29 business models for games

At the Social Gaming Summit recently, on the panel about Monetization and Business Models, David Perry mentioned that there were 29 business models for games that he was familiar with. I asked him to do a guest post listing them all and he agreed.

David Perry is a 27 year industry veteran whose games have sold over a billion dollars at retail. He’s the Chief Creative Officer of Acclaim Games, Inc. and prior to that was the founder of Shiny Entertainment, Inc. which was purchased by Atari. For more information, please visit: http://www.dperry.com

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Potential Video Game Monetization Methods.

These models come from 25 years of watching people experiment with game monetization.

Note: The good news is there’s lots of choices and many of the models can be combined.

List © 2008 David Perry. www.dperry.com

1. Retail (bricks & mortar), selling boxed product at places like EBGames, Gamestop or Virgin Megastore. This also includes mom & pop stores, hardcore specialist gamer shops, and online retailers like Amazon.com that ship the product to your door. The gap in this market is “same day” physical delivery of games too big to download or 1st party titles (basically combining online & bricks and mortar in one solution.) The future of this space is pre-paid cards as the consoles will (in the future) go online only, distributing everything directly to the consumer, so retail (to make it worth selling the hardware) will need a cut of the software sales. Hence prepaid cards. The Gamestop tactic of re-selling USED games (to avoid paying for new product) will finally be over. To drive users to retail, the making of special “enhanced” versions just for their retail chain is a common practice.

2. Digital Distribution (direct download, direct to consumer), like the Steam service from Valve Software, the PlayStation Store or Xbox Live Arcade from Microsoft. This also technically includes “unlocking” access to a game already on a service, like the faux install process on Facebook (however the player would have to pay to do this unlock.)

3. In-Game Advertising (either obvious billboards or branded items in the game world, or subtle product placement (certain clothing, sunglasses or vehicles like Gaia Online), or built into story elements (like the hero’s girlfriend works for a Neutrogena). Companies like IGA, Massive, Game Jacket, Mochi Media, Google, VideoEgg etc.

4. Around-Game Advertising (basically making money from banner & skyscraper adverts that circle the gameplay window), this is common on flash game aggregator sites, they use services like Google, Commission Junction, personal affiliate deals etc. The revenue comes from CPM (cost per thousand views), CPC (cost per click), CPA (cost per acquisition of a player), CPP (cost for a “real” player who really plays for a certain time, or to a certain level.)

5. Pay Finder’s Fee from First Dollar. This allows you to pay much higher finders fees with no risk. Like offering (as the finder’s fee), the first $25 that comes in from any player they find. You balance the fee to a sensible percentage of the average income you get from players. We [Acclaim] get around $70 per paying player, so this seems reasonable.

6. Advertgames (the whole experience is an advert), common on movie websites, can also be big like America’s Army or the Burger King games on Xbox 360. I did one of the first of these called “Cool Spot” for 7-UP. The advertiser helps fund the game and depending on the deal, that determines who earns cash out of the revenue. Your reputation will impact this equation.

7. “Try Before you Buy” / Trialware / Shareware / Demoware / Timedware (this is letting you play crippled, shortened, or restricted time versions of a game for free, while trying to up-sell the full version.) This is a real balancing act as too much in the demo can kill any hope of future sales. Xbox Live has been experimenting with this concept, they seem to have hit the sweet spot by giving one playable level and then giving a big reveal (like there’s a giant boss monster around the corner) then they say “Buy the full version to continue!”. That’s basically the ‘cliff-hanger’ trick, and just like TV it works.

8. Episodic Entertainment (borrowing from the TV model), you either buy the episodes in a serial fashion as they become available, you can pay for all episodes unlocked for a period of time, or they are sold as expansion packs.

9. Skill-Based Progressive Jackpots (where players buy a ticket to enter into a tournament) this generates a progressive jackpot and winner who reaches a certain (winner) status wins the jackpot. You keep a percentage of the jackpots. The game must be skill based.

10. Velvet Rope or Member’s Club (where the user pays for VIP access), they get special privileges and access to special areas on your site or in your game. They sometimes get special access to new product before anyone else etc. (Basically the more interesting perks you give, the more likely people will want it.)

11. Subscription Model (like World of Warcraft or Conan) paid monthly, usually by credit card or automatic debit payment. It’s sometimes coupled with a retail purchase to get the install files / manual. Commonly players set up the credit card payments and don’t stop them, as they want to keep the game ‘available’ or keep their characters alive that they’ve worked so hard to create. (It’s pretty great to get a subscription from people that don’t even play, so expect more people to design games were they will clearly KILL your characters if you stop paying. Not good for players, but it’s on the list as it’s a monetization method.)

