Microtransactions: A Lesson for E-Commerce

The games industry is one of the largest in the entertainment industry. Large-scale marketing campaigns and well thought-out sales strategies contribute to success. This also includes micro transactions. A business strategy that e-commerce can learn from.

What are micro transactions?

The computer and video game industry is now one of the media branches with the highest turnover in the world. The increasing demand and, last but not least, the huge smartphone market contribute to the enormous success.

Of course, clever business models also help to flush money into the coffers of developers and providers. Probably the most successful business model at the moment is the offer of so-called free-2-play games, which include many game apps and online games. Free-2-Play means that downloading, installing or playing does not cost users any money, at least in theory. Instead, the providers earn money with so-called microtransactions.

Activison-Blizzard, a Goliath in the video game industry, made $ 4 billion in microtransactions in 2016 alone – well over half of its total revenue. 

As the name suggests, microtransactions are very small amounts of money which, when combined, generate large sales – true to the motto “Small cattle make crap too”. The concept behind it is as simple as it is effective.

An example: The user downloads a free building strategy game onto their smartphone. He built the first buildings and quickly enjoyed watching his settlement grow. With the growing requirements, the construction times also increase. A forge, which initially took 60 seconds to set up, takes six hours to complete later in the game. The user could wait for this time. Or buy construction acceleration for 50 cents directly in the game.

50 cents or one or two Euros, such amounts don’t hurt anyone. Those who enjoy a game are happy to spend these small amounts. It is precisely with this relatively predictable behavior that game manufacturers sometimes earn a golden nose. Because even if only 10,000 out of 500,000 users let themselves be carried away to such a purchase, that’s already 5,000 Euros for an insignificant gain in time.

Pay-to-win or not?

Games with such real money mechanics are now a dime a dozen. The free-2-play idea, coupled with these so-called in-game purchases, is almost a bomb-proof money printing machine for some providers. The prerequisite is, of course, that the game principle is good and has a certain long-term motivation. This also means that users are less reluctant to spend some money on their favorite game.

There is a catch: The example mentioned above is a classic case of “Pay-2-Win”. Means: Without constantly investing money, the players have no chance to keep up with the competition in the long run. Such circumstances create dependencies and unfair competition and they are therefore rightly more and more criticized.

One of the most prominent Pay-2-Win representatives is the card game “Hearthstone: Heroes of Warcraft” for smartphones, tablets and computers. There the players can buy new virtual card packs either with hard-won gold coins or with real money. There are always five random cards in it, of different value and rarity. Some particularly rare cards can provide significant advantages to the player who owns them. That is why the premise also applies here: Whoever spends more has more chances of getting good cards, thus also higher profit prospects.

From this point of view, the term “Free-2-Play” is only half the story. This concept is particularly popular in the smartphone market. Because the willingness to download a game app for free and buy in-game items is significantly higher than buying a “real” PC or console game for 40 to 60 Euros.

Not all Free-2-Play models are Pay-2-Win

Before giving the wrong impression, it must be mentioned that not all variants of microtransactions are aimed at a pay-2-win scenario. The very first designs were purely cosmetic; most of them still are today. For example, you can buy a new garment, a new look for the weapon or the like for your character for a minimal amount. These small changes only affect the look, but don’t change the character’s attributes.

An investment is made purely out of the desire for customization. And this concept also works brilliantly, because it is almost always associated with a certain gambling factor. The said individual parts are usually contained with many other items in so-called “loot boxes”. When it is opened, chance decides which part of it pops out. If the desired item is not there, the player just buys a new box and hopes for the correct result again. A vicious circle that has recently fallen into disrepute, especially because of its high potential for addiction.

Loot boxes: Between collecting fun and gambling

The idea of ​​offering players a kind of surprise egg and promoting a personalization competition is actually quite old. In 2010 the video game company Valve introduced loot boxes in its multiplayer shooter “Team Fortress 2”.  But other games soon followed.

For example: In NHL 21, there is HUT mode where you can create fantasy teams and compete with other players. While you can buy and sell individual players and items, you can also buy packages using hut coins and these packages can contain rare players along with several other items, creating a sense of excitement every time a rare player is unlocked.

In this approach, loot boxes are a great concept because it is a win-win situation for everyone involved. The distributors have an additional source of income; the players get additional entertainment through a certain touch of individualization and are even financially rewarded for frequent gaming through the resale.

Conclusion

What is certain is that microtransactions will not go away anytime soon, as they are currently the rocket fuel for the games industry’s sales figures. In addition, the free-2-play concept that is often associated with it is very unselfish and must be preserved. Of course the developer should be compensated for his/her work. In the end, it makes no difference for the manufacturer whether it is microtransactions or full purchase prices. For the players it is, because they can test games for free and, with a little patience, enjoy them for a long time without spending a cent.

In any case, this concept has a lot of potential for imitation ready for e-commerce. And also didactic pieces how you shouldn’t do it. The basic idea remains the same: The first conversion hurdles can be overcome with free offers (for example no delivery fees). Once you have won over the customer, you can keep them involved with chargeable bonus memberships or other promotions. The customer needs personal unique selling points that make him feel special. This can be achieved through small additional payments.