Dan Miller has a post up talking about subscription vs. free-to-play, and concludes conclusively that one can make more money with free-to-play/virtual asset sales than with subscriptions. Raph referenced that post as well, stating that the graphs Dan includes in his post demonstrate why a microtransaction model ends up hitting a far larger market than a sub-based one. (’Microtransaction’ is not descriptive of the model though, as some games have some virtual goods for sale at prices that cannot be reasonably considered ‘micro’.)

Despite my obvious affection for virtual asset sales in a free-to-play model, I don’t think the decision to go free-to-play or subscription (or one of a myriad of other business models for MMOs) is that simple. It’s not purely about whether you’re reaching a larger audience and I don’t believe it’s a given that you’ll make more money, overall, with the free-to-play model. I think it’s largely dependent on the game you make and the audience that ends up developing for it.

Summary of Dan’s Post

Dan wrote, “To illustrate this point, I’ve prepared a couple of graphs. In both, the curved line represents the willingness-to-pay of the users. All the line says is that some people are willing to pay more for a game, while others will only pay less. The first figure depicts a hypothetical flat-fee subscription-based virtual world. I’ve indicated areas where revenues could be higher in two places. First, there are some potential players who simply find the game too costly: the flat-fee is greater than their willingness to pay for the game. Second, there are current players who are in fact willing to pay more for the game than they actually are, but since the game has a flat fee structure, there is no way to capture that untapped willingness-to-pay.”
Subscription MMO

Dan continued, “The second figure shows a hypothetical game based on RMT. In it, each player decides how much money he or she wants to spend in the game. Players who only want to pay the minimum can do so, while others can pay up to the maximum amount they are willing to spend. The result is that players end up paying much closer to their individual willingness-to-pay amount. It may not be a perfect match, but it comes much closer to the willingness-to-pay-curve than the flat-fee world.”

Free-to-play MMO

Dan finishes his post by  concluding that if you measure the blue area in the Free-to-Play graph (blue) and measure it against the red area in the Subscription graph (red), you’ll find that there’s more blue than red.

Why I Don’t Think It’s That Simple

I’m not an economist, so I have to apologize ahead of time for not speaking the lingua franca of that discipline. I’ve been using the virtual item sales model successfully for 11 years now though, and so can claim at least some expertise.

  1. Positive feedback loops.Players become parts of communities, and there’s a friction to removing them from that community. Not all players, of course, are part of connected communities in MMOs, but many are and some of them want to play only subscription-based MMOs. The fact is, A free to play game cannot deliver exactly the same experience as a subscription game, and vice-versa. Just as there are actual reasons to prefer free-to-play games w/ virtual asset sales over subscription games that go beyond simply “how much you’re willing to spend”, there are actual reasons to prefer subscription games. Some people genuinely like the illusion of a level playing field. There are also certain negative social behaviors that tend to be magnified in a free-to-play game due to the fact that there’s a much lower barrier-to-entry to creating new accounts. You can design around them to some degree, but there you go changing the experience from a subscription game while doing so.

    So, when a community starts to explicitly prefer a certain type of game (say, subscription games) and developers develop MMOs specifically to serve that target market (Warhammer, AoC, etc) you’ve got a positive feedback loop that, from where I sit, ends up spinning off certain populations into what amounts to the equivalent of an ethnic ghetto. I don’t mean that in a negative way, but the similarities are striking. I’m constantly amazed at the number of blog posts I’ll read (including by people who should know better), for instance, that speak about the Western MMO market as if it’s composed only of WoW, Warhammer, AoC, EVE, and a couple of other games. There’s nothing wrong with preferring those retail, relatively hardcore games, but it really is a Balkanization of the full market for MMOs, which includes everything from kids playing Runescape and Maple Story to the super-hardcore population that plays EVE or even text MMOs.

    Point is, once these particular ‘tenets of faith’ develop there is a positive feedback loop. Imagine Mark Jacobs at EA Mythic announcing that Warhammer was going to be free-to-play starting tomorrow and that, further, they’d start selling gold for real money. How much of Warhammer’s audience would disappear? I don’t know, but it’s greater than 0, certainly, at least within that ethnic ghetto. The question then becomes whether you can gain a larger-enough audience that they’ll pay you enough to compensate.The very fact that the audience has a strong opinion about whether something is subscription or free-to-play makes the willingness-to-spend line variable.

  2. It’s Not Just About Revenue.It’s about long-term profit and the ability to manage risk. Imagine a hypothetical game whereby the per-player operating costs were $1/month, but the average per-player revenue when it ran as a free-to-play game was $.90/month. (Maybe you have a million players, but they’re mostly in Malaysia and don’t have a lot of money.) One might very well experience a better outcome in that case by going subscription and weeding out the non-payers to raise your per-player revenue above the per-player cost.
  3. Willingness to Spend is Affected by the Business Model. Earlier, I quoted Dan as writing, “Second, there are current players who are in fact willing to pay more for the game than they actually are, but since the game has a flat fee structure, there is no way to capture that untapped willingness-to-pay.” Giving something away for free devalues it to most people, to some extent or another. Charging for a box in Best Buy and piling a subscription on top of that gives off the message that, “We’re worth opening your wallet for.” Yes, I know, we’re all too smart to be affected by by that kind of crude messaging, etc etc. (We’re not, of course.)Once again, the willingness-to-spend curve for an individual player is not constant across different business models.

There are a whole pile of other nuances I’m not bringing up here and no doubt a lot that I haven’t yet learned, but what motivates people to spend a particular amount at a particular time is incredibly complicated and it’s important to examine your business model choices as carefully as a combat-focused MMO examines its combat system.