Understanding the Free-to-Play (F2P) Model in gaming.
Free-to-Play (F2P) is the business model that dominates gaming. It was a disruptive model some years ago and we believe that to see where we’re going, we must understand where we came from.
🔮 To see where we are going with Web3 Gaming, we must understand where we came from in the gaming industry.
One of the critical changes in recent gaming history was the free-to-play model. It’s the current status quo in the industry, and we firmly believe that F2P is something that web3 games should stick to. Let’s explore why:
First, we have to go back in time and understand the initial model of the gaming industry. The packaged goods:
💰 Games were fixed priced at around 60€
🥷🏼 Piracy was an issue. If you cannot afford the game, you get it for free.
👩🏻💻 Game Devs were usually paid by publishers via royalties for distribution.
At this point, people used to believe that you must innovate on gameplay to build a successful game. Let me tell you; it’s not usually needed. You have at least three dimensions to innovate on:
👾 Gameplay: how the game is played.
📈 Distribution: how you reach players.
💸 Business Model: how you monetize them.
You can innovate in just one or all three at the same time. However, the more innovation, the more risk you add to your go-to-market strategy. Some examples:
League of Legends was mainly a business model innovation. The gameplay (MOBA) was already proven by other games (DoTA - a WW3 mod)
FarmVille was mainly a distribution innovation (social - Facebook). Other existing games already proved the gameplay.
The most notable business model innovation in recent gaming history is the Free to play model. It allows you:
🕸 Increase your game's reach (¡obvious, it’s free!)
✋🏼 Stops piracy (if the game’s free, why steal it?)
🪢 Unlocks your players' price elasticity
If the game is free, reach multiplies. Anyone can try your game without friction—your top-of-the-funnel skyrockets. You can now leverage network effects and social.
If the game is free, there need for piracy disappears:
Who has pirated the PSP or Nintendo DS to get all the games? 🙈
Who has pirated the iPhone to play Clash Royale or Marvel Snap? Significantly fewer people.
📝 In the words of the game master Mitch Lasky: piracy is just mispricing.
🤔 The question now arises: How are you making money if the game is free?
You create in-game products that players can buy via micro-transactions. Usually, cosmetics (skins, emotes, icons) with no impact on the gameplay or speed-ups progress faster within the game. They have value because players care about your game.
✨ The magic appears because the new model unlocks the price elasticity of your players:
BEFORE
💰 You were charging 60€ to all your players.
✅ The hard-core gamer who’s playing 10.000 hours pays 60€. A no-brainer for them.
😐 The casual player who’s playing for 5 hours also pays 60€. A more difficult call.
NOW
📈 The price is uncapped.
💸 The hard-core gamer might end up paying hundreds of dollars over time for in-app items.
👍🏼 The casual player will be able to play. He might be converted to a hard-core gamer or pay for a few in-game items.
You’re monetizing your player base way better.
This was the real innovation behind the Free-to-Play model. The games that understood it were able to monetize their player base better, increasing the Lifetime value of their users.
And you already know, a higher Lifetime Value means you have more budget for customer acquisition, which allows you to bring in more people, which increases your revenue again in an endless virtuous loop ♻️
👉🏼 Web3 games should not forget that they compete against this, not against other Web3 Games, and if they want to win, they need to disrupt the free-to-play model, but that’s for another day!
M.
P.S.: If you want to know more about the gaming industry and the free-to-play model evolution. I cannot recommend you more to listen to this podcast episode by @mitchlasky and @blakeir in the 🎙️ @gamecraftpod "Steal This Game." Such a masterpiece 🔝