The Microcosm of Microtransactions in Gaming
BY ARADHANA ABRAHAM / 4 SEPTEMBER, 2021
With growing investment and interest in virtual spaces, Microtransactions, as a new source of revenue, have revolutionised the game.
ideo games for the longest time had just been one-time purchase products which were bought from stores, just like any other commodity. This started to change around the 90s when Massive Multiplayer Online (MMO) games started including certain elements that could be paid for in-game, which eventually evolved into monthly, paid subscriptions for several online games. This led to the realisation of the ‘Games as a Service’ (GaaS) business model that enabled companies to earn revenue beyond the initial release of a game. This method of monetisation was popularised in the form of Microtransactions (MTX) in the early 2000s. While there is no one-fits-all definition for MTX, they generally refer to payments made in-game for content separate from the game in its initial state. The ‘micro’ is in reference to the fact that these tend to be small purchases for additional items. Activision Blizzard is the company responsible for exceedingly popular game titles such as Call of Duty, Overwatch and World of Warcraft, to name a few.
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This led to the realisation of the 'Games as a Service​' (GaaS)) business model that enabled companies to earn revenue beyond the initial release of a game.
According to Statista, in 2014, Activision Blizzard had a revenue of 4.4 billion USD of which over 60% was product sales. In contrast, in 2020, over 70% of their annual revenue of 8.1 billion USD was MTX while product sales were only a third of the revenue. With the rise of smartphones, there was a new market for mobile games. This introduced the, now prevalent, Free-to-Play (F2P) model which enables people to purchase a game for free but includes MTX, which is the revenue source. In this way, games became accessible to a much larger customer base. Many companies were encouraged to shift their games to an F2P model. MTX has thus helped in expanding the scope of the entire gaming industry, which has brought them into the mainstream. Budgets for games have gone up to hundreds of millions of dollars which allow game designers and developers to delve deep and explore multiple possibilities in terms of content and quality without compromising on profits.
According to Statista, in 2014, Activision Blizzard had a revenue of 4.4 billion USD of which over 60% was product sales.
Pictured : Title Gaming Microtransactions by unknown via rappler.com
The multiplayer nature of a lot of these games has led to the creation of online communities that players can be a part of. Extensive world building and detailed lore behind each character help make more of an immersive experience for players. With an investment in the world of the game and/or the community built around it, in-game performance, achievements, hierarchy and appearance all start to matter in real life. This compels players to buy items which can help improve gameplay and access more maps or game options. Spending on banners and tracking systems help display rank and achievements attained. Cosmetic features of characters can be changed by purchasing different skins, dialogues, dances and pets according to the players’ preferences. All these are constantly changing and being upgraded with periodic in-game events which help promote more MTX and increase engagement. Content marketing in the form of trailers, game spotlights, concept videos, web series, music videos and movies help advertisements feel less like a sales gimmick and might even pique the interest of non-players.
As a revenue model, MTX is beneficial to companies, but the problem arises when companies start to exploit it.
Pictured : Title Gaming Microtransactions by unknown via rappler.com
Fortnite is an apt example of such games. Based on statistics recorded by Business of Apps, the game reached an all time high of 5.4 billion USD in 2018 and has grown to have over 350 million users in 2021.
While MTX seem advantageous, the list of disadvantages often tend to overshadow them due to the multiple controversies that surround these issues. As a revenue model, MTX is beneficial to companies, but the problem arises when companies start to exploit it. Big name companies in the industry have greater resources than their smaller counterparts. They tend to charge premium prices for their games and their MTX are not always ‘micro’. In addition, they often try to monetise more and more elements of the games. This has ended up making many players feel cheated, as games have started to become incomplete without the paid features. Another issue is when certain items and upgrades help players bypass hurdles by just paying for them instead. This is referred to as Pay-to-Win (P2W), as moving through a game is much easier for such players. In the words of Dr. Evers, a professor of marketing at the University of California, such actions are “violating the spirit of the game.”
Pictured: Businessman under pressure due to the coronavirus economic impact on business background ‘via rawpixel
The newest kind of MTX, called loot boxes, have been a matter of great contention. It has been likened to gambling due to its reliance on luck. Loot boxes generally include a bundle of unknown items where players might have the chance to acquire ones that they want. Players could buy multiple boxes and end up with duplicates of the same items along with other unwanted ones. Governments in various countries have raised questions about them and if they violate gambling laws. People have lost thousands of dollars on loot boxes and children are particularly vulnerable to falling prey to its mechanics.
This has forced companies to make changes such as stating that games include in-game purchases on the labelling or in the details and in some instances even remove the option to buy loot boxes.
Gaming has been a means of self-expression, accomplishment and creativity for many people over the decades. As an industry that is always evolving, it has also become a mode of socialisation. The world falling into a pandemic has blurred the lines between the physical and virtual. People are increasingly turning towards gaming, which has led to estimates of the industry growing to be over 200 billion USD by 2023. Microtransactions as the current dominant model have made this a complex venture for companies and gamers alike. What remains to be seen is whether they will use this tool wisely.
Keywords
MMO, GaaS, Microtransactions (MTX), F2P, P2W, online community, gaming industry
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References
Clement, J. (2021, February 19). Activision Blizzard revenue by composition 2020. Statista. https://www.statista.com/statistics/1208560/activision-blizzards-revenue-by-composition/.
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Colagrossi, M. (2021, May 25). How microtransactions impact the economics of gaming. Investopedia.
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Gardner, M. (2020, September 19). Report: Gaming industry value to rise 30%–with thanks to microtransactions. Forbes.
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Gordon, K. (2021, March 11). Microtransactions are great for game companies, less fun for players. NPR.
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Group, E. V. (2019, July 22). Why do people spend billions on virtual clothes? Medium. https://medium.com/evg-virtual/why-do-people-spend-billions-on-virtual-clothes-504ec1601521.
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Iqbal, M. (2021, July 7). Fortnite usage and revenue Statistics (2021). Business of Apps. https://www.businessofapps.com/data/fortnite-statistics/.
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