Micro-Transactions As a Business Model? $24 Million Says Yes.
January 22, 2008 |
Having been both a developer and a marketing wonk in former career incarnations, one of the most frustrating things about Web 2.0 applications for me is the frequent lack of a business model. New apps are launched every day with no plan in place for how to monetize them. You can talk about market position and valuation until you are blue in the face, but if your product doesn't make money, eventually you burn through all that VC money that went toward the company masseuse and the multiple copies of Guitar Hero you got for keeping employees happy.
Reality says that companies have to make money, and selling a product is generally the way to do that. But Web 2.0 may want to look to the game companies who may be setting a new standard for monetizing content.
Electronic Arts is one of the biggest names in gaming, both online and offline. With a brand that spans everything from the most popular sports games for game consoles to online social gaming site Pogo, they've garnered more than their fair share of attention over the years, from alleged poor working conditions for their employees to the flagrant piracy of their games.
Recently, however, they took a bold, new money-making approach in South Korea, an area where they have been hit hard by piracy. Instead of trying to sell the game as they do in other markets, they provided FIFA Soccer as an online game with free access, changing the business model to charging online players for microtransactions such as new clothes for their avatars or game cheats. Over the past two years, they have averaged $1 million (USD) per month in revenue, twice what they earned in their peak year in that market (2002).
EA, of course, is no stranger to this concept. Their free gaming site, Pogo, has a freemium model that includes additional items that have a similar micro-transaction model (users buy "gems" in lots, then spent the gems on avatar items, as well as "challenge badges"). But $24 million in revenue in just one market demonstrates that it can be applied to more than just a casual gaming site.
Many Web 2.0 applications rely on the same addictive behavior. A simple scan of blogs during a Twitter outage shows just how many people rely on these free services that they may have scoffed at even a short time before. Regardless of the ultimate use of "features" odds are a significant portion of the userbase of any application would be willing to pay small amounts for personalization features or added functionality.
