Freemium games are increasingly becoming one of the most popular choices for gamers everywhere. This is particularly true for the large percentage of gamers who choose to access games via their smartphones. Apple generates between 70% and 80% of its iOS revenue of around $10 billion each year from in-app purchases made through freemium games (this is separate to revenue made from subscriptions and services).

What is Freemium?

The word “freemium” is a portmanteau of “free” and “premium”. Freemium games are typically completely free to download and play as a core version. Players are then offered opportunities to improve the game in various ways, which they pay for. This could be paying to remove advertisements, making in-app purchases to upgrade the game, buy special items to unlock new areas of the game or simply change the look of their avatar or the appearance of the game should they wish.

Freemium Revenues

Whilst the majority of people who download freemium games will play the free version and never spend any money, there are enough players who want to advance or improve the game to generate huge amounts of revenue. Data from SurveyMonkey Intelligence in 2016 in the US found that many freemium games were making millions of dollars per week for in-app purchases. The top ten in terms of weekly revenue at the time of the research were:

• $15,353,000: Pokemon GO
• $11,582,000: Mobile Strike
• $9,671,000: Game of War – Fire Age
• $5,544,000: Candy Crush Saga
• $5,011,000: Clash of Clans
• $2,956,000: Candy Crush Soda Saga
• $2,527,000: Clash Royale
• $2,138,000: Slotomania Free Slots Casino Games
• $1,633,000: Big Fish Casino
• $1,327,000: Summoners War

Casino Gaming

Online casinos have been offering a version of freemium gaming almost since launch. Almost all offer players a series of attractive sign-up bonuses, some of which do not require an initial deposit. Simply by signing up, players can access chances to win real money at an online casino for free, as the website adds bonuses such as free spins or free bets to the account as soon as it has been activated. No-deposit bonuses offer unique opportunities to win real money without risking anything other than a little time. Casinos then use alternative promotions, such as deposit-match bonuses and incentives for logging in daily to help entice players back once their free spins have been used.

Mobile Gaming

It was with the advent of mobile gaming that the freemium model really began to take off. In a world where almost half of the entire global population own a smartphone, mobile is rapidly becoming the most popular platform for gaming. One of the primary draws for people downloading gaming apps to their mobile is convenience - being able to play at any time and in any location.

Lots of mobile gamers like to play simple games that can be dipped in and out of at will – utilising that convenience to entertain on the commute or while waiting for a friend. When people are only playing for a few minutes at a time, they are more likely to choose games that do not require an up-front financial commitment. Software developers of freemium games work to try and ensure the games are engaging enough that those five-minute players want to keep coming back for more.

Conversion Rates

Conversion rates are essential for freemium games if they are to start generating revenue. To get people to “convert” (start paying for embellishments), developers aim to make the games as addictive as possible. Once people are hooked on a game, they are more likely to be willing to spend money on it. However, developers are up against a tight timeframe. The average freemium game will generate three-quarters of revenue in the first three days.

Creating New Experiences

The freemium model works well as it allows all players to experience the basic game without having to spend any money. It draws revenue by allowing those players that want the full experience to create that by making in-app purchases. Some of the most successful freemium models are those where making purchases enhances the game significantly, such as opening new maps, introducing new characters or allowing access to exclusive side games.

Word-of-Mouth Reviews

While a large number of people who play freemium games may never make any in-app purchases, more players usually equals more word-of-mouth reviews. Players who enjoy a game, even if they are not personally prepared to pay for any extras, will talk about it to their friends or invite others to play with them. This can help generate more excitement about the game and bring in new players who are prepared to spend money to enhance the gaming experience.

One study of freemium games in 2014 found that in-app purchases of between $1 and $5 a time accounted for 67% of the total number of purchases, but only 27% of total revenue. Single purchases of over $50 accounted for just 9% of revenue, but the biggest 10% of spenders generated over half of all revenue. What this tells us is that the freemium model works when lots of players are engaged with the game and provided with opportunities to make enhancements for relatively small amounts. However, the majority of revenue comes from that small percentage who are willing to spend more to access the ultimate gaming experience. Those big spenders might never have tried the game if they had to pay to download it in the first place but are more than willing to commit financially once hooked.