Microtransaction

Microtransaction is a business model where users can purchase virtual goods via micropayments. Microtransactions are often used in free-to-play games to provide a revenue source for the developers. While microtransactions are a staple of the mobile app market, they are also available on traditional computer platforms such as Valve's Steam platform.

Free-to-play games that include a microtransaction model are sometimes referred to as "freemium". "Pay-to-win" is sometimes used as a derogatory term to refer to games where paying for in-game items can give the player an advantage over other players, particularly if the items cannot be obtained by free means. The objective with a free-to-play microtransaction model is to get more players into the game and provide desirable items or features that players can purchase if they are interested in them - it is hoped that in the long term the profits from a microtransaction system will outweigh the profits from a one-time-purchase game.

Items and features available by microtransaction can range from cosmetic (such as decorative character attire) to functional (such as weapons and items). Some games allow players to purchase items that can be acquired through normal means, but some games include items that can only be obtained through microtransaction. Some developers^[1][2] ensure that only cosmetic items are available this way to keep gameplay fair.

Channels

Microtransactions are most commonly provided through a custom store interface placed inside the app the items are being sold for. Apple Inc. provides a framework dubbed "in-app purchases" for initiating and processing transactions.^[3] Google's framework for the same use is referred to as "in-app billing",^[4] named more from the developer's point of view. Apple and Google both take 30 percent of all revenue generated by microtransactions sold through in-app purchases in their respective app stores.^[5][6] Steam offers support for microtransactions in games on its platform through the Steamworks SDK.^[7]

Impact

Mobile web analytics company Flurry reported on July 7, 2011, that based on its research, the revenue from free-to-play games had overtaken revenue from premium games that earn revenue through traditional means in Apple's App Store, for the top 100 grossing games when comparing the results for the months of January and June in 2011. It used data that it analyzed through 90,000 apps that installed the company's software in order to roughly determine the amount of revenue generated by other popular apps. They discovered that free games represented 39% of the total revenue from January, and that the number jumped to 65% by June, helped in part by the fact that over 75% of the 100 top grossing apps are games. This makes free-to-play the single most dominant business model in the mobile apps industry. They also learned that the number of people that spend money on in-game items in free-to-play games ranges from 0.5% to 6%, depending on a game's quality and mechanics. Even though this means that a large number of people will never spend money in a game, it also means that the people that do spend money could amount to a sizeable number because the game was given away for free.^[8]

A later study found that over 92% of revenue generated on Android and iOS in 2013 came from free-to-play games.^[9]

Electronic Arts Corporate Vice-President Peter Moore speculated in June 2012 that within 5 to 10 years, all games will have transitioned to the microtransaction model.^[10] Tommy Palm of King (Candy Crush Saga) expressed in 2014 his belief that all games will eventually be free-to-play.^[9]

Free-to-play/microtransaction may be used as a response to piracy; the developers of the mobile game Dead Trigger switched the game to the free-to-play model due to a high rate of piracy.^[11] While microtransactions are considered a more robust and difficult to circumnavigate than digital rights management, in some cases they can be circumvented: a Russian developer created a server to fake authentication for iOS in-app purchases, allowing users to obtain microtransaction features for free.^[12]

References