How free games are designed to make money - YouTube

After Pokemon Go was released in the US, it took less than a day before it was making

more money than all the other apps in both Apple’s and Google’s app stores.

“It’s already earned $14 million in revenue since launching last Wednesday — not even

a full week.” But users didn’t have to pay a cent for

the game. All that money was coming from optional purchases people were making as they played.

This is the world of Freemium apps — a business model that, in the past few years, has largely

wiped out the market for paid games. Now game designers have to monetize the gameplay

and one way to do that is by applying some fundamental lessons of behavioral psychology.

The first thing these games do is set up a virtual currency so that it doesn’t feel

like you’re spending real currency, even though you are.

This is a variation on something we’ve known for decades - which is that people find it

harder to spend money when they’re paying in cash than if they’re using a card.

“So when you pay cash for something, you see it leave your hands and you get a very immediate

sense of how much your cash reserves have dropped, how much your wealth has dropped.”

Games add yet another layer. You pay for lollipop boosters with gold bars and you pay for gold

bars with your credit card, which is already distanced from actual payment.

And then on top of that, they don’t make the exchange rate simple. It’s not 50 gems

for 50 cents. “They’re always something weird like 1

dollar will get you 12 purple diamonds, and that sort of off kilter exchange rate is the

same thing you see with people spending — tourists spending money that they’re not familiar

with in foreign countries.” If incense costs 80 pokecoins and a batch

of 550 pokecoins costs $4.99, how much real money does incense cost? Yeah i don’t know

either. So you’re spending money that doesn’t

seem real and it only takes a second because the app store already has your credit card.

The whole payment process is designed to be painless.

Other parts of the game, however, are designed to be painful.

A key finding of behavioral research is that people tend to experience unexpected losses

more intensely than comparable gains. That can inform the timing of purchase prompts.

In Puzzle & Dragons, players progress through a dungeon before facing a boss, and if they

die, they stand to lose all the rewards they just earned. That’s when they’re presented

with the option to save their coins and their points by spending magic stones, which you

can by in the store with real money. Other developers actively embed inconvenience

into the games, so that you can purchase convenience. In Clash of Clans and Game of War, everything

you try to build has wait times that get progressively longer but are skippable, for a price.

“So they build incentives to remove pain points into the games and then if they want

that, then they have the incentives to insert pain points into the game.”

Ultimately though, only a tiny percentage of players actually become payers. And a small

percentage of payers are those so-called “whales” — people who will pay hundreds, sometimes

thousands of dollars in the app. The marketing firm Swrve estimates that about

half of the revenue for mobile games is coming from less than a half of a percent of all

players. Which means that for some of these games,

non-paying users, which is most people, are essentially pouring time into a game designed

to hit the pain points of a small, susceptible group of players. If you’re really having

fun, that’s fine. But it might be worth rewarding games that

find another way. As of now, the monetization in Pokemon Go is unobtrusive, it’s kind

of tucked away. And that lack of manipulation is a pretty good reason to buy some lure modules

and some incense.

One argument in favor of free-to-play games and in-app purchases is that they give developers

a reason to keep updating the games. And they’re collecting tons of data in order to inform

those updates — things like where you get stuck, where you close the game, which features

are most popular. All that data can help them keep making a game that you want to keep playing.

But it also means that they can tweak the prices based on individual profiles and behavior.

If it seems like you’re about to quit, hey here’s a discount. Or if you’re the type

of person who will spend a lot of money, maybe they bump up the prices a bit. They can even

look at how fancy your phone is and what country you live in and set the prices accordingly.

According to one survey, 40% of game developers said they were setting different prices for

different players. But the survey was anonymous and it’s pretty hard to tell which games those are.