average Revenue Per Paying User (ARPPU) of $8.33.
• Although social network games have a smaller average spend ($50) and fewer paying users (23%) than free to play games, their marketing costs are much lower due to the viral marketing benefits of Facebook and MySpace.

This data doesn’t give us one critical piece of information: what percentage of registered users become buyers, but it is a helpful guidance on ARPPU differences between different genres of web games.

Conclusion

When building your micro-transaction game, you should put equal weighting on creating virtual goods that make players more powerful and on those that offer them the chance for self-expression. But if you were thinking about selling extra levels (a standard model for puzzle/casual games), forget it. The market just isn’t there.

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• Why people pay for virtual goods
• Free and free to play are different, says Valve
• Why core gamers hate social games: because their selfish exploitation of casual gamers is coming to an end