A look back at the ringtone space should remind the industry to be vigilant about freemium, warns John Armstrong of WGE.
When Entropia Universe creators, MindArk, announced that one of their players had sold a virtual resort for $635,000 in November 2010, it marked a new high in virtual goods being sold for real cash.
Virtual goods are nothing new - people have been buying swords, coins and potions since the advent of the early days of MUD text based adventures and that progressed to MMORPGs such as Second Life.
These days virtual goods and digital gifts are big business. Thanks to Facebook, games like Farmville and Restaurant City have hundreds of millions of players who purchase billions of virtual products with real cash.
It’s no surprise that this model has quickly moved to mobile entertainment. Freemium seems to be the way forward with gamers delighted to be able to download a well-polished product to their mobile devices for free, with publishers equally delighted at the prospect of selling in-app-purchases.
When NimbleBit launched Tiny Tower on the App Store last year it achieved more than one million downloads in the first four days, and has since seen 2.6 per cent of its users investing in IAPs.
The freemium model clearly works. But for every single success story on the App Store there are hundreds, possibly thousands, of cases where a freemium app is not performing to expectations.
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Of course, the model is attractive to developers and publishers not just for the ability to hawk IAPs, but also because it lets many studios give away ‘Lite’ versions of the game in order to up-sell to the premium version. And it helps that free lite versions also guard against piracy.
Juniper Research says that by 2016 the IAP industry will be worth almost $5 billion. A nice big figure, but one that raises questions over who is regulating this increasingly lucrative industry.
We don’t need to go too far back into the history to unearth serious warning signs. The golden ringtone era was brought to an ugly end when companies decided to give ringtones away for free and then up-sell costly subscription services. The resulting PR disaster prompted tighter regulation but the horror stories continue.
If the sale of virtual goods dries up then how long before the industry looks at other measures to collect the revenues? There are already several companies charging subscription fees for virtual goods, and it’s not hard to imagine a time when these subs become a nice little negative story for the media.
Clearly the industry needs regulation. Who plays Big Brother is open to debate, OFCOM is the obvious choice in the UK and clearly Apple has a level of responsibility to monitor the games and apps which are being sold in the App Store.
But on global level? Perhaps we need a little self- regulation and learn the lessons of history, otherwise the tiny ivory towers of freemium could well come tumbling down.
* John Armstrong is administrator of World Gaming Executives, a networking and info site for over 30,000 execs from the games and gambling space.
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