Monetization is a crucial part of any game. For the developers, it can be the difference between a profitable title and an economic failure. For the players, it can be the difference between an engaging experience and a paywall nightmare. But monetization in modern games is more complex than it used to be. Some monetization methods can be counterintuitive, and it's common to find games that use various methods simultaneously. Below we’ll dive into how modern games make money, followed by advice on how to choose the best monetization model.
Premium monetization is the "traditional" way of selling games: an upfront sale in which the player buys the whole game before playing it. For a long time, this happened only in physical stores, but nowadays, many games are sold digitally through online stores like Steam. An upfront sale means the publisher earns the same amount from all players equally, usually a relatively high one. However, this upfront payment can create a high barrier to entry compared to the other methods we'll discuss.
Another issue with the traditional upfront sale is that everyone pays the same, so those players who want to invest more in the game can't do so. Some games solve this by offering a "collectors edition" or similar at the moment of sale, which allows the most invested players to get more from the game and the publishers to earn additional revenue.
With a premium upfront sale, once the game gets sold, the transaction between player and published is over. However, some games overcome this by releasing DLCs, additional downloadable content that the players can purchase after acquiring the base game. DLCs work well when made for games with good reception, and they capitalize on the willingness of their player base to get more of what they like. On many occasions they are cheaper than the base game and provide less content. For the developers, they're a safe bet as long as the price reflects the amount of new content they add.
Microtransactions are small in-game purchases that unlock a small amount of content or features and can usually be purchased multiple times. They have become prevalent and can be very effective in bringing in revenue. Microtransactions work well because they allow players who want to spend more to do so. They are common in most free-to-play games (both mobile and console/PC), but they're also present in some Premium titles paid upfront. Microtransactions can either be purely cosmetic or affect the gameplay. Cosmetic microtransactions can be skins or emotes, while non-cosmetic ones can be boosts, special items, or less cooldown time, among many others.
In some cases, they can be controversial. Much criticism towards microtransactions arises from non-cosmetic ones in multiplayer games that give paying players special features that those who don't pay can't use. This situation can make non-paying players feel like the game is unfair and that only those who pay can win. Players pejoratively call this "Pay-to-Win." A safer way to implement microtransactions is to give players the option to pay to make it easier to achieve certain things. For example, players can pay to have shorter cooldowns or shorten the time needed to obtain certain items. The key is that non-paying players can still get the same final results (through more effort and time), so it feels fair for everyone.
Loot boxes are a variant of microtransactions that have become especially controversial. These are microtransactions in which the player doesn't know what they will get; instead, they get a randomized virtual item. Because of this, some compare them to slot machines. The most straightforward way to monetize loot boxes is to require the player to purchase them with real money. In some games, however, loot boxes can also be acquired at a slower pace by advancing in the game or with in-game currency (again to make the game feel fairer). To motivate players to open more loot boxes, developers create scarcity by making the most desirable items rare, which drives players to open more and more loot boxes in hopes of receiving them.
While this can be a very effective monetization method, there are increasing concerns from various governments that consider them a form of gambling. These concerns were fueled by EA's Star Wars Battlefront II from 2017, whose extensive use of loot boxes required the players to either spend real money or grind excessively to unlock all the content. It didn't help that it was an upfront paid AAA game that took either ~$2,000 or ~4,500 hours of non-paying play to unlock all the content. The ensuing controversy led to some countries forbidding loot boxes in games. Since then, developers need to check the current regulations if they want to use them in their games.
This method requires a subscription to play the game or parts of it. Players can purchase the subscription in blocks of one or more months, and the unlocked content is available only as long as they keep paying. For the developers, this supposes a relatively stable income stream. The most successful subscription game is World of Warcraft, released in 2004 and still going strong. But while WoW and some other subscription games are still doing well, the subscriptions are less and less used in favor of battle/season passes.
A battle pass (or season pass) gives paying players additional rewards for achieving specific goals. Usually, non-paying players can also get those rewards, but the pass makes them easier to obtain and/or more significant. Unlike a subscription, players don't need a battle pass to play the game. This monetization method was first used by Dota 2 (Free-to-play) and popularized by Fortnite (also Free-to-play) in early 2018. Since then, many games have followed the practice. In contrast with loot boxes, players know in advance what rewards they will get, freeing battle pass from any unwanted associations with gambling.
