Free-to-own: A new business model thesis for games.
Back then, the gaming challenge was to build a proper business model by giving away the game for free. What if the next step is also giving away the in-game items for free?
A few years back, it was hard to believe that allowing players to play your game for free would lead to higher-than-ever monetization thanks to in-game items such as cosmetics, boosters, or season passes.
Today free-to-play with microtransactions is the standard business model for games generating more than 120 billion dollars in annual revenues, more than half of all games revenues!
However, some game developers believe they can improve the gaming business model again by giving away in-game items for free.
You’re granting the complete game for free and some of the in-game items, and even so, you will monetize better than before. Is that even possible?
👉🏼 Let’s introduce the free-to-own model.
Popularized by Gabriel Leydon, CEO at LimitBreak, a company that has raised $200M to build a web3-based MMO around this idea (source), the free-to-own thesis (not a big fan of the naming) is as follows:
Your game implements player ownership. This means that all your in-game items are powered by web3 technology, and your players will be their legit owners. Everything they achieve, unlock, or buy within the game can be freely traded in secondary (official or not) markets.
You create packs of in-game items for your early adopters. You distribute them FOR FREE among your early fans and supporters. And you make sure those items are scarce. They’re OG drops that are not going to be created again.
When the game grows in popularity, those in-game items will appreciate in value within the game ecosystem, similar to what’s already happening in existing games with skins or, for example, in other non-gaming markets like sneakers.
This will align incentives with your players thanks to the ownership, converting them into advocates for your game. The more your game grows, the higher the appreciation of the player’s items. And since the items are theirs, they can decide if sell them for a considerable profit, exchange them for other things, or even destroy them whenever they want.
but, how does the game studio make money in this situation? The answer: Royalties 💸
Since the game studio is the creator of all in-game items, they can set a royalty fee for any transaction related to the game. In a similar way that Stripe takes 3% for processing a payment, the game studio would take -let’s say 5%- of all the transactions involving one of their items.
If the game is big enough, and player transactions are a part of their play pattern, the volume of daily transactions a game can have is massive. For instance, Fortnite has 80M monthly active players. Can you imagine how big an economy in a game as popular as Fortnite could become? For sure, more significant than some countries’ economies.
The core idea of the free-to-own model is to create enormous games thanks to:
Being free-to-play to reduce friction for new players.
Being free-to-own to align incentives with the players and convert them into advocates.
However, there’s a considerable tech limitation. In my opinion, for a model like this to work out properly, the royalty fees should be on-chain, which is not the current standard (as we discussed here). By being on-chain, the game studio can be 100% sure that they will collect the fee in any transaction with the independence of where the transaction is happening.
This also opens the door to game interoperability, but that’s another topic to explore another day.
💭 Do you think it is possible to properly monetize a game by giving away the in-game items for free?
💭 Could this model become the new standard or just a side model to combine with existing ones?
👀 I’d love to read your thoughts.
M.