Free-to-play

Free-to-play refers to any video game or social or mobile application that has the option of allowing its players/users to play/download without paying. The model was first popularly used in early massively multiplayer online games (MMO) targeted towards casual gamers, before finding wider adoption among games released by major video game publishers to combat video game piracy and high system requirements. Since games using the concept are available at no cost to players, they use other means to gather revenue, such as charging money for certain in-game items (like powerful bonuses which are usually available for real money only) or integrating advertisements into the game. Free-to-play can be compared to pay-to-play, in which payment is required before using a service. Pay-to-play games usually offer equal gaming experience for all players while free-to-play games give advantage to premium players. Free-to-play games are similar to freemium, a more general term and a business model in which a product is offered free of charge while a micropayment is charged for users to access premium features and virtual goods. Shareware by contrast typically only offers a portion of the game, such as Id Software's first-episode shareware versions of many of their early first-person shooters. If there is no charge payable for any feature in a game, it's known as freeware.

Virtual goods
Virtual goods are non-physical objects purchased for use in online communities or online games. Digital goods, on the other hand, may be a broader category including digital books, music, and movies. Virtual goods have no intrinsic value and are intangible by definition.

Including digital gifts and digital clothing for avatars, virtual goods may be classified as services instead of goods and are usually sold by companies that operate social networks, community sites, or online games. Sales of virtual goods are sometimes referred to as microtransactions, and the games that utilize this model are usually referred to as freemium (free + premium) games.

A large majority of sales have been in Asia.

History
The free-to-play (F2P) model can trace its roots back to MMOs targeted towards children and casual gamers. The first virtual goods to be sold were items for use in MMORPGs. Players would sell virtual goods, such as swords, coins, potions, and avatars, to each other in the informal sector.

The South Korean company Nexon (later based in Tokyo, Japan) largely pioneered the virtual goods business model in 1999. But it wasn't until the early 2000s, as Nexon began gaining popularity with MapleStory and Dungeon Fighter Online and was followed by other Korean companies like Cyworld leading the way, that virtual good sales became instituted as a legitimate revenue-making scheme. Virtual goods may continue to be a primarily Asian phenomenon, as between 2007-2010, over 70% of worldwide sales were made in this region.

Games by other video game companies elsewhere in the world soon followed, such as Farmville (Zynga, 2009), Battlefield Heroes (Electronic Arts, 2009), Free Realms (Sony, 2009), and Quake Live (id Software, 2010). Independent video game developers also took advantage of the model by providing inventive and innovative titles that do not need the larger budgets usually required by blockbuster games, while earning significant amounts of revenue due to the fact that these development teams often consist of only one or two people. While the practice of selling virtual goods is forbidden in some of the Western blockbuster online games, such as World of Warcraft, many online games across the world now derive revenue from the sale of virtual goods.

The Internet has been cited as a primary influence on the increased usage of the free-to-play model, particularly among larger video game companies, and critics point to the ever-increasing need for free content that is available wherever and whenever as causes. On the PC in particular, two problems that are specific to the platform are video game piracy and high video game system requirements. The free-to-play model appears to solve both these problems, by providing a game that requires relatively low system requirements and no cost, and consequently provides a highly accessible experience funded by advertising and micropayments for extra content.

Some of the earliest games that adapted the free-to-play model after using another model were formerly subscription-based games, such as The Lord of the Rings Online: Shadows of Angmar (2007), Age of Conan: Hyborian Adventures (2008), Champions Online (2009) and Heroes of Newerth (2010).

Free-to-play is still a fairly "young form of gaming", and the video game industry is still attempting to determine the best ways to maximize revenue from their games. Gamers have cited the fact that purchasing a game for a fixed price is still inherently satisfying because the consumer knows exactly what they will be receiving, compared to free-to-play which requires that the player pay for most new content that they wish to obtain. The term itself, "free-to-play", has been described as one with a negative connotation. One video game developer noted this, stating, "Our hope—and the basket we're putting our eggs in—is that 'free' will soon be disassociated with 'shallow' and 'cruddy'." However, another noted that developing freeware games gave developers the largest amount of creative freedom, especially when compared to developing console games, which requires that the game follow the criteria as laid out by the game's publisher.

