There is a common assumption that giving players free hard currency is a good way to increase monetization metrics. The idea is that when you give players free currency, most of them will purchase in-game content with the free currency. As a result, more players will end up making in-app purchases because they’ve experienced and grown accustomed to using paid features. The assumption is that giving players in-game currency is a way to turn more non-payers into customers.
That’s not the case. All empirical evidence points to the contrary. When it comes to pricing, a simple rule of thumb is the more expensive your IAP prices the better the monetization. This also ties in with focusing on selling exclusivity – on having some premium features behind a paywall (either a dollar price point or an amount of hard currency beyond what non-payers can realistically hope to accumulate).
When it comes to in-game economy and how much resources you give your players, the less free resources you give the better (the higher the LTV).
The idea that you should give free hard currency to your players seems widespread among game teams. The rationale behind this is that if you give players more hard currency, they buy your paid features and develop a taste for it. Here paid feature refers to whatever your game depends on to monetize (consumables, boosts, energy, gacha, etc.). Giving players enough resources to “get a taste” of what your monetization has to offer in turn creates a purchase habit. Players repeatedly use the paid feature/bonus for free. When they can no longer get them for free, they will start spending to use them. There are a few variants of that argument: the free taste made players develop a habit of spending, or it made them engage with the game more and ultimately they like the game more, or players are grateful and decide to spend out of solidarity, etc.
There are probably many more variants but overall, it’s the same idea. Giving more free currency to players supposedly increases monetization because players who otherwise would not have spent start spending. The idea is you get a higher percent of installs making IAP purchases. This is in line with a “democratic” understanding of free-to-play games. Every player should be able to experience all features of a game. Paying only helps you experience it faster/more frequently.
But this is more of a normative belief (how things should be) than a data-based and effective assessment of monetization dynamics (how things actually are). All empirical evidence – that I have been exposed to at least – demonstrates the opposite. When you give more to your players, fewer – not more –make an IAP transaction. And average revenue per paying user decreases. If you were to run an AB test to determine how much free currency you give your players (a lot, a moderate amount or just a little bit – or nothing at all), it’s more than likely that the less free currency you give your players, the better you would monetize. Two things here. First, giving currency in exchange for watching videos ads is not giving hard currency for free (video ads drive revenue – even if players are not directly paying for it). Second, I’m talking here about games where the resources are not required to play the game. Things would not work the same way in games like slots where currency is what you use to session players. In a slots game, you need to give currency to players for free because that’s what they need to actually play the game.
The reason you’re better off not giving free currency to your players is that the players who spend in your game are the players who are the most passionate about your game. People who are motivated and who like your game (and want to engage with it deeper, on another level) are the ones who spend. And you don’t generate enthusiasm “artificially” (it’s easier to improve metrics artificially). For example, you can increase retention by adding a daily login bonus. But in this case think about what you’re doing. You’re giving a reward to players, and a portion of players who would have stopped playing will stay in the game a bit longer because you are giving them something. If a player is about to churn from your game, you might be able to give him/her something to stay a bit longer. It’s unlikely there is anything you can give that player to go from leaving the game to spending money in the game.
The same logic applies to giving hard currency (or anything else for that matter) for free for players. Players don’t start liking your game more because they experienced your monetization features. Those who spend are the ones who like your game and want to engage with it deeper. If you’re not engaged, then you’ll take the free stuff (you commit to nothing by doing that – and it costs you nothing), but it’s very unlikely engaging with monetization features will make you love and appreciate the game more (to the point you want to spend).
You never turn a non-payer into a payer – you don’t make players spend. You provide more reasons for your fans to spend. When you increase conversion, you lower the motivation/enthusiasm threshold to become a customer. Super fans will want to spend in your game. To increase conversion you need to work towards having even moderate fans willing to spend in your game. That’s what optimizing monetization is mostly about. Engaging with monetization features doesn’t make players like the game more. It’s the opposite – liking the game is a precondition to want to engage with your monetization features. And improving what your game fundamentally is is the way to get more enthusiastic users – both a larger number of fans, and bigger fans.
The reality is, in the grand scheme of things entertainment – maybe especially digital entertainment on mobile platforms – is a luxury (even though it’s relatively cheap as far as luxury items go). Simply stated, most people don’t spend much on entertainment. Free-to-play gets most people to install on the promise of free entertainment. That’s probably a precondition for them to be playing your game to begin with. When you look at data from the U.S. Bureau of Labor Statistics (for example), you can see that although spending on entertainment has increased significantly in 2017, it only remains a very marginal portion of consumer spending – approximately 4% in the US.
When you look at the details, spending on “Other” entertainment category accounts for 1% of income after tax (there are many categories: “Pets”, “Fees & Admissions”, “Toys & Hobbies”, etc.). And that percentage depends a lot on the income bracket considered. When you look at spending on entertainment per income quintiles, you see the higher the income, the higher the % of income is spent on entertainment. And of course, the higher the absolute dollar amount spent.
Entertainment is a crucial aspect of people’s lives (I’m not going to quote all the research in media studies or social psychology for that). But entertainment is more of a superfluous area of spending. And consumers might be even more reluctant to spend on mobile digital entertainment compared to standard forms of entertainment. First you are purchasing virtual items – and there is a cultural barrier there (although it might be fading – I have no insights into that just a feeling). Second, mobile games are low commitment – it’s easy to play and multitask. Just compare with console/pc game. In that case you need to set some time apart from that, probably sit in a dedicated spot in your house, and most importantly dedicate some time and attention almost exclusively to the game while you’re playing. It feels harder to justify spending on something superfluous if on top of that you’re not really paying attention or dedicating much effort to it (i.e. if you’re just playing it to pass time).
If you give free currency to players they’ll spend it – and once they run out they’ll simply stop spending. You are giving something for free for players with an extremely low propensity to spend. But in the process of doing that, you’re also giving something to your fans who are willing to spend – and who have more currency and less need to do an IAP to acquire what they want. Louis Vuitton doesn’t try to generate more revenue by making its bags cheaper and having large volumes of buyers (I’m assuming – I have no insider info here). They don’t also give out free stuff with the hope more consumers will in turn buy their products. Just in the same way, mobile entertainment is a luxury. The less you give out for free, the better you’ll your monetization your fans. And you don’t turn a non-payer into a payer by giving him/her free stuff. You might be successful in getting a very small portion of players to go from not caring about the game enough to spend to becoming a customer. But in general, that will never make up for the amount of revenue coming from your fans you lose out on.