Microtransaction

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Microtransactions (sometimes abbreviated as MTX) are a business model where users can purchase virtual goods with 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 seen on PC software such as Valve Corporation's Steam digital distribution platform, as well as console gaming.

Business model rationale of how an organization creates, delivers, and captures value

A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction and modification is also called business model innovation and forms a part of business strategy.

Virtual goods are non-physical objects and money purchased for use in online communities or online games. Digital goods, on the other hand, may be a broader category including digital books, music, and movies. Virtual goods are intangible by definition.

A micropayment is a financial transaction involving a very small sum of money and usually one that occurs online. A number of micropayment systems were proposed and developed in the mid-to-late 1990s, all of which were ultimately unsuccessful. A second generation of micropayment systems emerged in the 2010s.

Contents

Free-to-play games that include a microtransaction model are sometimes referred to as "freemium". Another term, "pay-to-win", is sometimes used derogatorily to refer to games where buying items in-game can give a player a disproportionate advantage over others [1] , particularly if the items cannot be obtained by free means. The objective with a free-to-play microtransaction model is to involve more players in the game by providing desirable items or features that players can purchase if they lack the skill or available time to earn these through game-play. Also, presumably the game developer's marketing strategy is that in the long term, the profits from a microtransaction system will outweigh the profits from a one-time-purchase game.

Freemium

Freemium, a portmanteau of the words "free" and "premium", is a pricing strategy by which a product or service is provided free of charge, but money (premium) is charged for additional features, services, or virtual (online) or physical (offline) goods. The business model has been in use by the software industry since the 1980s as a licensing scheme. A subset of this model used by the video game industry is called free-to-play.

Loot boxes are an increasingly growing form of microtransactions. Through purchasing a loot box, the player acquires a seemingly random assortment of items. Loot boxes are mostly used on PC and console games. The concept behind loot boxes is that, despite gaining more items for a given price, the player may not want those items, and can end up buying the same item multiple times. Instead of a one-time purchase for the desired item, users may have to buy multiple boxes. This method has also been called a form of underage gambling.

Gambling Wagering of money on a game of chance or event with an uncertain outcome

Gambling is the wagering of money or something of value on an event with an uncertain outcome, with the primary intent of winning money or material goods. Gambling thus requires three elements to be present: consideration, risk (chance), and a prize. The outcome of the wager is often immediate, such as a single roll of dice, a spin of a roulette wheel, or a horse crossing the finish line, but longer time frames are also common, allowing wagers on the outcome of a future sports contest or even an entire sports season.

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 [2] [3] ensure that only cosmetic items are available this way to keep gameplay fair and balanced.

Microtransactions are most commonly provided through a custom store interface placed inside the app for which the items are being sold. Apple Inc. provides a framework dubbed "in-app purchases" for initiating and processing transactions. [4] Google's framework for the same use is referred to as "in-app billing", [5] 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. [6] [7] Steam offers support for microtransactions in games on its platform through the Steamworks SDK. [8]

Apple Inc. Technology company; developer of consumer electronics and multimedia platforms

Apple Inc. is an American multinational technology company headquartered in Cupertino, California, that designs, develops, and sells consumer electronics, computer software, and online services. It is considered one of the Big Four tech companies along with Amazon, Google, and Facebook.

Google American multinational Internet and technology corporation

Google LLC is an American multinational technology company that specializes in Internet-related services and products, which include online advertising technologies, search engine, cloud computing, software, and hardware. It is considered one of the Big Four technology companies, alongside Amazon, Apple and Facebook.

An app store is a type of digital distribution platform for computer software called Applications, often in a mobile context. Apps provide a specific set of functions which, by definition, do not include the running of the computer itself. Complex software designed for use on a personal computer, for example, may have a related app designed for use on a mobile device. Today apps are normally designed to run on a specific operating system—such as the contemporary iOS, macOS, Windows or Android—but in the past mobile carriers had their own portals for apps and related media content.

