Microtransactions In Games: The Good, The Bad, And The Ugly

Microtransactions (or MTXs for short) are small purchases players make to unlock further gameplay, gain extra lives, change a character’s appearance, or speed up the gaming process in simulation games like The Tribez.

The microtransaction business model has a strong right to exist on mobile; in a world where a Match-3 game costs up to $200,000 to develop and promote, even when they are often distributed for free, game studios are bound to find ways to make money from their hard work somehow.

At the moment, over 90% of all mobile games use the freemium model; the apps are free to play (F2P) and incorporate various in-app purchases (IAPs). Although only 1.9% of players actually spend money on in-game content, they bring up to 90% of the total mobile game market revenue, which hit $46.1 billion in 2017.

Last year microtransactions faced backlash from both game fans and reputable resources like Rolling Stone, Gamasutra, Cinema Blend and Business Insider, as top video game publishers had started to abuse the MTX concept. Sceptics believe MTXs can ruin the competitive spirit, make players trade money for time, and deprive the gaming market of the honest judgement between similar products. According to NPD’s recent research, however, 77% of PC and console gamers are actually willing to pay for MTXs and downloadable content (DLC)!

So, is it fair to take the microtransactional approach to mobile and video game monetisation? What’s the thin line between a healthy pursuit of profit and sheer extortion? We sat down to talk with Pavel Shylenok, CTO at R-Style Lab, to discuss the microtransaction model and its probable future.

Microtransactions in F2P games

Question: Do you think mobile microtransactions are totally acceptable?

Pavel: Mobile game monetisation has always been a tricky thing. A few years after the App Store was launched, game publishers and developers realised they could make tons of money by helping new users achieve better results and successfully compete with skilled players. That’s how the IAP concept (and in-game currency in particular) came into prominence.

[bctt tweet=”What’s the thin line between a healthy pursuit of profit and sheer extortion? We sat down to talk with Pavel Shylenok, CTO at R-Style Lab, to discuss the microtransaction model and its probable future.” username=”GameAnalytics”]

We all know how it works.

You download a simulation game like SimCity and start building up your alternative universe. You spend a couple of hours a day in the game, get free loot crates (that is, boxes with random useful game artefacts) on a daily basis, train your in-game workforce and expand into new territories.

However, some free-to-play games are labelled as “pay-to-win”; at some point you can no longer set up a new plant in 24 hours – and have to wait up to several weeks for the next upgrade. Casual players are usually fine with that, but some 10% of users decide to speed things up and spend a couple of bucks on magic crystals and unicorn hair. Certain users (approximately 6.5%) get used to it and start spending more.

That’s why MTXs force players to trade time for money.

On the one hand, that is acceptable –  a viable simulation game like SimCity or the Tribez costs about $500,000. The sum covers visual design, actual coding and game optimisation expenses only, and then on top of that, you could need a solid marketing budget to get your masterpiece noticed. The cost of that could be comparable to the price of building a simple video game – (Editor’s Note: it doesn’t have to be) and sometimes mobile game development requires even more efforts and creativity due to UI peculiarities.

On the other hand, microtransactions seldom offer content like additional game levels (you actually need to develop these – and it will surely blow up your dev budget which is enormous as it is); instead, we get different types of virtual currency which is purchased for real money.

According to the 2016 Mobile Monetisation Report, IAPs between $0 and $5 comprise almost 40% of all in-app purchases. However, 2.5% of IAPs made by mobile players cost over $50!

$50 bucks for a handful of red, blue or yellow crystals that add no value to the story and do not help you master your skills! What’s wrong with the world?

Using microtransactions in AAA games: evil at its best?

Question: Oh, yes, there are people out there who want to pay that much – and game studios won’t miss their chance to bleed them dry. Still, we’re talking about single-player games right now. What about multiplayer mobile, PC and console games – is it fair to use microtransactions in those?

Pavel: As a game developer and a passionate gamer, I have only one answer: absolutely not!

Competition is what makes multiplayer games fun. It’s all about mastering your skills, refining your strategy and spending time reading game forums and watching YouTube game channels to learn from the best; that’s what die-hard gamers like me want!

You buy a console for $400. You buy an AAA game like Middle Earth: Shadow of War for $60 (or $100 if you decide to splurge on the special edition). After all that, then there’s the Middle Earth market where you can purchase war chests that contain training orders, boosts, and followers.

There’s nothing you can buy on the market that you can’t earn through hard work and lots of hours spent in the game. Also, you won’t need most of the artefacts until you really move forward with the game (Polygon reckons it’s at least 25 hours of playing). However, there will be Tolkien fans who will spend real-world money on IAPs (the shortcut to a better gear and stronger followers), thus gaining a competitive advantage over players who actually take the time to study the game and evolve through trial, error and experimentation.

What if your game uses a player-matching algorithm? Technically, players who made it to a certain level by spending hours in the game are on an equal footing with the players who got to the top with the help of MTXs. In a fair fight, however, a game veteran will easily beat newbies and will get bored soon. Microtransaction lovers, on the other hand, are going to be disappointed with the game (“I’ve paid $250 and still keep on losing”). In the end, microtransactions are a lose-lose strategy for all the parties involved.

Question: Who’s to blame, do you think?

Pavel: I tend to think it is publishers. When it comes to AAA games and popular game franchises, publishers certainly don’t need more revenue to cover development expenses than they get now. Going back to the Middle Earth universe, Shadow of War’s predecessor moved about 6 million units. If we multiply 6 million by $60 (which is the average price for an AAA video game), we’ll get $360 million. Ok, say half of those 6 million copies might’ve been bought on sale, but even in that situation, I believe that the publisher’s profit could not be less than $180-200 million.

Okay, you need at least $50 million to produce a high-quality PC and console game, and you might need to add up to another $50 million to cover distribution and marketing costs. Even if the game had cost Warner Bros. $100 million, by my calculations they would still have recovered the expenses twice over!

Question: So, it’s the classic King Midas situation. What do you think will happen to flawed microtransaction business models in the future?

Pavel: Some models are flawed as it is, and Apple’s decision to force iOS development services companies to disclose the odds of receiving loot box items prior to a purchase is the first sign of the forthcoming change. Players are fed up with spending real money on items that do not add anything to gameplay – and game developers and publishers will have to deal.

Basically, they have two options here.

First, they could replace microtransactions with downloadable content, including new game levels, battlefields, and cosmetic upgrades that do not affect gameplay directly. If you want that $50 Gandalf hat for your character, go for it – but it won’t give you superpowers or extra lives.

[bctt tweet=”‘Players are fed up with spending real money on items that do not add anything to gameplay’ – @AndrewKlubnikin speaks to @RStyleLab CTO Pavel Shylenok about the good, bad, and ugly of microtransactions” username=”GameAnalytics”]

Second, they could get rid of microtransactions completely, raise the price of PC and console games up to $75-100 and release games every 3-5 years, not each year as some do now. Not only would this help established game studios create better games, but it would also give a chance to independent developers who could fill the gap between major game releases.

After all, indies no longer need publishers to succeed in the digital-first world; soon quality graphics, engaging gameplay and real competition will finally make gaming great again!