Tobold's Blog
Monday, May 25, 2009
The limits of microtransactions

In the battle of business models for MMORPGs the monthly flat fee subscription model has one decisive advantage: It is extremely simple to understand, and has only one variable, cost per month. A statement that a particular game is going to be Free2Play and financed by microtransactions is not really telling you much; there are lots of parameters on what exactly is for sale, and how much it costs.

Much of the instinctive dislike of microtransactions from some people is caused by unfamiliarity and mistrust. I would argue that there are both "good" and "bad" microtransaction systems, and everything in between. I don't share the instinctive dislike, because I'm very, very familiar with the microtransaction model. In the decade before I played MMOs, I played Magic the Gathering, which is fundamentally a microtransaction game. It is Free2Play after the initial investment. But from having one deck to having a collection of thousands of cards there is a huge range. Every booster you buy increases your chance of being able to build a good deck, but the more you spend, the more you suffer from diminishing returns. I did have that famous suitcase full with over 10,000 cards, and I did spend thousands of dollars on that game. I got out, and a decade later, with disposable income having gone up and the microtransactions proposed by a typical MMO being a lot cheaper than Magic cards, I have a rather serene view on the possibilities, advantages, and disadvantages of microtransaction system.

The key questions when looking at a microtransaction system are how much the items for sale cost, and how much of an advantage they give you in the game. If the items are too expensive, or don't give the potential buyer any advantage, there won't be enough sales to support the game. But if the items for sale give the player too much of an advantage, and actually make large parts of the game obsolete by allowing you to skip them for cash, players will become bored or disgusted and leave.

Useless items have the advantage that you can always add them to a game's catalogue of items for sale without much risk. Maybe only very few people will buy that special costume or flaming effect for the weapon, but at least very few players are going to be too annoyed if somebody else bought those. For example that flaming weapon effect costs an outrageous $11 in Free Realms, but if you don't want to spend it, it doesn't hurt you in any way.

The other end of the scale is where the bigger risk is. Another Free Realms example are the level 1 weapons you can buy for $2.50 (or $5 for the same stats plus fancier graphics), which are better than the best level 20 weapon you can either find or craft in the game. Having first leveled up a blacksmith to the level cap of 20, and struggled with a Free2Play combat class, the brawler, I tested this out by playing the member's only warrior class with a $5 weapon. After easily killing monsters with the thus armed warrior at level 3 that my level 10 brawler had problems with, I haven't touched Free Realms since. Having the class and the weapon you have to pay for being so much better than the Free2Play content really turned me off. And I felt that the effort I put into blacksmithing was completely wasted. It is not that I couldn't afford the $2.50 or even the $5, or the $5 per month for the membership. But I feel as if both possible choices, of either paying or not paying, are equally bad: If you don't pay you are blocked from the membership content, but if you take the membership content and buy a weapon on top, the Free2Play part of the game becomes comparatively so unattractive, that it might as well not be there.

But fluff and overpowered stuff are the extreme cases, and most items you can buy in most games are somewhere in the middle. If all goes well, Luminary is opening the item mall Wednesday in the open beta. As characters aren't wiped for release, this is the last step of beta testing before official release of the game around the end of the month. I'll give a detailed review of that item mall in a future post, but what I saw up to now is a system which can be best described as "items of convenience". A typical example are teleport tickets, where you can either buy a bundle of tickets, each of which allows you to teleport once, or one ticket for one month of unlimited teleports. Note that even without those tickets you always have the option to teleport to the central city for a low amount of in-game currency, or for free to the town of which you are resident. A teleport thus never saves more than 5 minutes of your time. So it would be very convenient to effectively pay a monthly subscription and always teleport directly to the town or dungeon you want to go. But if you decide not to do so, you aren't at a horrible disadvantage.

The theory behind that is that if you make a graph with one point for each player, listing how much time he can spend on the game on the X-axis, and how much money he is willing to spend on the Y-axis, the large majority of players will be concentrated in two quadrants: The time-rich-but-money-poor, and the time-poor-but-money-rich. Items of convenience allow the money-rich to trade their money for time, but allow the time-rich to arrive at exactly the same result by spending time. As long as the money-rich aren't able to buy advancement past the point which is possible to reach purely by spending time, this system is actually better balanced than a monthly subscription MMO, where the time-poor always lose out.

In the same vein, the time-rich are usually better informed about the game, and less prone to gimp themselves, so it makes sense to have items like status and skill reset tickets, for those who missed the free resets at level 10 and 30 in Luminary. And of course the clearest example is the perennial favorite of microtransaction games: The item which for a limited time allows a player to gather xp at a faster rate. It completely fulfills the criteria for a good and useful microtransaction item: Allowing you to trade money for time, without enabling you to completely skip content, or get to a point where somebody who only spends time can't get to.

