Micro-Transactions are not Going Anywhere

Three-quarters of Activision Blizzard’s 2020 revenue has been based on micro-transactions.
Courtesy: VGChartz.com

It seems like at least a few times a week, I come across an editorial, message board post, or YouTube video that criticizes micro-transactions. For gamers who have been around for decades and grew up in an era where you purchased a full game that simply was as-is, it is sometimes surreal to be in the modern video game era of online gaming, patches and updates, and the ability to pay even more money in a game you’ve already purchased. Sometimes gamers feel like they are being nickeled and dimed to death by gaming companies and resent the fact that their favorite games are now filled with advertisements for content within the game.

Micro-transactions have become one of the most polarizing aspects of gaming, but it has also emerged as the most lucrative. Companies are no longer limited to the $59.99 price tag and hoping to sell a certain number of units. When gaming consoles went online, it forever changed the industry and opened up a whole new way to affect the bottom line. The idea was to get consumers to spend more money on games by creating a base game for one price and then placing exclusive content behind a paywall for another. As a result, a company could now make $100 per unit instead of the original $60. This is one way gaming companies have taken on and conquered inflation. Although the cost of products has risen over the years, they are making more money than they ever have by subtly getting gamers to spend more money.

Pokemon Go was released a few years ago and still is going strong due to its micro-transactions.
Courtesy: https://www.pokemongo.com/en-us/

The concept of DLC emerged in conjunction with console gaming going online. Once the systems were online, the companies could now release content after a product’s initial release in the form of patches and updates. But it didn’t stop there. In order to raise their earning ceilings even higher, the companies evolved from DLC to micro-transactions. Now, a company could make hundreds and even thousands of dollars from one person through just one game. This is the reason why Fortnite became a billion-dollar earner for Epic Games and why Pokemon Go is still a mega hit to this day. Activision Blizzard (Call of Duty Warzone) recently reported that the majority of its 2020 revenue is coming from micro-transactions. The games have made billions of dollars off micro-transactions while not requiring any upfront cost to play (free-to-play model).

From a business and psychological standpoint, this model is brilliant. Business wise, the revenue haul is incredible as now one person is paying the amount that it would have taken multiple people to produce in the past. And this is all based on how the developers are dividing up the content, which is more of a precious commodity than ever before. Every character, skin, ability, item, level, and emote can potentially have its own value rather than just being part of a full package like in the past. The successful games are also implementing a season based format to continually unveil new purchasable content over a long-term. Epic Games used this with Fortnite and emerged as one of the top gaming companies of our day.

Fortnite is possibly the greatest example of turning free-to-play into billions of dollars.

Psychologically, by making a game free-to-play, it causes the consumer to lower his or her defenses in regards to how much money is being spent. Paying $60 and above upfront alerts the senses because of the amount. But when something is free to get started, then the person will feel more relaxed. What’s a few dollars for a skin or a few dollars for another weapon? Even after a few micro-transaction related purchases, you’re still well under $60. And that is when the gamer becomes the most vulnerable. The few dollars here and there don’t seem like much. But after a few months, it has turned into $400…for one game. Crazy to think about, huh?

I’m not upset at the gaming companies for utilizing this strategy because gamers still have the choice to either buy or not buy at the end of the day. While some companies may need to be careful that they aren’t breaking gambling laws, the truth is that the companies are not forcing the consumer to purchase anything. Furthermore, with the amount of money that micro-transactions generate, this avenue isn’t going anywhere and will only be expanded upon going forward. If companies can earn billions of dollars in just a few months from this model, what will the future of gaming look like?

-TVGA

2 Comments on “Micro-Transactions are not Going Anywhere

  1. I’ve got a series of posts in the pipeline about Micro-Transactions and Loot Boxes being posted in the next couple of weeks and you’ve just got to look at some of the obscene amounts of money that is being made from micro-transactions to tell that they are going nowhere soon (In 2016 EA made over $1.3billion in micro-transactions alone that year).

    I do think that micro-transaction can be a good thing as players that can and will pay more subsidise for players that can’t, however I believe developers have a duty of care to do this in such a way that paying for micro-transactions enhances the game for those who buy them as opposed to isolating and ostracising players who can’t.

    • I look forward to your posts on micro-transactions. EA has used it in its Madden and FIFA franchises to make a ton of money through the Ultimate Team modes. You’re right, these companies are making billions of dollars. It’s just ridiculous how lucrative that strategy has been for them.

      Your comment, “I believe developers have a duty of care to do this in a way that paying for micro-transactions enhances the game for those who buy them as opposed to isolating and ostracising players who can’t” is something I agree with wholeheartedly. In theory, I’ve never had an issue with the concept of micro-transactions and I think the developers taking certain assets within their games and adding value to those individual assets was a brilliant move from a business standpoint. But they still need to do right by all consumers involved.

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