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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