So, what happens when you combine something that is outwardly entirely available for free and incorporate several options within the game only available at a premium? You get the tiered business model that has turned the mobile gaming industry on its head: ‘freemium.’
“Freemium is not Free”
“Freemium is a pricing strategy by which a product or service (typically a digital offering such as software, media, games or web services) is provided free of charge, but money (premium) is charged for proprietary features, functionality, or virtual goods”
Spurred on by the recent episode of South Park that explored the now popular business strategy for mobile games and other services, I thought that a blog post looking at the model could provide some insights from a social media perspective. South Park creators Matt Stone and Trey Parker actually hit on a few very interesting points that make this process successful: the user does not mentally grasp the amount of microtransactions that take place, feedback from the user allows the game designers to know exactly how to target its consumers and that many of these games appeal to the addictive tendencies of human psychology.
To recap the episode and the basic concept behind this business strategy, a user will feel compelled to purchase additional in order to satisfy in-game achievements and goals. The idea behind this is that the game will be made more fun with these additional features unlocked. Consumers will feel that since the game is free to play, they have no prior costs associated with the product, making in-game purchases more likely. Coined by Jarid Lukin in 2006, this term encompasses one of the most popular business strategies for apps; moreover, the freemium-style business model is not a novel concept. However, it was not until recently that Google changed their app store to denote the fact that while the game itself is free, in-app purchases exist.
Reflections on Social Media
So how does this relate to social media? I see a few major takeaways that could be some interesting discussion points. First, social gaming as an extension of the freemium approach combines the social media subject with the particular business model. Like Farmville did in years past, mobile apps will continue to incentivize sharing with in-game rewards. This will help to hedge the effects of customer churn while also building game awareness on a social level. It will also help to fuel app growth.
Secondly, related to the importance of growth from a mobile gaming perspective, I believe that the “play now, pay later” approach is a useful methodology to promote high-growth in the early stages of any sort of software development. We can see this in a variety of different illustrations from across the web. But it ultimately boils down the ability to first foster a sustainable audience, and then monetize that consumer base. The freemium model is a staged one that is heavily reliant on the later stages of growth and development — see chart below.
And lastly, it will be interesting to see how, going forward, this sort of pricing method is incorporated in any number of ways. Just from the #IS6621 Twitter feed, we have seen stories involving paying for a redo on Tinder. You can buy premium services from Skype and Spotify, so who is to say that if Facebook implemented an incredible new feature, some people wouldn’t pay for it? It’s definitely something we need to monitor as managers, as it is becoming a somewhat ubiquitous presence in the gaming sphere; the transition to the social media sphere might not be too hard.
Oh, and ironically enough, while I herald South Park for exposing this sort of approach as potentially harmful and detrimental to users at a certain level, it is hard to overlook the fact that South Park: The Stick of Truth is guilty as well. So the lesson to be learned here is that the freemium technique is here to stay.
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