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 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. [9]

Mobile web analytics studies the behavior of mobile website visitors in a similar way to traditional web analytics. In a commercial context, mobile web analytics refers to the use of data collected as visitors access a website from a mobile phone. It helps to determine which aspects of the website work best for mobile traffic and which mobile marketing campaigns work best for the business, including mobile advertising, mobile search marketing, text campaigns, and desktop promotion of mobile sites and services.

Flurry is an American mobile analytics, monetization, and advertising company founded in 2005. The company develops and markets a platform for analyzing consumer interactions with mobile applications, packages for marketers to advertise in-apps, as well as a service for applying monetization structures to mobile apps. Flurry analyzes 150 billion app sessions per month. The company's analytics platform tracks application sessions in iOS, Android, HTML5, and JavaME platforms. Flurry has raised a total of $65 million in funding since its founding and in March 2014 announced that it would partner with Research Now to create a panel database on mobile users. Flurry was acquired by Yahoo! on July 21, 2014 for somewhere between $200 and $300 million.

Game mechanics are methods invoked by agents designed for interaction with the game state, thus providing gameplay. All games use mechanics; however, the scientists at Mojang and styles differ as to their ultimate importance to the game. In general, the process and study of game design are efforts to come up with game mechanics that allow for people playing a game to have an engaging, but not necessarily fun, experience.

A later study found that over 92% of revenue generated on Android and iOS in 2013 came from free-to-play games such as Candy Crush. [10]

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. [11] Tommy Palm of King ( Candy Crush Saga ) expressed in 2014 his belief that all games will eventually be free-to-play. [10] According to Ex-BioWare developer Manveer Heir in a 2017 interview, microtransactions have become a factor in what types of games are planned for production. [12]

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. [13] 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. [14]

Many consumers have referred to video game micro-transactions as a means of 'milking' their product for more profit. "Companies take content they've already developed for their games and put it behind a paywall, asking for $20–$30 to access the 'season pass'." [15]

Consumer organizations have criticized that some video games do not describe adequately that these purchases are made with real money rather than virtual currency. Also, some platforms do not require passwords to use a credit card to complete microtransactions. This has resulted in customers getting unexpectedly high bills (known as bill shocks). [16]

Criticism and regulation

With the increasing popularity of loot boxes in the mid 2010s, several games that implemented their own with varying approaches to the concept became highly criticized by the gaming media. In particular, Electronic Arts' Star Wars Battlefront II in 2017 drew widespread criticism for giving players significant gameplay advantages when purchasing loot boxes with real money, resulting in renewed discussion of the legality of the systems. A number of governing bodies, such as Belgium's Gaming Commission, have subsequently considered loot boxes to be a form of gambling, and from the late 2010s became highly regulated under gambling laws of certain regions such as China, Japan, Australia, and the Low Countries. [17] While most game publishers agreed to modify their games' loot boxes in accordance with governmental laws, or otherwise as a result of negative reactions, others, such as Electronic Arts, have contested that they do not constitute as gambling; in late 2018, the publisher initially resisted the efforts of Belgium's Gaming Commission by refusing to remove the ability to purchase FIFA points in FIFA 19 , but later complied in early 2019 after legal proceedings were brought against them. [18]

In May 2019, Republican Senator Josh Hawley of Missouri introduced a bill named "The Protecting Children from Abusive Games Act" to ban loot boxes and pay-to-win microtransactions in games played by minors, using similar conditions previously outlined in the Children's Online Privacy Protection Act. [19] [20]

Data

Microtransactions have become increasingly common in many types of video games. Smartphone, console, and PC games all have conformed to the use of microtransactions due to its high profitability. [21] Many companies and games, especially smartphone games, have taken on a business model that offer their games for free and then relying purely on the success of microtransactions to turn a profit. [21]

