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Profiting from impatience: Clash of Clans and the micro-transactions business model

Online gaming companies are grossing billions because millennials just can’t wait.

 

From the top 20 grossing games in both the App Store and the Google Play Store, 20 of them – that’s right, all of them – are games based on a freemium business model. This business model consists in letting users download the game for free, make them try it and then charge them for extra features or for continue playing as they progress in the game. When this model was first launched, you could download the game for free and then you had to pay to get rid of the ads or to continue playing at all. Candy Crush was among the pioneers in this business -model in which you could play some stages for free and then pay $1.00 – or get some Facebook friends to help you unlock extra stages – to continue playing. However, it was the team of Supercell, the creators of Clash of Clans, who brought this model to the next level.

Clash of Clans, the most popular smartphone game in the last 4 years, profits from people’s impatience. The game basically consists in building your own town, training an army, attacking other players’ town to steal some of their resources and investing those resources for growing your base and progress on the game. The more you leave your town unattended, the more likely you are to be attacked and losing your resources making the game pretty addictive. So, how do this guys make money? They charge impatient people. Clash south park

When you start building your base, each construction takes around 1 minute to build. Same happens when you want to upgrade your army or your defenses. So, at the beginning you can gain traction easily making progress faster. However, as you progress in the game, things get much slower. If upgrading a building from level 1 to level 2 takes 1 minute, upgrading the same building from level 10 to 11 may take 10 complete days. So, if you want to speed things up, you can use gems, the game’s currency, to make it happen instantaneously. Of course, those gems come at a cost. Sounds basic, right? Well, it works. According to Business Insider, the app is already grossing more than $1.5 million a day.

This sounds easy in theory, but truth is the game has many sophisticated features. For example, the amount of gems that you need to speed an upgrade considers people’s hyperbolic discounting. That means that people tend to show a preference for things that arrive sooner. For example, a person may pay a lot to receive something today that was supposed to receive in 5 days. However, the same person would not be willing to pay anything to receive the same item in 60 days instead of 65. Clash of Clans captures that value. For instance, it may cost you 100 gems to speed 100 minutes of the game – equivalent to 1 gem/minute. However if you want to speed only 10 minutes of the game, it will cost you 20 gems – or 2 gems per minute, twice as much.

It’s been said that millennials are the now generation, since we want everything right away. Accordingly, smart business models are starting to take advantage of it. Online games are grossing billions from exploiting this pattern, what industry is next?

http://www.businessinsider.com/clash-of-clans-earns-15-million-a-day-as-top-grossing-app-2015-6

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