Tuesday, December 18, 2018

How free Games earn money? Video games Business Model

How free Games make money? Video games Business Model



About The Gaming Market

The population of the world is over 7.5 billion amount is 2 billion are active video game players. Among this 1 billion are those who pay while playing, that lead to 2017 gaming industry revenue more than $99,23,90,00,000.00 which is much more than any movie industry either Hollywood, Tollywood, Bollywood, Kollywood or any. Out-off this $99,23,90,00,000.00 , $42,53,25,00,000.00 is only from mobile phone games. Just only by mobile phone games, gaming industry generates $42,53,25,00,000.00 which is 43% of the entire gaming industry. This is possible for companies like Tencent games, NetEase etc. Few games like Minecraft we need to pay in order to play that games like PUBG and Clash of Clans. We can play on mobile phones for free but still, these games are among the highest revenue games so the question arises how these free earn money? Video games Business Model.

Revenue model

So let's discuss the video game industry business model. We will talk about the basic structure of the video game industry. There are main three entities in the structure of video game industry Developers, publishers and distributors. Developers are those who create the game which includes designers, artist, programmer, tester. The complete team contributes to making the game. In order to make a large game, it will take months to years. The team focus on financing and marketing of game are called publishers and distributors are those who deliver the game to their customers. There are two types of distributors online and offline. There are few companies which are developers, publishers and distributors itself like Electronic Arts, ERcc etc. If we talk about old times when the video game business model very quite simple. People go to the retail store buy the physical copies of the CD of the game and pay that amount to the retailer which further goes to the distributors & the publishers then a developer. But from the last 10 to 15 years due to the digital industry and Digital Business lead to the number of changes in the business model of the video game industry. In the digital distribution services like steam Xbox live PlayStation Network AppStore, Google Play will lead to the Purchase of the game and this service is denied a percentage of share from the game. And the amount of game to the publishers and developers of the game is transferred. So again the question is still pending how free games earn money? the free games are those which use the free to play model which includes two types:
  1. The in-app purchases
  2. Ads driven revenues

the in-app purchases

                                    are those in which user can purchase the game to inside the app. It can purchase the digital product so for example skins and guns in PUBG and buying gems in Clash of Clans. It is not simple enough that it looks like, the biggest challenge for the developers is to audit the audience with the game because this is the only way which will lead to the chances of buying a digital product in game and if the audience is not able to play the same game again and again then there is Ads Driven revenue model will also fail, the thing that must need to understand is that games are not like movies that we can generate revenue. So for example, if a company releases 5 games in a year among switch only one or two games are only successful, but for few companies that one game is enough that can recover the lost made of 3 games. For that one and two successful games, they bring the new features and updates so that people play that game regularly and company and earn a profit. Now, the interesting thing that you need to know is that free to play model games earn more than the paid games. Take an example of PUBG  mobile game on the Android platform of PUBG there are around 50 million downloads. Just because of PUBG Mobile game is absolutely free so it has been lead to these downloads. So let us assume among 50 million downloads, 5% people buy in app purchases, whose average price we assume to be about $14.18. so it will require simple maths which will lead to profit around $3,54,52,500.00, so by having that game absolutely free will give the revenue around $3,54,52,500.00. Let us assume that if pubg was not of free but of paid and its price was around $7.09. It is obvious to know that not enough download will be done if it was paid, but still, we consider that if this games has less around 1 million downloads. By simple. Mathematics Analysis With that amount it 10% people are those which buys in-app purchases average price spend $14.18 by performing the simple mathematics and adding both the revenues in-app purchases of paid as well as free PUBG revenue is about $85,13,400.00 which is absolutely less than free PUBG. I just wanna example of this in order to demonstrate that how free to play model revenue is much more higher than paid model revenue. The biggest factors that the free games are played by many people as compared to paid games an after giving experience to the public it is very easy for the company to our revenue from in-app purchases the latest prediction is that by the year of 2020 mobile phones will be more than 50%.


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