Besides the question of how much of an advantage microtransaction items give you, there is also the difficult question of how much these items are pushed onto the user. With Asian companies having a much longer experience with microtransaction games, it comes to no surprise that it is again the US game Free Realms which serves as the bad example: Quite a lot of players complained how constantly in-your-face the in-game advertising for Free Realms membership is, especially in view of the game being marketed to pre-teen children. It is an essential feature of a good Free2Play game that you are actually able to play it for free, without constantly getting rubbed in what you are missing out on. While it does offer an opportunity for good parenting, giving an allowance and teaching the value of money, Free Realms is likely to make life hell for parents who decide their child should only play the free part of the game.

The final point of discussion on the limits of microtransactions is about the amount of money a player can spend on them, and the possibility of spending "too much" money on the game, whatever amount "too much" might be. Having seen both trading card games and microtransaction MMOs, I must say that trading card games are by far the worst offenders. I spent several thousand dollars on Magic the Gathering, but never spent more than $200 on a MMO. In cost per month there are two very different numbers to consider: Average Revenue Per User (ARPU), which tends to be less than $15 per month for most microtransaction games, and Average Revenue Per Paying User (ARPPU), which often is higher than $15 per month. In other words, the typically around 5% of users who do spend money on a microtransaction game are subsidizing those who just use the Free2Play part. No wonder they want *some* advantage out of that deal.

If spending a different combination of money and time to achieve the same result in a game strikes you as unfair, maybe you should remember that $1 or 1 hour does not have the same value for everyone. No, the person who spent more money in all likelihood wasn't screwed, he probably chose to do so out of his own free will, because having to spend more time and less money would have "cost" him more in his personal reference system. Spending $50 or $100 per month on a game might appear outlandishly expensive to some, but cheap compared to other hobbies to others. It is possible to buy something via microtransactions and later regret it, but a game which constantly makes players regret their purchases isn't going to last long. For many people, having the choice of how much money to spend and how much time is actually the better deal than a flat rate. Even for people with little self-control, microtransactions might be the better choice; I'm pretty sure that ultimately the economic damage dealt by World of Warcraft through people neglecting their studies or job is higher than that of any microtransaction MMORPG.

In summary, there are both good and bad forms of microtransactions, and players need to look carefully at what is on offer. Being able to trade money for time, without enabling you to completely skip content, or get to a point where somebody who only spends time can't get to, is not only acceptable, but can actually be a better deal than a flat rate for the time-poor-but-money-rich. In return they finance the game for those who choose to not pay anything, creating a win-win situation. But if paying to play becomes absolutely necessary, is constantly advertised, and makes you much more powerful than you could ever become by just playing, the game risks to turn players off. Players aren't that stupid, so ultimately the game with the better and more voluntary microtransaction system makes more money than the game that tries to push the player too hard.
Funny thing is, the first few hours of Free Realms are surprisingly clear of requests for your credit card, but shortly after that the "middle and end" game are littered with them. Which, makes the game quite boring fast, as the mini-games and over-instancing of Free Realms drive no desire in me to pay. I will just head over to and have fun for free.
I'm surprised you use magic the gathering as an example of not disliking microtransactions. The game pretty much forces you to buy boosters beyond a certain point, even if you use a pre-built theme deck. If you don't, it's impossible to "progress" since a lot of it is building decks to your own style or to counter specific decks others use. Plus magic forces you to actually waste money by the random nature of boosters, unless you buy the specific cards directly in a secondary used market, i.e. rmt.

I don't like microtransactions at all. Its easier just to include those features at a subscription level so everyone is at an equal footing. The reason why they don't is because they can make much more money by piecemealing them out, especially if they are "rental" types that are a large level of convenience to the point of not being worth the time spent.

It's bad also because you shouldn't muck with gameplay in that way. Imagine if bungie did rmt in Halo, allowing players to buy a superpowered shield or gun from xboxlive. Even if it were offline only, people would be up in arms.

They could say in a parody of your argument skill/money. Some people have lots of skill, others don't have the skill but have money, so it balances out. Skill also makes 1 hour not equal across all players.

Its just safer not to do so. It's hard enough to balance content between players of different time and skill levels, when you have to start working on gameplay relative to profit generated by consumption of paid features I think it would just be too much to make a decent game.
A large portion of this is entirely dependent on how it is packaged. As a rather famous fictional nanny once said, "A spoonful of sugar makes the medicine go down".