Ethics

The collection of this data on consumers, although technically legal in the United States, or outside the EU, can be considered unethical. Companies can sell data about consumers, involving their spending, bank information, and preferences, to understand the consumer better overall, making business models for gaming companies safer and more profitable. With microtransactions under a negative spotlight from the gaming community, there may be displeasure from those who are aware that their data is being shared to make microtransactions possible. [22] [23]

Revenue

Data from a variety of sources show that microtransactions can vastly increase a companies' profits. Three free-to-play mobile games that made heavy use of the practice, Clash Royale , Clash of Clans , and Game of War , were all in the top five most profitable mobile games of 2016. Microtransactions are also used in larger budget games as well, such as Grand Theft Auto V (2013) generating more revenue through them than retail sales by the end of 2017. This trend was consistent with many other popular games at the time, leading to the practice being widespread in the 2010s. [24]

Related Research Articles

Entertainment Software Rating Board North American self-regulatory organization that assigns age and content ratings for video games

The Entertainment Software Rating Board (ESRB) is an American self-regulatory organization that assigns age and content ratings to consumer video games. The ESRB was established in 1994 by the Entertainment Software Association, in response to criticism of controversial video games with excessively violent or sexual content.

Free-to-play video games, also known as free-to-start, are games that give players access to a significant portion of their content without paying. Free-to-play can be contrasted with pay to play, in which payment is required before using a service for the first time.

Mobile game video game played on a mobile device

A mobile game is a game played on a feature phone, smartphone/tablet, smartwatch, PDA, portable media player or graphing calculator. The earliest known game on a mobile phone was a Tetris variant on the Hagenuk MT-2000 device from 1994.

In video games, loot describes items obtained by the player character for free over the course of the game, such as in-game currency, spells, equipment, or weapons. In singleplayer games, they are often obtained as treasure or from defeated enemies. In a PVP situation, they may be obtained from the corpse of another player. Loot is meant to reward the player for progressing in the game, and are therefore usually of superior quality to items that can be purchased. They can also be part of an upgrade system that permanently increases the player's abilities.

Mobile content is any type of electronic media which is viewed or used on mobile phones, like ringtones, graphics, discount offers, games, movies, and GPS navigation. As mobile phone use has grown since the mid-1990s, the significance of the devices in everyday life has grown accordingly. Owners of mobile phones can now use their devices to make calendar appointments, send and receive text messages (SMS), listen to music, watch videos, shoot videos, redeem coupons for purchases, view office documents, get driving instructions on a map, and so forth. The use of mobile content has grown accordingly.

Kongregate American online gaming website

Kongregate is an American mobile, PC, and Console publisher and web gaming portal. The website features over 110,000 online games and 30+ mobile games available to the public. In 2010, it was purchased by Gamestop Corporation and was then acquired by Modern Times Group MT AB in 2017.

Downloadable content (DLC) is additional content created for an already released video game, distributed through the Internet by the game's publisher. It can either be added for no extra cost or it can be a form of video game monetization, enabling the publisher to gain additional revenue from a title after it has been purchased, often using some type of microtransaction system.

Google Play Digital distribution service by Google

Google Play, formerly Android Market, is a digital distribution service operated and developed by Google. It serves as the official app store for the Android operating system, allowing users to browse and download applications developed with the Android software development kit (SDK) and published through Google. Google Play also serves as a digital media store, offering music, books, movies, and television programs. It previously offered Google hardware devices for purchase until the introduction of a separate online hardware retailer, Google Store, on March 11, 2015, and it also offered news publications and magazines before the revamp of Google News on May 15, 2018.

<i>Candy Crush Saga</i> Free-to-play match-three puzzle video game involving matching candies

Candy Crush Saga is a free-to-play match-three puzzle video game released by King on April 12, 2012, for Facebook; other versions for iOS, Android, Windows Phone, and Windows 10 followed. It is a variation of their browser game Candy Crush.

Kakao is a South Korean Internet company that was established in 2010. It formed as a result of a merger between Daum Communications and Kakao. In 2014, the company was renamed Daum Kakao. The company rebranded once more in 2015, reverting simply to Kakao from Daum Kakao.

