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Microtransactions – In-App Purchases – Freemium – Subscriptions

If you’re thinking of developing your own App, you may have heard that they can be very profitable, and indeed they can. However, you need to carefully consider how you make money from it.

With the advent of the smart-phone, tablets and the App Stores that provide the downloadable applications they run, Microtransactions, In-App Purchases, the Freemium business model, and the subscription business model have exploded exponentially in growth. They’ve also creeped into the more ‘traditional’ software that you may be used to, and many people are not happy about it.

Forking over considerable amounts of money for ethereal goods, or just being allowed to rent software, these practices are, on the whole, having a negative effect and getting people riled up. What’s the future of these strategies? Will they divide us into the digital ‘haves’ and ‘have-nots’ or implode on themselves?

There are a number of buzz-words floating around, but they all amount to the same thing – parting you from your money. Microtransactions and In-App purchases are pretty much the same thing, but Microtransactions are, as you may expect, typically smaller amounts. Freemium is a combination of ‘Free’ and ‘Premium’, that is something that is free, but has premium elements which you can purchase. And subscriptions are just that, something for which you have to pay a recurring subscription fee.

Now let me stress that I’m not against these tactics per se, but rather how they’re generally used.

They’re Most Prevalent In Games

In gaming for instance there has been a huge surge in the emergence of games which have been dubbed Pay-to-Win, and Pay-or-Wait. These are just lazy attempts to make people part with their hard-earned cash.

Pay-to-Win games generally make it impossible to complete a game without paying, while Pay-or-Wait games will slow down gameplay to such an extent that they’re no longer games but exercises in tedium.

As you may expect, gamers are furious about this, and so they should. Geoffrey Tim from Lazygamer.net presented this amusing image to demonstrate how these tactics work, and how absurd they are by applying the idea to a well-known game. His example is extreme but you get the message.

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This image however isn’t an amusing fake. It’s very real. Worryingly so. It’s from EA’s Dungeon Keeper.

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The gems allow users to speed up aspects of the game. Otherwise they have to wait for up to 24 hours. You see the ‘best value’ package of gems for £69.99? I always thought “who would pay that?” Well it seems that a very small proportion of people are willing to pay it. How far will £70 get you? Not very far actually. The gems will soon run out.

It may seem crazy that people are paying these prices, but they are. The figures are startling. If you look at Apple’s App Store, you’ll see that the highest grossing Apps are usually these Free-to-Play (F2P) games which rely on (Not-so) Microtransactions. Generally, less than 0.15% of these games users account for over 50% of the games revenue. These high-spenders have been dubbed ‘Whales’ by the gaming community, and it increasingly seems that app developers set out to ‘harpoon themselves a whale.’

Where does that leave 99.85% of the apps users? It leaves them frustrated and bored.

It’s Not Just Games

Even business apps and other useful apps are subject to the same practices. Splashtop Pro 2 is an example of this. Put simply, the app lets you access your computer from your tablet or or smart phone. Very useful, right?

You have to pay to download the app, and that’s fine, but there’s a problem. The app doesn’t let you access your computer from a remote location. I’m not joking. If you’re using the same Local Area Network, e.g. your home WiFi network. You can freely access your computer as long as your on the same network that your computer is, so you can access your computer from the next room, or maybe the garden. If you’re away from the house, you can’t.

What if you want to access your computer from work? From a hotel? On the train? You have to pay a subscription through an In-App Purchase. This is another example of Microtransactions going bad.

Subscriptions

Subscriptions may be good for a company, but not so good for customers. Adobe have announced that they’ll be no longer be selling boxed software. You will have to download it, and even then you can’t actually buy it. You have to ‘rent’ it through a subscription service.

True, the cost each year is less than buying the software, but this argument isn’t really that valid. You don’t own the software anymore. Most people who used Adobe Creative Suite will skip different versions as the package is over well £1000 to purchase. So they will buy version 3 say, and then wait until version 5 or six before they upgrade again. So what if people fall on hard times and can’t afford the software? They can’t use it, and therefore can’t work. A horrible prospect. Adobe’s move has prompted many of those who use their software to seek alternatives. Again, this is giving the middle-finger to those who can afford it, and those who can’t.

Old School Tactics

Companies (Adobe included) have always offered demo version of their software or games in the hope that if you enjoy it, or find it useful, you’ll then go and purchase the full version. Companies which adopt the Freemium model claim that In-App Purchases stop software piracy, and that may be true to some extent, but people will always find ways around it if they’re that dedicated. The deme idea can be seen in some apps, but more often than not, it’s done in a very underhand way. That is, the user will be unaware that it’s just a demo until they hit the paywall (the pop-up message which stops the user from progressing unless they pay.) This infuriates users who may have invested a considerable bit of time into a piece of software, be it a game they’ve been playing, or some piece of software they’ve been learning to use. The moral of the story: be upfront about costs.

So You’re Thinking About Using IAPs?

In-App Purchases / Microtransactions / Paywalls – whatever you want to call them, are not necessarily a bad thing. They can be good for raising revenues, but they can also do that without alienating the majority of your users.

To do that, don’t go ‘Whale’ hunting. The Freemium business model can only exist in its current form with these ‘Whales’. And personally, I wish that these people would realise that they’re fuelling a hideous travesty, and that if they curbed their spending, app developers would be forced to reduce their prices or change strategy, benefitting all users of their software.

Things To Consider

Some of these may not relate to your particular app, depending on what sort of app it is.

  • Don’t Hunt ‘Whales’: If you’re focussing on that 0.15% you’re telling the other 99.85% of your customers that you couldn’t give a toss about them.
  • People Don’t Like playing To Save Time: This primarily refers to Freemium games where the player is forced to Pay-or-Wait. Games should be fun and engaging.
  • Be Upfront: If you’re just offering a demo, let people know upfront and be clear about it. You may not get as many downloads, but those that do will now what they’re getting into, and will be more likely to give you a 5-Star rating if your app is good, rather than a 1-Star rating for being misled.
  • Use Paywalls Sparingly: Whether it’s a game, or a business app (such as mind-mapping software), don’t segregate each feature into its own additional paid-for add-on. Paywalls infuriate the user and annihilate the user experience.
  • Don’t Make People Pay To Remove Annoyances: These are things which simply get in the way and don’t offer any real benefit. It could be something as simple having to watch an advertisement each time before you use the app.
  • People Will Pay For Unique Content: Make the transactions unlock good content and features. When using In-App Purchases, the offerings should be tangible. E.g. Unlocking the full programme, or unlocking all features.
  • People Will Pay For Good Content: If you’re going to offer something extra to people who are willing pay, make sure that the content is worth it.
  • Nintendo Have Steered Clear Of The Freemium Model: And that’s despite one of their investors urging them to adopt it.
  • Treat Customers With Respect: EA are the main culprits here. Many of their games for phones and tablets are blatantly designed to gouge customers. See below.
EA thinks that accusing their customers of being tight-fisted will encourage people spend money just to speed up the game.

EA thinks that accusing their customers of being tight-fisted will encourage people spend money just to speed up the game.

Conclusion

It’s quite easy to summarise this post. Put yourself in your customer’s shoes and treat them with respect. Carefully consider what you’re offering and how best to deliver additional content and features. Don’t treat them like idiots who will just throw money away, and whatever you do, don’t, like EA, insult them.

Remember:
Carrot > Stick

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