The monetization of video games is a hot and controversial topic. The games industry has experienced explosive rates of growth over the past few years, and there’s more value in it than ever before.
As the industry shifts and evolves, so too do the financial models that underpin it. Monetization of games is a surprisingly different area, and it’s one which has been the subject of some heated debates recently, especially surrounding loot boxes and the tradeoff between player experience and developer profit.
This article will go into the main methods of monetization used in the games industry, and examine some of the wider implications and issues that come with each.
The History of Game Monetization
Once upon a time, you just bought a game, and that was that: you owned it. These were the days of cartridges and disks.
Physical media meant that the game wouldn’t receive updates or maintenance–what you bought was what you got. This model changed little through the 1980s and ‘90s, with the NES, PlayStation, and PC being the leading platforms.
Then came internet connectivity. As distribution networks like Xbox Live and Steam emerged, the monetary models began to change, and the economics of gaming were permanently changed.
Not only could developers now update their titles, but they could also release DLC and expansion packs via digital download. These extended a game’s lifespan, as well as its earning potential.
Another key turning point was the arrival of smartphones. These were always online and were now powerful enough to play advanced games. These mobile-specific games popularized the free-to-play (F2P) model, where games were free to download but came with in-app optional expenses.
Technological industries are in the middle of a shift towards Software as a Service (SaaS) models. These ensure a steady flow of income, which enables the company itself to be valued more highly, thus keeping shareholders happy. These days, it’s common to see in-game purchases on AAA games as well as mobile ones, and for games to be offered on a subscription basis.
Common Monetization Models
There are several different monetization models and income streams which are relevant to games today:
- One-time purchases
- Free-to-Play
- Microtransactions
- Battle Passes & Season Passes
- Loot Boxes
- Ads & Ad Removal
1. One-Time Purchase
This traditional model is still common for AAA console and PC games. The player buys the game just once, for a single larger payment, often in the region of $70.
| Pros | Cons |
| Simple and straightforward for players | Limited post-launch revenue |
| No frustrating microtransactions | High upfront cost |
| Transparent, no hidden costs | Shorter game lifespan |
| Ideal for offline gaming; no connectivity required |
2. Free-to-Play (F2P)
In the case of F2P games, the app or game itself can be downloaded and played for free. This gives developers a chance to draw players in. The money comes from optional in-game purchases, for items that speed up in-game processes or boost player stats.
| Pros | Cons |
| No barrier to playing; free to get started | Can stray into pay-to-win, which is frustrating to players |
| Ongoing revenue through optional purchases | |
| Long game lifespan |
3. Microtransactions
These are small transactions that take place in-game. They might be for extra in-game items, which may be either cosmetic or gameplay-influencing. Common examples of items that are sold through microtransactions include XP boosts, outfits, in-game currency, unique weapons, and time-saving boosts.
| Pros | Cons |
| Continuous, steady revenue for developers | Can exploit certain spending habits |
| Devs can sell smaller cosmetic items and skins | Some players may be alienated if pay-to-win |
| Players choose what to spend money on | May cause competitive imbalance in-game |
4. Battle Passes & Season Passes
Passes are a time-limited monetization model. They reward players for progressing through tiers of content during a set “season“. These are common in online multiplayer MMOs and similar game types.
| Pros | Cons |
| Regular payments create predictable revenue | Time-limited nature won’t suit all types of players |
| Encourages regular play, keeping game alive | Developers must put out a steady flow of content |
| Loyal players are rewarded |
5. Loot Boxes
Loot boxes use a randomization system, introducing an element of surprise. The player buys a loot box before finding out what they’re getting. Randomized rewards can be frustrating, and they have drawn controversy recently for their addictive qualities, particularly in association with games like Overwatch and FIFA Ultimate Team.
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| Pros | Cons |
| Potential to create high revenues | Controversial for comparisons to gambling |
| Adds element of surprise | Can be repetitive and frustrating |
6. Ads & Ad Removal
Ads are a straightforward source of income, and charging for their removal is also a viable form of monetization. While ads can be obtrusive, this method does offer a way for players to play for free or to opt into the premium version without ads.
| Pros | Cons |
| Easy way to generate income from non-paying players | Breaks the immersion of gameplay |
| Low-effort monetization of mobile games | Can feel exploitative to ad-averse players |
| Clear upgrade path | Comparatively low revenue |
The Psychology Behind Monetization
There are various psychological principles that relate to different monetization methods. Variable rewards, FOMO and limited-time offers can all be used to encourage players to buy optional elements of a game.
The design of a game itself is often geared towards encouraging spending. For example, certain quests may be insurmountable without a certain in-app purchased item.
Developers also employ habit loops to encourage repeated spending and to boost player retention. This promotes certain cyclical behaviours which involve systems of rewards, near misses and spending. In gambling as well as gaming, things like promo codes can adjust the perceived value and exclusivity of any given transaction.
Final Summary
Game monetization is a subject fraught with debate and controversy. Monetization takes many different forms, each coming with its own set of advantages, disadvantages, and ethical considerations.
It’s likely that subscriptions are going to gain further popularity. These are favored for their ability to ensure steady income for developers while providing gamers with a near-endless library of games to try.
The debate over which monetization methods are morally acceptable will continue to rage, but the reality is that the future of game monetization will be shaped by both the game producers and the players themselves.
