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Category: Business

F2P Economics: Diablo Immortal

In this post I will try to explain the basics of the freemium economics, because without those is impossible to understand why free-to-play games have to rely on strict calculations in order to work and scale properly.

Costs

When you run a business you have costs, a f2p business has many costs that I can resume like this:

  • Installs: number of installs we want to achieve with our acquisition campaigns
  • CPI: cost per install. Each install will cost this
  • %FTD: first time deposit percentage. Basically, the part of Players that decides to invest something into our game
  • Team Members: our team is composed by…
  • Salary/Member: the cost per month of each member
  • Development Months: the number of months before of publish the complete game, ready for live operations.

If you are working right now in f2p you can notice that those numbers are VERY optimistic. Ad the end of this article I will propose something nearer to the reality. Another thing is that every company has its way of naming things, my approximation is just for the sake of explaining.

Cohorts

When you design a free to play game you should be aware of two things:

  1. Vast majority of players (in my example 95%, but again it’s optimistic) never pays a dime
  2. The payers have different spending profiles:
  • Minnows: they are the majority of payers and they invest just a little in your game
  • Dolphins: they are a big chunk of players and they invest a little bit more. Their spending habit is similar to PC/Console players somehow
  • Mermaid: they have a higher acquisitive power, and they decide to invest more over the time in your game
  • Whales: they are the real target of your monetization system. Without them, the f2p business is not sustainable. Here’s why:

You can clearly see that Whales are the vast minority of all payers (players that spend something). But:

With this configuration, you can see the weight on your revenue of whales and mermaids.

Results

In this perfect scenario, those are the results:

  • UA Cost: CPI*Number of Installs. We spent one million dollar just to get people into our game.
  • Team cost: Members * Salary/Member * Development Months. We spent six hundred thousand dollars to develop our game. Development costs are cheap compared to marketing.
  • FTD: we have fifty thousand people paying something
  • Revenue: according to the cohorts, the total revenue is this
  • RPI: revenue per install. Total revenue divided per number of installs.
  • Profit: what we really earn. The total revenue less the costs. In this ideal case, it works!

We don’t want to make games for whales!

Ok, let’s make a game that doesn’t permit whales to pay that much then! We believe that FOMO, pay to win and lootboxes are the evil, so that we put a maximum cap on our spend depth.

The cohort whales, then, disappears. Let’s say we just have mermaids, that will increment their presence among the cohorts:

In this case, the impact on revenue will be HUGE. Still, with the idealistic costs structure it works! we can have a business:

Diablo Resurrection

Lately, a lot of press is writing against the monetization of Diablo Immortal, the last game from Activision Blizzard. They say it’s too agressive, I have a different feeling. To me is not aggressive at all. Let’s study its costs.

The quality of this game is very high. But.. 15Gigas, really???

A game like that from a company like that will have a cost structure more similar to this:

I am completely biased here, please if you have more data let me know

With those cost structure, without targeting whales, the final result will be:

Why publish a failing game, right?

Which is why Diablo Immortal, because of its quality and narrative and everything it gives for free has to target heavily whales. This is for the vast majority of people to have fun. A possible cohort configuration can be:

For the whales to arrive spending ten thousand dollars, the spend depth of Diablo Immortal has to be high. Still, in this way our business barely works:

You work like crazy to earn $200k? I don’t think so.

So, I get that many of you don’t agree with f2p and don’t like this business model. But it exists and if you want to be there you have to do very well your math!

Hope this post helps!

Game design consultants: hire who’s better than you

Some time ago I tried an experiment. I hired some people to try to teach them my way of making video games. My goal was not to earn money with those games. I wanted to train a couple of assistants because the number of clients of my consultings is increasing.

The experiment did not go as expected. My time is scarce, so I can’t invest it in training people. I quickly realized my choice was pretty dumb. However, I realized something very important.

If we don’t have time, it is better to delegate to those who know more than us. We will thus make a good impression on our clients. We will also learn new techniques.

Making games for the Impact Economy

Impact Economy, an economic model in which the main purpose for startups, businesses, investors and organisations is not only to maximise profitability, but also to improve their social and environmental impact.

I recently discovered the Ecosia search engine. Ecosia relies on Bing’s ad services and promises to plant trees based on the amount of searches you do on their engine. It installs easily, even on smartphones, and works really well.

The results are the same as those of other engines (I used DuckDuckGo before) and it is really a pleasure to know that you are doing good to nature just by browsing.

I wonder if it is possible to adapt this business to the video game. In fact, there are entire sectors that survive thanks to advertisements. See the hypercasual market.

Imagine being able to join the services that Ecosia relies on to plant trees and contribute by creating video games where, for each ad you view, trees are planted!

It would be beautiful right?

Can Netflix, SONY and Microsoft integrate ad networks in the future?

Apple and Google have made marketers’ lives more difficult. Today, it is harder for a game to reach the right audience only through ad campaigns on the major networks that offer this service.

Acquiring new players is more expensive and often ad campaings bring people with different motivations to play.

This week’s news is that Netflix is ​​considering introducing ads to its platform. SONY and Microsoft, which are activating their subscription services, are also seriously considering introducing ads to their games.

New ad networks will be created. Someone calls them “content fortresses”. If these companies play their cards right, companies will certainly be pushed to invest in acquisitions directly on these platforms.

The more you know about people’s actions in other products, the easier it is to reach them. The ads that appear to these people will be more meaningful to them. People who enter a game are likely to be more drawn to the core features and mechanics.

Netflix, SONY and Microsoft can score a big win if they play their cards well. As designers, ads are an interesting tool to get better monetization numbers simply improving the reward ratios.

Best companies know when it’s time to kill a game

It is dangerous to scale a game with questionable product/market fit because of The Traction Treadmill. Sometimes players show up in your game, and a small percentage of them retains.

You may think it’s time to scale. Just add players, instead of improving your game. And this works, for a time. You can grow fast just by doubling ad spend. Or tripling ad spend.

You have 10.000 players, you buy 20.000 more.

Then a large percentage of those players go away and never returns back. You have to replace the percentage you lost plus buy more players to grow. You lose a percentage of players fast, and you have the budget and funding to replace them- but then can’t keep grow on top!

You may want to optimize your campaigns and spend less per Player. But inevitably the problem will reappear at some point. Team’s morale will do down as options become scarce. Increase retention becomes too slow and complex.

That is why is extremely important to polish your product but also understand when you cannot fix it. Also the best companies in the world know when to kill projects.