Microtransaction
A microtransaction video game business model is one where users can purchase in-game virtual goods with micropayments. Microtransactions are often used in free-to-play games to provide a revenue source for the developers. While microtransactions are a staple of the mobile app market, they are also seen on PC software such as Valve's Steam digital distribution platform, as well as console gaming.
Free-to-play games that include a microtransaction model are sometimes referred to as "freemium". Another term, "pay-to-win", is sometimes used pejoratively to refer to games where purchasing items in-game can give a player an advantage over other players, particularly if the items cannot be obtained through free means. The objective with a free-to-play microtransaction model is to involve more players in the game by providing desirable items or features that players can purchase if they lack the skill or available time to earn these through regular game play. Also, presumably the game developer's marketing strategy is that in the long term, the revenue from a micro transaction system will outweigh the revenue from a one-time-purchase game.
Loot boxes are another form of microtransactions. Through purchasing a loot box, the player acquires a seemingly random assortment of items. Loot boxes result in high revenues because instead of a one-time purchase for the desired item, users may have to buy multiple boxes. This method has also been called a form of underage gambling. A study in 2020 found that 58% of games on Google Play Store and 59% of games on the Apple App store contained loot boxes, Features available by microtransaction can range from cosmetic to functional. Some games allow players to purchase items that can be acquired through normal means, but some games include items that can only be obtained through microtransaction. Some developers ensure that only cosmetic items are accessible this way to keep gameplay fair and stable.
The reasons why people, especially children, continue to pay for microtransactions are embedded in human psychology. There has been considerable discussion over microtransactions and their effects on children, as well as regulation and legislation efforts. Microtransactions are most commonly provided through a custom store interface placed inside the app for which the items are being sold. Apple and Google both provide frameworks for initiating and processing transactions, and both take 30 percent of all revenue generated by microtransactions sold through in-app purchases in their respective app stores.
History
Initially, microtransactions in games took the form of exchanging real-life money for the virtual currency used in the game that the user was playing. The 1982 arcade video game Lost Tomb periodically offers the player 25 "whips" for inserting a quarter. The arcade game Double Dragon 3: The Rosetta Stone has shops where players can insert coins to purchase upgrades, power-ups, health, weapons, special moves, and player characters.The microtransaction revenue model gained popularity in South Korea with the success of Nexon's online free-to-play games, starting with QuizQuiz, followed by games such as MapleStory, Mabinogi, and Dungeon Fighter Online.
Notable examples of games that used this model in the early 2000s include the social networking site Habbo Hotel, developed by the Finnish company Sulake, and Linden Lab's 2003 virtual world game Second Life. Both free games allow users to customize the clothing and style of their characters; buy and collect furniture; and purchase special, "flashy" animations to show off to others using some type of virtual currency. Habbo Hotel uses three different kinds of currency: Credits, Duckets, and Diamonds. Diamonds are only obtained through buying Credits with real-life money. In Second Life, the Linden Dollar is the virtual currency used to power the game's internal economy. L$ can be bought with real money through a marketplace developed by Linden Lab themselves, LindeX. Second Life in particular has generated massive amounts of economic activity and profits for both Linden Lab and Second Lifes users. In September 2005, $3,596,674 worth of transactions were processed on the platform. Both games are still active today.
