Online Gaming and the Success of Freemium
Monetization and finding the right kind of business model is at the heart of all new media business strategy. From advertising and subscriptions to merchandising and fees, the business model for an online product will undoubtedly determine its tangible success. For many start ups, the initial focus is on growth, under the notion that with enough users and unique visitors, a monetization model can be implemented successfully on a large scale. One way of monetizing that we have seen a lot of recently is the freemium model. This is a type of business model in which a product is supplied for free to anyone who wishes to use it in hopes that some of these users will upgrade to a premium version of this service with added capabilities and or product features. This model has worked for all sorts of online entities and has proven a solid approach to anything with a mass following. But one area in particular that has excelled is the online gaming industry.
While some people held that games were recession proof, sales have fallen over the past six months. But this only applies to boxed video games, while online games such as World of Warcraft, Second Life, online bingo sites, and the slew of games on Facebook have been thriving. One of the main reasons for this is that they are free, at least to begin with. Throughout the recession, people have spent much more time online consuming free content. With most online games, a free version is offered either for a limited time, or permanently alongside an enhanced version that users can upgrade to for a fee. In turn, if an online game is a solid product coupled with online communities, greater functionality, or even larger prizes, it stands a good chance at getting a substantial enough portion of premium upgrades. Considering the lack of overhead in production and distribution that traditional media companies struggle with, online games can be extremely successful with a large enough user base.
Examples of successful use of the freemium model are endless. Club Penguin is probably the best known freemium success story for online games. By offering several tiers of subscription, including various members’ only rooms, Club Penguin was able to draw 700,000 paid subscribers from 12,000,000 users in 2007, generating estimated annual revenue of $42 million. That’s a mere 5.84% paid subscribers, but with enough of a following, it was very successful.
In managing the PPC accounts for an online bingo website, I personally saw another success story. The site offered free bingo with real jackpots. That’s right; they were giving money away and offering a free service at the same time. However, alongside the free games were paid bingo games with much higher jackpots and extremely competitive offers. Coupled with members only chat rooms and other promotions, a large portion of the users ended up registering and playing the paid bingo games, making the model a complete success. While it may not always be smart to place growth at the forefront of any start-up, it has proven successful for online games using the freemium business model.
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