Economics in the networked computer game industry

Abstract

This thesis presents several of the business models utilized in the economics of the online networked computer games. The Free2Play and micro-transactions monetization business model, a sub-category of the Freemium business model, is in particular focus. The game Heroes of Newerth developed by S2 games, has been analyzed as a case study. The fundamental characteristics of a F2P and micro-transaction monetization model has been found in the game. Results show that S2 had to switch from a Pay-per-copy business model. The original model focused on high levels of short term revenue, and S2 made a lot of money initially. As the market began to saturate, the revenues started to decrease and the existing customers were just a load on their servers without giving any extra income. S2 lost market share to its main competitor LoL, which utilized the F2P model. By implementing F2P model, S2 created revenue from its existing customers, and at the same time encourages new users to HoN. HoN has some weaknesses in their business strategy. There is room for improvement in the GUI of the in-game store. Conversion rates could be increased by adding more alternative payment methods in their in-game store. PayPal has concluded a survey that found that one addition payment alternative, may increase conversion sales up to 14%. The possibility to add advertisements in the loading-screen when players are waiting in the match-making queue is a natural way for S2 to increase their revenue. The game already implements a loading screen that displays various tips and hints. Typically waiting time varies from 1 and up to several minutes, this is a potential huge revenue aspect S2 has not taken into account that will have no impact in the game experience. In the case study, different aspect regarding the “soft currency” and rewarding system of the game has also been analyzed in detail.