Free Realms may not necessarily have gotten it right with the item balance (it does sound like the pay-to-play guys have heaps of advantages), but that doesn't mean it can't exist. What if that $5 sword you bought actually only cost $0.50, but it only lasted for 24 hours? A lot of folks balk at having to pay higher prices, but if you have a low enough price point, you've got a much better chance to increase the sales overall (as Valve can attest). I think that people overall are much less averse to microtransactions, as long as they are suitably micro. People don't care so much about spending their change, but it rapidly adds up, which is the entire point.

Every time I've gone to a panel discussion or presentation about microtransaction supported free-to-play games, I've listened to people talking about some "rules" that have to be followed in order to make money while avoiding alienation of your player base.

The biggest one seems to be that you have to keep your game currency and your donation currency distinct.

With Kingdom of Loathing, we do the opposite. The items you get for microtransactions are tradable in the game's normal economy. This allows us to make powerful and interesting items available to paying customers without pissing the non-paying people off and separating the player base into haves and have-nots. If you want to, you can easily acquire enough currency through normal play to acquire the microtransaction items without actually giving us any money.

I'm not sure why this model is so anathema to the larger free-to-play market. It's working great for us. We very rarely get accused of being greedy or exploitative, and if there are people walking away from the game because of disgust with our revenue model, I'm not aware of them.
I think I prefer that scheme, Jick. Because it really is letting people freely trade off time vs money.

What irks me about most RMT (and M:TG also) is the opacity of trying to work out how much you might end up paying. So it's hard to know up front if you think you'll get your money's worth. The real condition for me to buy into it is that I need to know exactly what I get for my cash (and I expect it to be made very clear as to what I need to pay to get a playable game.)

If I think it's a fair/good deal and I like the game, then I'll happily pay it.

Would you have been so keen to play Magic if you had known at the beginning you would sink $1000 into it, or might you have picked an equally fun but non collectible card or board game? You could buy a lot of games for $1000.
As a Station Access user, I get Membership of Free Realms for no extra cost. Alternatively, that's a sub of $4.99 a month.

For that, I get to do all careers and all quests. If I wanted items on top, microtransactions would come in there, but using your example, the Warrior just using the weapon he comes with is already a MUCH better fighter than the Brawler and I don;t fell that I am likely to need to spend any more money on top of the sub.

I am currently playing Wizard 101, which also uses a Free/Subscription/Microtransaction model, and again all I feel I need to pay for there is the $4.99 sub to give me access to the content. I seem to be able to progress just fine with what drops in game - I'm Level 29 and have enough gold for two houses and I've only been playing a week.

I think the model for the future will be a mix of all payment options - free to get you onboard, sub to get your access to higher content and micro to top up as you go.
The question is where the convenience becomes more than just convenience and mandatory.

When small advantages sum up to give the paying customer a real advantage.

And, not surprisingly, the vast majority of these games offer sigificant advantages for paying customers.

I fear something like this is going to happen to Guild Wars 2.

They already started selling extra storage in GW1. In a game where item storage is very scarce by default and was so for years.

I wonder how far they will go.
Jisk, that's similar to what Eve does. One of the things I'm enjoying about Eve is that I have the prospect of skilled play covering the sub cost. It's a long way off: after 10 days I'm only up to 7 million and a time card is about 3 billion but I can foresee a very enjoyable interaction with an item bought by rich players as a RMT transaction.

It's not quite the same as you're selling the items directly while Eve sells game cards which convert to cash which convert to items but in Eve almost everything is for sale if you offer a high enough price.
I think part of the mistrust regarding microtransactions is that many MMO players realise how addictive their game is. They don't want the added temptation to spend always hanging over their shoulders.
The thing I hate about microtransactions, from a game designers point of view, your entire process is about "How do we get them to spend more money?"

It's no longer about "How do we make a good quality, fun game?"

The design suffers because you have to build in weaknesses that can only be filled by the player spending money on RMT items.

Yes, I'm sure somebody will say this is the fault of the designer, because the designer can always try to make a good game, but remember who actually has the final say in game design today. It's the guy with the suit and the spreadsheet who never plays games, but understands finances and if you don't, he'll force you to put in elements that squeeze every last cent out of the player.

Microtransactions are extremely bad for the quality of games. Unfortunately the only way people are going to learn this is with time.
Good article...but...(well there is always a but)

Comparison to Magic the Gathering is a little misleading. At first it seems logical but the advantage it has is 2 fold, first you physically have the cards, unlike MMO stuff which you pay for but you don't own - it can be taken away for any of many reasons outside of your control. Second Magic cards, to some degree or another, have resale value - you can get some, all or even more than you spent back - this is impossible in MMOs - it just wouldn't be a viable business for them to give you your money back when you're done with the item.
I'm surprised you use magic the gathering as an example of not disliking microtransactions.