The Elder Scrolls IV: Oblivion was released in March 2006 by Bethesda Softworks. From April 2006 onwards, Bethesda began releasing small, downloadable packages of content from their website and over the Xbox Live Marketplace, for the equivalent of between one and three US dollars. The first package, a set of horse armor for Oblivions steeds, was released on April 3, 2006, costing 200 Marketplace points, equivalent to US$2.50 or £1.50; the corresponding PC release cost was US$1.99. Bethesda offered no rationale for the price discrepancy. These were not the first Oblivion-related Marketplace releases nor were they entirely unexpected: Bethesda had previously announced their desire to support the Xbox release with downloadable Marketplace content, and other publishers had already begun to release similar packages for their games, at similar prices. A November 2005-release of a "Winter Warrior Pack" for Kameo: Elements of Power was also priced at 200 Marketplace points, and similar content additions had been scheduled for Project Gotham Racing 3 and Perfect Dark Zero. Indeed, Marketplace content additions formed a significant part of a March 2006 Microsoft announcement regarding the future of Xbox Live. "Downloadable in-game content is a main focus of Microsoft's strategy heading into the next-gen console war", stated one GameSpot reporter. "With more consoles on their way to retail, 80 games available by June, and new content and experiences coming to Xbox Live all the time, there has never been a better time to own an Xbox 360", announced Peter Moore. Nonetheless, although Xbox Live Arcade games, picture packs, dashboards and profile themes continued to be a Marketplace success for Microsoft, the aforementioned in-game content remained sparse. Pete Hines asserted,
"We were the first ones to do downloadable content like that – some people had done similar things, but no one had really done additions where you add new stuff to your existing game." There was no pressure from Microsoft to make the move.
The horse armor content sold relatively poorly, ranking ninth out of ten in DLC sales for Oblivion by 2009. Despite this, Oblivion horse armor became a model for many games that followed for implementing microtransactions in video games, and is considered the first primary example and often synonymous for microtransactions.
In June 2008 Electronic Arts introduced an online Store for The Sims 2. It allowed players to purchase points that can be spent on in-game items. The Store has also been a part of The Sims 3 since the game's release. In The Sims 4 Electronic Arts removed the ability to buy single items, instead downloadable content is provided exclusively via expansion packs.
In the late 2000s and early 2010s, games like Facebook's FarmVille, Electronic Arts's The Simpsons: Tapped Out and Supercell's Clash of Clans pioneered a new approach to implanting microtransactions into games. In conjunction with having virtual currency be used to purchase items, tools, furniture, and animals, these mobile games made it so users can purchase currency and then use that currency to reduce or eliminate the wait times attached to certain actions, like planting and growing carrots or collecting taxes from the townspeople.
In March 2009 the Ultimate Team game mode was introduced in FIFA 09 in which gamers can buy "packs" containing items such as players, stadiums and contract extensions with currency earned by playing the game or real world money. EA followed this success by introducing the game mode to Madden NFL beginning with Madden NFL 10 in January 2010. In March 2014 EA marked the fifth anniversary of Ultimate Team and shared statistics showing the explosive growth in popularity of the game mode. By the late 2010s, Ultimate Team was generating billions of dollars every year.
From around 2017, another major transition in how microtransactions are implemented in games occurred. "Live-service" games, like Epic Games's Fortnite, with constantly changing and updating content, became more prevalent in the video game market. These types of games heavily employ the use of the loot box microtransaction type. According to the September 2019 report by the UK Parliament's House of Commons and the Digital, Culture, Media and Sport Committee, they define loot boxes as "... items in video games that may be bought for real-world money, but which provide players with a randomised reward of uncertain value." The widespread usage of loot boxes by game developers and publishers have garnered a great amount of criticism from gamers in the past decade. Game developing corporations, like Electronic Arts and Activision Blizzard, make billions of dollars through the purchase of their microtransactions. In FY2017, EA raked in around $1.68 billion and Activision Blizzard earned over $4 billion respectively.
The aforementioned Fortnite is an example of a microtransaction model in which all purchases are solely cosmetic: players can choose to purchase "skins" to show off to other players. However, a player can experience all the content of the game and be on an even playing field without purchasing any microtransactions because no feature or gameplay-affecting piece of content is locked behind a payment. These games still occasionally take accusations of being "pay-to-win" as combat-focused video games, such as Apex Legends or Call of Duty: Warzone, offer skins that are inspired by real-world military equipment – often including camouflage – which technically can give players an advantage by obscuring them to human opponents.