In comparison, Charles Onyett says in an editorial for IGN that "expensive, one-time purchases are facing extinction". He believes that the current method of paying a one-time fee for most games will eventually disappear completely, perhaps after the next generation of consoles has arrived. He admits that major video game franchises will continue to have few problems selling many units, but notes that smaller companies with lesser known games will have trouble selling their games due to prohibitively high prices and will instead have to switch to the free-to-play model to survive. Onyett continues by describing pricing models in video games as being in a "state of flux for some time now", concluding that this would naturally lead to the decline of one-time purchase prices. He claims that the reason that it feels as though the free-to-play approach is new is due to the fact that it has mostly been limited to computer games and outside North America until only recently.

Examples
There are many games specifically designed around the free-to-play model. The largest number of monetized (revenue generating) free-to-play games are developed in South Korea and Russia, where they dominate 90% of the gaming market. There are free-to-play, pay-to-connect games where there is no charge for playing, but often the free servers are congested. Access to uncongested servers is reserved for fee-paying members.

Free-to-play games are particularly prevalent in countries such as South Korea and the People's Republic of China.

A survey carried out by market research firm VGMarket in July 2011 for global payments company PlaySpan, owned by Visa Inc., received responses from 1,006 American gamers aged 13 to 65 (with an average age of 25, 72% of whom are male, with an average income of US$68,897) for questions related to the purchase of virtual items in video games. The respondents answered based on how much money they thought they spent on virtual goods, rather than their actual spending patterns, and respondents are not necessarily the same ones from the previous year, making year-by-year comparisons possibly less reflective of actual spending patterns. All dollar figures were in United States dollars. Among the respondents, 31% said they had spent real-world money on virtual goods, and 57% of these made purchases at least once a month. More notable statistics, however, were focused on the gender split. For both MMOs and casual games, women spent more money on virtual goods than men. On average, women spent $111 a year in MMOs and $62 a year in casual games, while men spent $74 and $28 respectively. Another significant statistic was the change in spending from the previous year. For MMOs and console/PC games, the average amount spent was up 20% to 90% year-on-year, depending on category. However, for casual games, the average amount spent was down in all categories, by between 20% to 60%. Overall, all types of virtual content experienced an increase in average spending year-on-year, while average spending on virtual gifts dropped from $30 to $23 per year.

Mobile analytics company Flurry reported on July 7, 2011, that based on its research, the revenue from free-to-play games had overtaken revenue from premium games that earn revenue through traditional means in Apple's App Store, for the top 100 grossing games when comparing the results for the months of January and June in 2011. It used data that it analyzed through 90,000 apps that installed the company's software in order to roughly determine the amount of revenue generated by other popular apps. They discovered that free games represented 39% of the total revenue from January, and that the number jumped to 65% by June, helped in part by the fact that over 75% of the 100 top grossing apps are games. This makes free-to-play the single most dominant business model in the mobile apps industry. They also learned that the number of people that spend money on in-game items in free-to-play games ranges from 0.5% to 6%, depending on a game's quality and mechanics. Even though this means that a large number of people will never spend money in a game, it also means that the people that do spend money could amount to a sizeable number due to the fact that the game was given away for free.

Major video game company Electronic Arts first introduced the free-to-play concept in one of its games when it released FIFA Online in Korea. The company gave away discs containing the game away for free in the country, and instead charged money on items such as roster updates and new uniforms. They learned that 10% of all Korean households had downloaded the game, and that they made more money using this model than they would have made if they sold the game using traditional methods. The company introduced the free-to-play concept in one of its games to a North American audience in 2008, when it introduced its Play4Free program that debuted with Battlefield Heroes (still in beta at the time), and which provides free software but includes the option for players to make micropayments within games. Players can pay to customize the design of their characters and increase their character's abilities.