Video game monetization is the process that a video game publisher can use to generate revenue from a video game product. The methods of monetization may vary between games, especially when they come from different genres or platforms, but they all serve the same purpose to return money to the game developers, copyright owners, and other stakeholders. As the monetization methods continue to diversify, they also affect the game design in a way that sometimes leads to criticism.

Amazon Underground was an Android app offered by Amazon through which people can freely download and obtain in-app items that they would otherwise have to pay money to purchase. Amazon has used the catchphrase "Actually Free" to describe the policy, and affirmed that Amazon Underground is not a one-time or temporary offer but is here to stay. Participation by app developers in the program is voluntary. Amazon compensates app developers based on the time that users spend within the app, at a flat rate of $0.002 per user minute.

<i>Super Mario Run</i> auto-running Mario smartphone game released in 2016

Super Mario Run is a side-scrolling, auto-runner mobile game developed and published by Nintendo for iOS and Android devices. It was released for iOS in December 2016 and for Android in March 2017. The game represents one of Nintendo's first games developed for mobile devices, and one of the few instances that a game in the Mario series was officially released on non-Nintendo hardware.

<i>Dragon Ball Z: Dokkan Battle</i> free-to-play mobile game

Dragon Ball Z: Dokkan Battle is a free-to-play mobile game based on the Dragon Ball anime franchise. Developed by Akatsuki and published by Bandai Namco Entertainment, it was released in Japan for Android on January 30, 2015 and for iOS on February 19, 2015. Dokkan Battle was eventually released worldwide for iOS and Android on July 16, 2015. The game has exceeded 300 million downloads worldwide, and has grossed over $1.6 billion in worldwide revenue.

Gacha games are video games that adapt and virtualize the gacha mechanic. In the monetization of video games it is similar to loot box, in inducing players to spend money. Most of these games are free-to-play mobile games. In gacha games, players spend virtual currency, which can be from a machine; however real money is usually eventually spent to obtain the virtual currency and opportunities to use it.

In video games, a loot box is a consumable virtual item which can be redeemed to receive a randomized selection of further virtual items, or loot, ranging from simple customization options for a player's avatar or character, to game-changing equipment such as weapons and armor. A loot box is typically a form of monetization, with players either buying the boxes directly or receiving the boxes during play and later buying "keys" with which to redeem them. These systems may also be known as gacha and integrated into gacha games.

In video gaming, games as a service (GaaS) represents providing video games or game content on a continuing revenue model, similar to software as a service. Games as a service are ways to monetize video games either after their initial sale, or to support a free-to-play model. Games released under the GaaS model typically receive a long or indefinite stream of monetized new content over time to encourage players to continue paying to support the game. This often leads to games that work under a GaaS model to be called "living games" or "live games", since they continually change with these updates.

Nintendo, a Japanese home and handheld video game console manufacturer and game developer, has traditionally focused on games that utilize unique elements of its consoles. However, the growth of the mobile gaming market in the early 2010s led to several successive fiscal quarters where they were running at a loss. Nintendo, led by president Satoru Iwata at the time, developed a strategy for entering into the mobile games market with development partner DeNA, as a means of introducing their franchise properties to mobile players with a goal of bringing them to buy Nintendo's consoles later. Since 2015, Nintendo has internally developed a number of mobile games, while also publishing games with other developers, including games outside of the initial DeNA partnership. Several of them have been entered the top-downloaded games list on the iOS App Store and Google Play stores, earning over US$100 million in revenue in total.

Battle pass type of video game monetization

In the video game industry, a battle pass is a type of monetization approach that provides additional content for a game usually through a tiered system, rewarding the player with in-game items by playing the game and completing specific challenges. Inspired by the season pass ticketing system and originating with Dota 2 in 2013, the battle pass model gained more use as an alternative to subscription fees and loot boxes beginning in the late 2010s.

References

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