I certainly wouldn't call Magic "good" microtransaction. It has all the features of my definition of a "bad" microtransaction: being must-have, overpowered, and getting players to a point they can't get to by playing.

My point was rather that already haven fallen for Magic, I'm much better aware of the dangers. And compared to the cost of Magic, microtransactions in most MMOs are rather cheap.
"Curiouser and curiouser" said Alice. The comments show a view from the player/consumer without considering the view of the game developer/publisher/producer. Unless you want to go back to MUDs, we have to recognize that making these MMOs are business concerns and not just a hobby for the programmer.

Further, there are a lot of types of people when it comes to how they enjoy these games, and the games are becoming open to larger and larger gaming crowds as the mainstream audiences discover MMOs as entertainment alternatives. In the current world economic condition, spending on games continues to go up.

The bottom line is that if you don't like what your investment in a game is going to be, if you can figure it out, then it's your choice to play, to buy, to engage. MMOs are hobbies, not simply the purchase of a single game. Hobbies need to fit into a person's life style and finances or else they can become a burden, even an addiction.

What I'd like to know is where did you get the statistics that you quoted, because they don't match my information.

Good, provocative piece.
What I'd like to know is where did you get the statistics that you quoted, because they don't match my information.

The 95:5 split is a very rough estimate I found quoted on various blogs. What is your information?

The better information is the link I gave to Raph's website, where he explains that spending per user follows a power law. So there are lots of people who spend nothing, some who spend little, and few who spend much.
Just two things that comes to my mind:

1) If I am in the low-money-much-time corner of your graph and somebody comes along with much-money-and-much-time I *WILL* lose interest in the game. For sure.

2) MMOs are also about a coherent world. RL influence on game content is always demotivating for me. If I meet somebody with a big shiny sword I want him to be what he looks like: A skilled warrior who has earned it.

Earing the sword with money you earned in a RL-job that, by chance, had low supply and high demand of workforce does not really count.
A third thought:

Games that make you farm boring activities to become better are bad enough.
Games that make me farm my RL-job to become better would be a total desaster. I want to have fun playing the game. That means farming should be limited to activities that are inherently fun.

Please don't forget that not everybody who has a lot of RL-money works many hors or vice versa. Especially at the ends of the spectrum it is rather the other way round.
Please don't forget that not everybody who has a lot of RL-money works many hors or vice versa. Especially at the ends of the spectrum it is rather the other way round.

That is an untrue myth that is widespread among those with little money. The people you read about in the newspapers like CEOs and investment bankers do work extremely long hours. Very few people are idle and rich from inherited money.
Sometimes it is like you say, Tobold, and sometimes it is not.
The amount of money you earn in a market society depends on the demand/supply of the work you can offer much more than on the amount of work you do.

Some especially poor people have to work several jobs to actually be able to finance the education of the children and some wealthy people work only as much as they want to.

And CEOs of international companies work extremely hard and long - yes - but most wealthy people are not managers of international companies ..

.. Hell - I would hate to play this game 4 hours a day every day of the week only to see this spoiled kid of my neighbor ride past me with his new black super-fast horse... :)
Btw: Some investmentbankers and similar people work extremely hard and long until the age of eg. 40 and spend the rest of their days with other fun activities.

You should always look at the full lifetime-balance of work and free time.
Fortunately you don't need to be on an investment banker's income to play MMOs.

Back in reality, lots of people work a 38-40 hour week and earn reasonable money (ie. enough to cover their desired standard of living with some left over for hobbies).

These are the people who are viewed as not time rich because lots of them/us have family commitments too. But may have some extra cash to drop on gaming if it'll make the game fit their schedule better.

The investment banker who works 20 hours a day is really not who we're talking about.
There is one thing that I think is ok with microtransactions. That is for e.g. faster leveling.

The conditions are:
1) Somebody who spends no extra money should not feel like he should.

2) The transactions should help people who have less time keep up with those who have a lot of time enough that it is fun for BOTH (buying (reasonable!) amounts of herbs, e.g.)

3) Under *NO* circumstances should people be able to achieve something with money that they couldn't have achieved with time. (e.g. that gladiator sword that needs you to create a whole raid and raid four months without a break should not be available by money, because creating this raid and keeping it together just so that you (and only you) get the sword is an extraordinary social ability (and achievement), that most people weren't capable of - even with enought time.
It is highly unlikely that the spoiled kid from next door could have done it and people would become furious if this kid could buy it legally for $500 or $50,000, for that matter).
Runes of Magic has a similar "convenience items" policy. If you dig up an interview with the Runes of Magic bosses, you see that that's something they deeply care about.

