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Ten reasons microtransactions are better than subscriptions

By on October 8, 2009
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As a developer, making money from games has never been more important. You’re considering (or have already started) making games that you publish yourself. But you’re torn between whether you can make more money from subscriptions or from microtransactions (principally the sale of virtual goods). Here are ten reasons to tell you it’s a no-brainer.

1. Microtransactions are user-led, not developer-led

With microtransactions, the user decides how much they want to pay, and when. You don’t have to fret over whether your game is worth £3.95 or £14.95 per month. The user will pay what suits them.

2. There is no “gate”

With subscriptions, you let the user play your game for, perhaps, 30 days. And then you say, abruptly, “pay up or git orff my land.” Not friendly and not smart. The biggest challenge for a game company is acquiring a customer; you had one but you just kicked them out. That customer ain’t never coming back.

3. Players can spend when they want to

When does a consumer want to pay? When he’s just been paid? When she’s just had a hard day at work? On a Monday (because money at the end of the week is reserved for partying)?

More importantly, why should you determine the day that they have to spend? With microtransactions, a user can spend the day after they’ve got paid, or when they know they haven’t got a hot (and expensive) date for a week or two, or whatever. Let the user be in control.

4. Players can spend as much as they want to

Bigpoint has some players who spend over $1,000 per month on virtual items. Others, I’m sure, spend only a dollar or so. But the key point is that for those players who have lots of money have the opportunity to spend it. With subscriptions, users have a binary choice: zero or, say, $4.99. There’s nothing in between and, more importantly, nothing higher. Imagine how much money you are leaving on the table from your biggest fans.

5. Microtransactions make it easy to keep the game fresh

With micro-transactions, it’s easy to think of how to refresh the game: add new items. It provides an easy path for development.

6. Microtransactions are trackable

The curse of development is not knowing what users like: it’s why Lionhead spent so much money on a pointlessly overspecced movie maker within The Movies instead of focusing on the strong and entertaining sim game it came bundled with. With microtransactions, that goes away. You can see what users like because they spend money on it. And then you can adapt the game to make your players happy.

7. Microtransactions are flexible

Some players like wearable items. Some like power-ups. With microtransactions, you can offer different items for different customers, and endlessly test what works. (See Free to play gamers will pay for power-ups and self-expression, but not for new content to see what gamers pay for)

8. Microtransactions offer A/B testing opportunities

Does a pink coat sell better than a blue coat? Do players want bigger swords or better armour? Do players want swords that look good, or do they want swords that are more effective?

With A/B testing (nothing more complex than randomly offering half your users one item and half another and tracking conversion rates), you can fine-tune your sales to give better monetization.

9. Consumers have a limit to the number of subscriptions they are comfortable paying.

Your average human has a short term memory for seven items. Sony has said that most consumers are happy paying for about seven subscriptions. There is a link.

A list of more than seven items (actually between five and nine depending on the person) seems endless. That’s because as one item drops out of your short-term memory, another one drops in. (That’s why to-do lists can make you feel more in control – you’re removing the tyranny of your short-term memory and can see everything that you need to do).

Utilities like water and electricity don’t seem to count, but a subscription to Sky does. As does the gym, magazine subs and your subscription to Warcraft. (Mobile phone contracts used to count, but increasingly it’s seen as a utility for many people).

It’s easy to see why people won’t sign up to a new subscription if they are already feeling oversubscribed. In essence, you need to encourage them to drop another sub to let yours in. Are you really so confident in the power of your marketing that you believe that someone will give up their gym membership in order to play your game?

10. Microtransactions make more money

Given the existence of Warcraft, this is obviously contentious, since Blizzard is making over a billion dollars a year from WoW. Perhaps it is better to say that for the a number of successful games companies, microtransactions have convincingly shown an ability to monetize well. By reducing the barriers to entry, they’ve also enabled companies to make higher revenues with lower marketing costs than for subscriptions. And, in many ways, it’s lower risk, since you have a powerful marketing channel (your free game) with a route to monetization (your microtransactions.)

11. Bonus reason: consumers are coming to expect it

This hasn’t happened yet, but as more and more games go free to play, consumers will expect that. By going down the “30-day trial then subscribe or you’re out” route, you’re alienating customers who have many other choices to satisfy their gameplaying habits.

