Business model innovation, and the power of freemium.

Whilst gamifying elements of your customer or employee experience (the core of gamification) is hugely powerful, other innovations occurring in the gaming space are having a transformative market impact, and we believe are likely to have a transformational inpact on business revenue models far beyond the games industry.

Mobile games account for the vast majority of revenue on mobile app stores. If you look at the top 10 or 25 grossing apps, they are almost all games – and they are free!
5 years ago, games were almost all premium (paid), but business model innovation in the world of gaming has transformed the industry and unlocked huge revenue growth, with game designers creating experiences built around in-game economies that deliver many billions of dollars each year from in-app purchases within games that are completely free to play.

We know how this works. We are designing these economic systems in our successful, top grossing games right now. We believe that the incredible power of the freemium revenue model has huge potential beyond the world of gaming. Many b2c tech companies still cling to subscription-based revenue models that while successful when introduced into the gaming world around 10 years ago, are now obsolete, having been completely surpassed by the near total adoption of free-to-play.

The freemium model works because it allows a business to take the entire value area under the price-demand curve, instead of just the portion of sales that are accepted at a specific price point. In the traditional premium model, you can offer a product at $10, but if a customer was willing to pay $9, then the business gets $0. If a customer was willing to pay $100, the business still just gets $10. The same applies for any fixed price model, such as subscriptions, because the revenue potential is effectively capped. Multiple products and price points improve things, but the principle is the same.
However, in a freemium system, the granularity of microtransactions allows the business to receive $1 if the customer is only prepared to spend $1, or to receive over $1000 if the customer is prepared to spend so much. On top of this, being free at the point of entry increases your initial user base by several orders of magnitude.

Of course, to do this successfully, the economics need to be well-integrated into the core progression-reward frameworks of the game (or gamified business) for optimal performance, but we believe that the wider application of our world-class expertise in successfully designing experiences and economic systems around the freemium revenue model can have a transformative impact on many companies.

If you would like to discuss how we can help your company grow using the power of gamification, email us on info@lab-gamification.com to find out more.