Playing at No Cost, Right Into the Hands of Mobile Game Makers

By BRIAN X. CHEN

Still paying 99 cents to download a smartphone game? That’s far too much. More developers are now giving their games away — and then charging for extra features.

The strategy is known as freemium, as in free meets premium. And it is being adopted even by giant game makers like Electronic Arts that might once have sneered at the idea because free games had the reputation of being low quality or full of annoying ads.

As it turns out, going freemium can, in the end, lead to bigger profits for the game makers.

Natalia Luckyanova and Keith Shepherd, a husband-and-wife team in North Carolina, learned this lesson when, in August, they released a 99-cent iPhone game called Temple Run. In the game, players must stay a step ahead of angry apes while avoiding booby traps and collecting coins. The game had some initial success but soon started losing traction.

In September, the couple began offering Temple Run free and promoted it through Free App a Day, a Web site that features free games. The game immediately had a spike in downloads and quickly soared in popularity. To date it has topped 40 million downloads, and about 13 million people play it at least once a day, Ms. Luckyanova said.

“When you tell a friend about it and they go to the App Store and it’s free, they download it without thinking about it,” Ms. Luckyanova said. “Then there’s stickiness and the addictiveness and people talking about it.”

But how does the free version of Temple Run make money? Inside the game is a virtual store to buy new characters, different backdrops and power-ups, or special boosters. While players can use the virtual coins they collect inside the game to buy these bonuses, a dedicated few use actual money to buy virtual currency and get them faster.

Ms. Luckyanova declined to say how much money Temple Run had earned, but on Sunday afternoon it was No. 14 in Apple’s top grossing chart, a list of the apps that are making the most money in the company’s App Store.

The company that has had the most success with freemium games and helped to popularize them is Zynga, which rode FarmVille and its other Facebook games to an initial public offering that raised $1 billion. FarmVille is free to play, but players can buy “farm cash,” which can be used to make crops immediately available for harvest.

Freemium is implicitly a risky business model because it is always unclear how many people will play only the free game and how many will become paying customers. But those who have profited from this approach, like Ms. Luckyanova, say the key was to get as many people as possible to fall in love with the product so that at least a few would be willing to pay.

In Apple’s App Store, the largest store for mobile software, the freemium strategy has become more lucrative than charging for apps.

Flurry, a mobile-software analytics company, estimates that 65 percent of all revenue generated in the App Store — roughly $2 billion — has come from free games that charge for extra goods. Peter Farago, vice president for marketing at Flurry, said that was partly because Apple had made it easy for people to buy goods within apps and charge them to a credit card on file with Apple.

In contrast, Google has said that its app store, the Android Market, has generated little revenue. Mr. Farago said that was because making payments in the Android Market was more difficult.

Matt Coombe, a founder of the small Toronto-based game studio Get Set Games, can tell a story similar to Temple Run’s.

His company initially released the game Mega Jump in May 2010 as a 99-cent download. An initial sales burst did not last, so the company created a miniature store within Mega Jump, selling things like extra lives. In August 2010, the company made the game free and promoted it through OpenFeint, a gaming network; it quickly got one million downloads.

Mr. Coombe said he did not have exact figures for sales, but he said the company had earned millions from Mega Jump alone.

“As far as consumers are concerned, the ability to take the game home, try the hell out of it and then decide whether to give a couple of bucks to the game developer is a hell of a deal, and it’s hard for them to go back after that,” he said.

One potential downside to freemium is that it could lead developers to build games in which players can pay more to get ahead and pump up their scores — what traditionalists might call cheating. Money instead of skill would determine the victor.

Phillip Ryu, chief executive of Impending, a software company that is planning to release a freemium game for Apple devices this year, said game makers should avoid that route by focusing on offering cosmetic goods inside games. For instance, they could sell characters with different looks or new levels for a game, which would not necessarily give players an unfair advantage.

The success of freemium is attracting bigger game studios, which have traditionally charged more than $50 for games that run on PCs and game consoles.

Nick Earl, a senior vice president at Electronic Arts, one of the largest American game publishers, said a vast majority of its games coming this year for iPhones and Android smartphones would be free, with the option to buy extras. He said the company had made the decision based on the success of Sims FreePlay, a freemium game, during the holiday season.

“Generally speaking, there’s been a critical mass of quality products at freemium,” he said. “The audience has responded in a way which has become incredibly obvious to game makers like Electronic Arts.”

PopCap Games, a mobile game studio that was acquired by Electronic Arts, is in the freemium camp as well.

Giordano Contestabile, a business director at PopCap, said that its free game Bejeweled Blitz, in which players can buy power-ups, was bringing in five times more revenue than the $1 version of Bejeweled and had made more money than any other Bejeweled game. He said freemium was also useful in retaining a large audience that could be exposed to future games from PopCap through promotions in free games.

“It’s a little more about portfolio management than an individual game,” he said.

But in general, Mr. Farago said, independent game makers should benefit more from freemium than major publishers like Electronic Arts, Nintendo and Microsoft. He said that the big companies had always relied on charging for games and that it would be difficult for them to change their makeup.

When creating a free game with an online store associated with it, Mr. Farago added, game companies must devote staff and resources to maintaining it because it is a live service. Smaller companies are in a better position than the major ones to start from zero and focus on releasing and maintaining freemium products, he said.

“Freemium is a weapon against the establishment,” he said, “and the establishment has a hard time even wanting to pick up that weapon.”

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