 

So there you have it: 11 reasons why microtransactions beat subscriptions. Am I too biased? If you think so, tell me some reasons why subscriptions are better in the comments below.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • The point of choosing one of the methods is also a point of choosing the type of game.

    I’m playing such a free-2-play game for 3 years now (simply because I don’t have the money for a monthly subscription) and at some point you have to realize that the people who “invest” hundreds of Dollars (or Euros 🙂 ) in their game are more important for the publisher/developer than the others. It’s in the service they give them or even the penalty if they’ve done something against the rules.
    As people tend to wish for equal treatment, this free-2-play option is really frustrating on this point because it leads to a 2-class-system within the game.

    I think these two options (free-2-play and pay-2-play) are for different kinds of people… the ones who like to play on an equal level because all of them paid the same and the others who (maybe) have more money to spend in the game and who can buy themselves a special position this way.

    It makes a difference for consumers who experienced either the one or the other… and who aren’t new to this topic. And this difference is no matter of money.

    Of course it’s not the only reason but it’s to be seen in addition to the money.

  • Jarle

    I consider this to be too simplified a statement. Different business models are applicable for different games on different platforms targeted to different audiences.

    Club Penguin was mentioned, and for online games for small kids then micro transactions are hard. Parents will subscribe, but they won’t allow the kid to pay with micro transactions. Game cards partially solve it, but purchasing retail cards is too cumbersome.

    Some games find micro transactions hard because they don’t lend themselves to selling any items at all. Chess or Tetris would be some examples. PopCap spent years trying to monetize Bejweled online. Story-driven games can be the same. Pay-to-play simply make more sense for some games and platforms.

    For an AAA online game that cost tens or hundreds of million dollars, shifted in retail after building a huge amount of hype, selling physical boxes will generate a very high amount of revenue which is paying back a large part of the investment already with pre-orders and at launch week. It makes sense here to not disregard subscriptions at least for a long while. If your retention is good then subscriptions will generate stable and predictable revenue, and you can still use micro transactions to top it.

    In fact, you can sell boxes, keep your game free to play with premium subscription and micro transactions.

    The point is, there are lots of business models, and one doesn’t always exclude the other. You have to figure out which business model(s) are the most appropriate for your game / platform / audience.

  • Grimmy

    I can see something similar on mobile market such as Android market or iTunes store. As far as I understood games selling for really low price (could be compared to a micro-transaction) are selling really well.

    To be honest, I tend to think less if something cost barely nothing (less than an euro/dollar, that’s a coin I can find in my pocket)

    A problem I see with subscription (similar to argument 3) is that I can’t control easily when I pay. Having to pay every month even if not playing is a bit frustrating,

    Concerning Ben’a argument against multiple transactions, I must say that game producer are producing wonders to make it easy and make the user forget he’s actually paying…

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  • Doug Glover

    I also wonder if tweens access to cell phones (to pay for content) would push a microtransaction model for that market rather than a subscription model.

  • Doug Glover

    In your book you discuss the Club Penguin model that has both a microtransaction model that would allow you to track the success of different items, etc. and might also work better with a younger population that does not have access to credit cards. I wonder what would be the better model for tweens – a pure subscription model, microtransaction model or a Club Penguin type of model that is subscription based but has internal microtransactions.

  • That's a really interesting point Ben, and I completely see your logic.

    I'm not sure that is what is happening in games at the moment though.

    Which leads to the question: are games an aberration which are changing the way that consumers see microtransactions, or are we inevitably going to see a reversion to the subscription model prevalent in other media?

  • Generally, the more transaction decisions you force the consumer to make, the more you dampen demand. That is why subscription models tend to be superior business models in most media markets – because they remove the requirment for multiple purchase decisions. No matter how small the price, the (micro)transaction still requires an active decision.

  • That's a really interesting point Ben, and I completely see your logic.

    I'm not sure that is what is happening in games at the moment though.

    Which leads to the question: are games an aberration which are changing the way that consumers see microtransactions, or are we inevitably going to see a reversion to the subscription model prevalent in other media?

  • Generally, the more transaction decisions you force the consumer to make, the more you dampen demand. That is why subscription models tend to be superior business models in most media markets – because they remove the requirment for multiple purchase decisions. No matter how small the price, the (micro)transaction still requires an active decision.