Ads are a popular monetization option in free-to-play mobile games. These can use banner ads, loading screen ads, pop-ups, and more to monetize their players' attention. Non-mobile ads rarely have any ads, except product placement in sports games. Rewarded ads that provide in-game currency for watching a video ad are the most effective and lucrative type. However, these might lessen the incentive to purchase microtransactions. Other games take a different approach and offer a microtransaction or even a subscription to hide all ads permanently or temporarily.
Play-to-Earn games are a new kind of game that uses blockchain technology and NFTs to create a game economy with assets that the players can sell for real money. In most of these games, these assets have stats that players can improve by playing the game. The player can then decide to see them to others, which in turn buy them to improve them further or sell them for a higher price and make a profit. The developers also profit from this by getting a % from each transaction.
Some of these games use well-known cryptocurrencies like bitcoin or Ethereum, while others use their own. Usually, they require the player to purchase a certain amount of currency before being able to play - some call these Pay-to-Earn. As with NFTs, Play-to-Earn games are a polarizing topic, having both strong supporters and critics. A recent cyber attack caused the popular Play-to-Earn Axie Infinity to loose more than $625m from its blockchain network, and while the game still exists, some see this as a sign that Play-to-Earn games still have a long way to go before realizing its potential.
Crowdfunding means sharing a game idea with the world and letting potential players pay for the game in advance to fund its development. It's an upfront payment made before the game is out. When the game is released and depending on how much they paid, players receive the game and additional rewards. These rewards can range from art and soundtrack downloads to things like being included in the game as a virtual character. Star Citizen is perhaps the most famous example of a crowdfunded game: its campaign, started in 2012 (and still going), has already surpassed the staggering $400m.
The game aimed at a 2014 release, but it has suffered so many delays - apparently because of feature-creep - that it still hasn't got released, leading to numerous complaints from backers. Regardless of this cautionary tale, numerous games have been successfully funded with crowdfunding. Often the most significant obstacle developers face with crowdfunding is that it requires a lot of marketing efforts to raise a substantial amount.
Early Access means that players can purchase the game by paying upfront (as in the Premium model) while the game is still in development. It's a fairly common practice that allows developers to acquire additional income during development while receiving helpful feedback from actual players. In case with the sane approach to Early Access, developers choose to put the lower price that would adequately reflect the current state of their product, and increase it later when the game gets more content.
Some of the most successful modern games use a hybrid monetization model, combining two or more methods described above. It allows them to cater to players with different spending habits, offering more to those who want to pay while still giving a satisfactory experience to those who prefer to spend less (or nothing). Plenty of mobile games are Free-to-Play and use ads, microtransactions, or a combination of both. On console and PC, free-to-play games like Fortnite or Apex Legends pose an inexistent barrier of entry to new players, and monetize from microtransactions and battle/season passes.
It's also increasingly common to find AAA games that are paid upfront (Premium) but are regularly updated with new content. Access to this new content is either free or provided through a combination of microtransactions, loot boxes, battle passes, and DLCs. Paying players get easy access to a regular stream of new content and perks, while non-paying players still have a good base experience. In some cases, non-paying players can unlock paid content for free if they put in enough time and effort.
The most effective monetization model for each game depends on the expectations of the players around that type of game. Generally speaking, if the players have already paid an upfront fee, the monetization approach should be subtle, so they don't feel scammed or too pressured. Few players would tolerate intrusive banner ads on a Premium model game! On the other hand, it's OK to take a more aggressive approach in Free-to-Play titles (within limits) since the players haven't spent anything to play them.
When it comes to in-game purchases (microtransactions, loot boxes, battle/season passes), players enjoy the game better when they can achieve similar results whether they pay or not. These in-game purchases are like the modern equivalent of cheat codes: they unlock items and make the game easier or more fun, but you can still enjoy the game if you don't use them. The ideal monetization model should make players happy to support a game they like. It should not feel like an annoying paywall they have overcome to continue enjoying the game. Instead, it should make them happy to get more involved with an experience they already enjoy.
Ideally, they should be excited to pay, not frustrated. How well this is achieved depends on how well the monetization model fits the game. Monetization should be defined early in the development - not as a last-moment thought but as an integral part of the experience. Lastly, developers should keep in mind that as the expectations of players change over the years, so do the monetization models that work best. A few years ago, loot boxes were generally accepted. Nowadays, they're often frowned upon and even banned by some governments. Monetization approaches that work well now might not work in a few years, so it's best to keep an eye on the development of the industry.