12. Micro-Transactions (small, impulse driven up selling), for vanity, saving time, better communications, leveling up faster etc. These are generally paid for using virtual points (earned in the game) or the points being bought by the player for real money. A new trend is using Friends to buy these items, where the item just costs you inviting a friend to the game, or an amazing item costs you inviting ALL your friends to the game. Another trend is to sell consumable items like actually selling the bullets you fire, or buying gas for the car you race, however this really grays the “free to play” line.

13. Sponsored Games / Donationware (serious games, games for good, charity games), these are the games that are somehow helping society, so could be paid for by a philanthropist, or by a charity or non-profit, or by player donations. www.Onebiggame.org is an example.

14. Pay per play / Pay as you go / Pay for Time (like the old arcade machine or pinball system), you only pay for what you need, for a pre-set number of lives, or as long as you can last. Also used in Internet Cafes and game parlors. This model could be used for game time online as well.

15. Player to Player trading of Virtual Items (letting them trade land, property, characters, items, also by auctions). You keep a cut of all the money exchanged. You also keep the transactions safe for the player (they don’t have to go to the gold farmers or risk the black market for characters.) Some games let the players cash this money out of the game, so it can become a full time job, but is also a major fraud generator (they use fake credit cards, buy things, trade things, sell for cash, cash out).

16. Foreign distribution deals (like the movie industry), where you need funding, so you pre-sell your foreign distribution rights in advance, then use that money to fund the project in the countries you care about the most. www.gameinvestors.com will be helping people do this.

17. Sell Access to your Players (like lead generation, special offers etc.), this is where you monetize your user database by inserting special offers, or personal profile questions into the registration loop. Like when you register, you’re asked if you would fill out a profile in return for virtual points. This is then paid for by an external agency who collects the data live. (Value is equal to how exclusive the data is, how detailed (revealing), and how fresh.) The agency would generally give you the questions and the capture code.

18. Freeware (get lots of users), it’s not a plan to make money, but then again, if you make something that’s very compelling you can expect offers to acquire your software, company or technology.

19. Loss Leader (focus on your real goal), meaning you sell the game far too cheap. There’s clearly TOO much value for money, (like the PS3 Hardware strategy). You use the passionate following to your free game to help sell something else, like a Toy, TV or movie deal, and that’s where the real money is that you were focused on.

20. Peripheral Enticement (the game cannot function without a piece of equipment), so it’s really a way to make you money on the hardware. (Gym equipment is a good example, like the virtual bike or rowing games, you tease them with the software into a very expensive purchase.)

21. Player to Player Wagering (they place wagers before they go head to head), the winner keeps the pot and you keep a percentage of every pot. The games they play MUST be skill based games. Gambling virtual items is another technique, where they buy/earn/trade virtual items, then bet them on maybe a 1-on-1 basketball game, the winner keeps the items. (You made your money selling the items to them in the first place.)

22. User Generated Content (letting users make endless new content), they can sell it to each other, or sell access to it, or get people to pay for time spent playing it, for points they can turn into cash (like IMVU), and you keep a cut of all sales.

23. Pay for Storage Space (on a server) to save progress, stats, game data etc. As an example, this can be used for Karaoke games where you pay to store your library of songs. (Or at least you think you do, even though you are technically just making virtual storage space for your songs.)

24. Pay for Private Game Server (where your friends come to play), like renting multi-player servers, or giving your friends a maximum quality experience. This is more for the hardcore First Person Shooter multi-player crowd.

25. Rental (stores like Blockbuster, or online like Gamefly), the old rental paradigm meant trying to design the game so it couldn’t be played through within one rental period. These days with the Netflix / Gamefly Model, it doesn’t matter anymore.

26. Licensing Access (like signing a deal with a chain of cyber cafes to unlock your game for their users.) Or using your game as a part of a TV show. Or letting a corporation use your brand in their advertising such as McDonald’s Line Rider commercial

27. Selling Branded Items from your site (using a service like Cafepress) – You need to work hard on your identity to make this interesting for people to wear. For example, Gamer Vixens http://www.cafepress.com/gamervixens/

28. Pre-Sell the Game to the Players. This model lets your fans actually fund the development of the title. For example, they pre-pay $5 in advance for a $50 game. (They also get to see it get developed and get to provide feedback.) When the game is launched, they get it for free (as they already paid the $5 advance.) Clearly you have to either have a reputation or a very hot idea to generate enough interest in advance, but once you get on a roll, this can work.

29. Buy Something, get the game for Free – This is the Trialpay model, where the player buys something they want (like a subscription to Gamefly), then Gamefly gives Trialpay a nice fat fee. From that fee, you get paid, and Trialpay gets paid. So by signing up to Gamefly, they get their service and they also get your game (technically) for free.

I’m sure there are plenty more models you’ve seen over the years, if you think of some I’ve missed, please email me at: dp@dperry.com