The Top Two Sources of Revenue in Games5 min read

This post is part of a series.

If you had to guess what the top two sources of revenue are for games, what would you guess? Here’s a list of the many ways to monetize your game or gamified software.¹

1. Subscription. The easiest model, where you simply require a sum of money from your players each month. Monthly payments are most common, but variants exist. Most famous example – WoW.
2. Freemium subscription. Essentially the same as subscription, but players CAN play for free with some limitations. For example, non-paying players can’t visit all locations, or reach maximum level, or somesuch. Dungeon runners used this model, and Dofus IIRC.
3. Box sales. You simply sell boxed version of your game for some fixed amount, and let players who bought it play forever after. Guild Wars does it; also this model is common among team shooters like TF2 and COD:MW2.
4. In-game advertising. Show some ads to players and hope they bring enough money. I’m not aware of games that use advertising as a single, or biggest, source of income.
5. Microtransactions. You sell some virtual items to your players for trivial (or sometimes not) amounts of cash. Some games only sell “cosmetic” items that do not affect gameplay; some sell “helpers” that make the game a little easier; still others sell all kind of game-breaking uber-weapons and such. Almost all Asian games use this model extensively.
6. Virtual currency. A very special case of microtransactions, this is where in-game virtual currency has a fixed rate of exchange with real-world currency, and can be exchanged both ways. The only game that does it, as far as I know, is Entropia Universe.
7. Server leasing. You sell virtual space in your game, allowing players to have their own place in the game. Second Life uses this model.
8. Merchandise. The game itself is free, and you make money by selling game-related merchandise like posters and t-shirts and the like. Kingdom of Loathing is a game that uses this model.
9. Offer walls. A kind of microtransactions, but instead of selling items for cash, you show your players a “wall” of offers from your partners. Something like “Participate in this online survey, and receive some in-game currency”. D&D Online had it at one time, and a lot of social games use this model in addition to simple microtransactions.

But this list can be boiled down to something like this for most free online games:

1. Pay to Win
2. Pay to upgrade your avatar
3. Advertising

Believe it or not, the least lucrative of the above list is advertising – you have to have a significant User base before that. For example, one 2011 calculation (admittedly dated!) showed that for 100K users, you could estimate that your total intake is about $9000 via advertising.² That leaves our other two items as the top revenue sources for freemium games.

The remaining two are the top earners, and both fall into the category of in-app-purchases (IAP). How much money can be made there? How much money would an individual spend?

Even with the astronomical size of mobile user bases, some basic arithmetic suggests the top 1% are spending more than $10k a year each on these games, even the top 10% are spending hundreds of dollars.³

Pay to Win

If your game has tough levels that people can pay to bypass or get special power ups to pass with (e.g. Candy Cruch), you are using pay-to-win. Other implementations include special weapons or content that can be unlocked through real money purchases.

Avatar Bling

Surprisingly, people will put a lot of stock in the online presentation of themselves – that is, we all like to represent our personality and values, not to mention our idealized or alternate self, through avatars. As strange as it sounds, people will spend money, from cents to dollars, buying upgrades and bling for their avatar, even though they are all virtual, not actual goods. Of course, people can buy real world t-shirts for themselves, but online bling only costs the initial creation cost (for the company), but people can buy unlimited numbers of such online stuff.

CONCLUSION

So, when you design your game, ask yourself how you can implement these two features.