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The Good and Bad of Free-To-Play

F2P, while being one of the greatest business model innovations in gaming, has caused problems that it's going to need to fix

The Good and Bad of F2P

Over the past decade, Free-To-Play (F2P) has revolutionized gaming for both players and developers. F2P is a model which allows games to be downloaded and played for free; therefore, pushing game developers to monetize through cosmetics, battle passes (seasonal achievements), DLCs (downloadable content), or advertising. This was a substantial evolution for an industry that primarily relied on the business model of selling premium products for a fixed upfront cost.

F2P is not necessarily new, but it has continued to grow in popularity. Over the past couple of years, the model has even spread to some of the most notable premium IPs through Call of Duty: Warzone and Halo: Infinite. However, broader adoption does not necessarily mean that F2P comes without negative side effects. F2P has completely shifted monetization practices within the gaming industry, and in this newsletter we want to give credit and critique the existing model of F2P.

Of course, F2P has had some immensely positive impacts on the gaming industry and its constituents. Four of the most notable benefits include:

Revenue Uplift: Games were previously beholden to initial sales, which required large UA budgets and the hope that strong IP would drive purchases. It was a quintessential “build it and they will come” strategy. Today, F2P revenue composes ~80% of total games revenue and has made the potential revenue for game developers essentially uncapped. Developers can rely on delivering continuous content to their end users that can be monetized without affecting the game itself (most of the time). Instead of focusing on monetizing a user once upfront, developers can monetize the user over time through updated content and cosmetic enhancements. This has resulted in the popular concept of “whales”, or high-spending players that can more than offset large groups of non-paying users.

Live Ops: From a gamer’s perspective, the transition to live-service games has been both good and bad. On the positive side, when gamers would buy games in the past, the content they purchased was generally a comprehensive experience where the player could expect access to all of the content. Today, most large budget games will update and evolve their content over time, sometimes for free. This is why games like Fortnite and League of Legends continue to hold the attention of large and dedicated audiences many years after initial release. The concept of adding additional game content is not necessary when publishers and developers are focused on initial game sales; it can even be counterintuitive when those teams could instead focus on building and selling additional standalone sequels. However, players benefit from getting new content, for free, at a release rate that was previously unimaginable. As of today, Fortnite is on v23.50 (Fandom) and consists of hundreds of gigabytes of downloadable content with 50 separate updates and hotfixes in 2022.

Accessibility: The cost of games can be a burden and is the first barrier to playing a title for gamers. Many distribution platforms offer refunds before a certain amount of playtime but that is often not enough time for a player to immerse themselves in a game and judge its value. Free games remove this barrier and better incentivize players to try them. This is good for players and developers in the long run.

Piracy: F2P is an optimal solution for combating piracy. When games cost money a natural black market for games arises with bad actors attempting to copy the software and sell it at a lower price. Piracy is an attractive model as software scales infinitely; with the right distribution, bad actors can sell bootleg copies with near 100% margins. Piracy was previously mitigated with serial keys, but even that technology has been circumvented with software such as a keygen. Digital rights management (DRM) tools have been built that significantly benefit from F2P when it comes to piracy. For example “Steam offers proprietary features such as accelerated downloads, cloud saves, automatic patching, and achievements that pirated copies do not have.” (Video Game Piracy)

While there are clear benefits to F2P, unforeseen consequences have also arisen that can be directly attributed to the transition to F2P:

Cheating and Smurf Accounts: This is a direct counterpoint to the benefits of accessibility above. Due to F2P lowering the barrier to playing games there are very little consequences to getting your account banned. Outside of losing progress (which gamers in this category are not concerned about), bad actors can simply create new free accounts. This has also created a much more active market for buying and selling accounts. Players who have lost progress from a banned account can affordably buy new accounts that are already leveled up. The ability to have multiple profiles within an account also leads to an increase in smurfs (accounts that are typically used for experienced players to play in lower level matches/lobbies), which can substantially hurt player experience in the lower ranks of competitive titles.

Underdelivering: F2P developers have the flexibility to claim the live ops benefits from F2P but then sell games under the guise of continued development. There is a valid argument that games have widely underdelivered compared to the past. Without live ops, games needed to be fully built and ready to play on day one of launch because consumers expected a complete experience. This has drastically affected the player sentiment around games like Call of Duty that have always been a premium (paid) game but are not releasing with enough content (Dotesports).

Predatory Practices: With the transition to F2P, predatory monetization practices have arisen as developers and publishers need to incentivize players to spend money. The most common and controversial strategy is loot boxes (players pay a fixed price to receive a randomized asset of varying quality and value), which are often criticized for their resemblance to gambling. This has resulted in governments attempting to regulate the microtransaction market (Congress.gov).

Takeaway: F2P is a significant business model innovation that has propelled gaming revenues to new heights. However, this has come with serious implications that negatively impact the player experience and have brought on new problems for developers to solve. Over time we hope to see innovations like universal game IDs, clarity around game content expectations, and new ways to monetize the long tail of users.