In addition to making in-game items available for purchase, EA also brings in revenue from its free-to-play titles by integrating in-game advertising into its games. In August 2007, EA completed a deal with Microsoft-owned Massive Incorporated, which lets Massive update and change in-game advertising in real-time within EA games, especially those focused on sports since advertising is an "essential component to create the fiction of being there". Other EA titles such as Battlefield 2142 and Need For Speed: Carbon include in-game advertisements that appear in virtual billboards.

With its Free Realms game targeted to children and casual gamers, Sony makes money from the product with advertisements on loading screens, free virtual goods sponsored by companies such as Best Buy, a subscription option to unlock extra content, a collectible card game, a comic book, and micropayment items that include character customization options.

Valve Corporation has adopted a free-to-play model with several of their video games, including the team-based first-person shooter title Team Fortress 2 and the multiplayer online battle arena title Dota 2. Both Team Fortress 2 and Dota 2 are distributed online through the Steam system. Originally a purchasable title, Team Fortress 2 became a free-to-play title, supported by micro-transactions for unique in-game equipment through Steam in June 2011. Prior to release, Dota 2 was announced as a free-to-play title with all influential content readily available for players, while cosmetic items are purchasable through the Steam Store.

id Software's Quake Live, a browser-based relaunch of another one of the company's games, Quake III (1999), keeps its revenue streams more simple than other free-to-play games by only making money through in-game billboards. It has been reported that they will offer paid-for content in the future, such as new character models and maps. However, it may be more difficult to make money from Quake Live due to the fact that players can simply purchase the full version of Quake III and receive all extra content for free.

Edmund McMillen, an independent game developer and co-creator of games such as Gish (2004) and Super Meat Boy (2010), has claimed that he makes most of his money from sponsors. One way that he makes money from his games is to, instead of charge for them, place an advertisement for an advertiser's website into the introduction of a game as well as the title screen. Video game development company Flashbang Studios, creator of Off-Road Velociraptor Safari (2008), monetizes some of their games by offering a subscription service to players to provide access to extra features on both their website and in their games, which do not affect gameplay itself.

Canadian video game developer BioWare announced Dragon Age Legends in May 2010 and launched it in February 2011. The title is a free-to-play Facebook game that ties in to the Dragon Age role-playing game franchise. Greg Zeschuk, vice president and co-founder of BioWare, remarked in an interview that there was a good possibility that free-to-play would become the dominant pricing plan for games, but that it was very unlikely that it would ever completely replace subscription-based games. He concluded by noting that either a subscription-based game should offer much more content than a free-to-play game, or that it should be possible to obtain the extra content by spending roughly the same amount of money in a free-to-play game with micropayments.

Riot Games free-to-play online MOBA, League of Legends, recently became the most played PC game in North America and Europe according to Forbes magazine. The success of the game has many other video game publishers hoping to release their own MOBA, in order to capitalize on the burgeoning market for free-to-play MOBAs.

Revenue
In 2009, games played on social networks such as Facebook, games that primarily derive revenue from the sale of virtual goods, brought in 1 billion USD, and that is expected to increase to 1.6 billion in 2010. Worldwide, 7.3 billion USD was made from virtual goods that same year.

Estimates of the future market for these small items vary wildly depending upon who is making the prediction. 2013 sales will be 4 billion USD according to one analyst and a year later reach 14 billion according to a different analyst.

In 2010 a virtual space station in the game Entropia Universe sold for $330,000.

Virtual goods purveyors

 * Cellufun
 * Changyou
 * DeNA
 * Cyworld
 * Facebook
 * Gaia online
 * Giant Interactive
 * GREE
 * Habbo hotel
 * Hi5
 * Hotornot
 * IMVU
 * Iron Realms Entertainment
 * Kongzhong
 * Mobage
 * Nexon
 * Ning
 * Little World Gifts
 * Playdom
 * Playfish
 * Second Life Marketplace
 * RuneScape
 * Slide.com
 * SmallWorlds
 * Sony Online Entertainment
 * Valve Corporation
 * Tencent
 * World of Warcraft
 * Xbox Live Marketplace
 * Zynga
 * Flirtomatic