They won't introduce something like that unbalancing weapon that put you off Free Realms. All the items in the RoM shop are supposed to be very convenient and nice to have, but you can play the whole game and all content without buying a single one of them. Inventory room expansion, mannequins where you can store whole armor sets, add-ons to the teleport system etc.

There are discussions in the RoM forums about how you can't play the endgame without investing real money, but some players proved that you can. It just takes more time.

I think that's a fair deal, much fairer than a fixed price that I pay whether I play (and thus get a "ROI") or not. At least for me and other people with an irregular playing schedule.
@Jick, the Puzzle Pirates dual currency model works nicely as well. The ultimate goal is the trade between time and money. Whatever facilitates that and puts power to do so in the players' hands will tend to work out. (Though notably, a blind currency exchange is a vital component to the PP model. Leaving players to handle currency trade on their own is clunky and more open to abuse. Exchange of goods tends to benefit from an Auction House model that builds trust via transparency, and currency exchange benefits similarly. It also rewards the player who digs into market arbitrage, without trying to find gouging scams.)

@neispace, "everyone is at an equal footing" That's only true if you don't look at time. The whole point of a good MT system is that time enters the equation, and time and money become fungible. Sub systems are decidedly not "equal footing" if you look at more factors than the flat fee. Also, skill is not equal to time, and it's not the devs' place to monetize skill, just opportunity.

@Rawr, "but it rapidly adds up, which is the entire point."
It is for bad MT systems, but for good MT systems, the tradeoff of time and money is the entire point. Such can put incredible power in the hands of the players, and build a relationship that can prove profitable because customers appreciate being given value for their efforts, and will reward that with loyalty and money.

@Plastic Rat,
How is that any different from sub games that use grind to extend play time? Until games are run as charities, there will always be beancounters screwing up game design.

Either you give *both* the time rich and the money rich players unique widgets that are exclusive to their approach, or you make *everything* available via either venue. Your raid example sides heavily on the side of those with time to "earn" the Sword of Uberness. You're denying those who value their time more than their money.

If you're going to argue these things from the notion of "fairness", realize that it works both ways. An imbalance that favors your preferred playstyle isn't actually fair. (True for either playstyle, really, but since the MMO genre is so steeped in subs, there's a definite and distinct sub bias.)

@Tobold, speaking of graphing out customers, and the notion of Market Segmentation, the key to making the time-money exchange work is letting players work out *their own place* on the demand curve, and let the interaction with other players make that work more fluid and comfortable. It not only makes people happier to play and give money to the company (since they are defining the relationship), it also facilitates community cooperation.

People happy with the $15 flatline have self-selected themselves to be "happy enough" with the going rate, but making the whole curve more flexible can make even more people even happier, if balanced correctly. That's the point of Market Segmentation.
Yes, there are limits to microtransactions, but there are also limitations to subscriptions. As a small developer, I can't make a small niche game and hope to support it with subscriptions. A lot of people say they won't play Meridian 59 because it's "almost as much" as WoW but has worse graphics. I can't hope to compete unless I attract a much larger audience. That means the design has to be watered down to some extent to appeal to a larger audience.

@Plastic Rat: a crap game is still a crap game no matter what the business model. People aren't going to subscribe or buy microcurrency to a game that has no hints of fun. So, your argument fails to convince me; a developer still has to worry about fun in the game in order to get an audience. As others point out, making a game is a business decision, and ultimately "how fun is it?" can be seen as a business decision to get people to pay attention to the game in the first place.

I've always been a bit worried that a larger company, like Sony, would come along and do this business model poorly. It sounds like Free Realms is treading on that fine line of being a bit obnoxious about it. I'm hoping that Sony (and others) learn from the heavy-handed tactics and learn that people will pay if they want to pay. Perhaps people could pay attention to what Three Rings has done with the business model. Or, hey, feel free to drop me a line and I'll come and explain the system to you for a consulting fee.

I think we'll see more microtransactions in the future. Don't worry, there will still be subscription games for people who want them. But, if you want a more interesting niche experience, get ready to pay a bit more than your all-you-can-eat experience of WoW or EQ2, etc.
Aye, Three Rings has a great bead on the model. Wizard 101 (King's Isle) has a good system, too, albeit a bit more constrained than Puzzle Pirates.

Notably, those two companies have earned money from me, while Sony and Blizzard have not.
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