Gaming’s Golden Goose: The Allure of In-App Purchases

Edward A Thomson
7 min readSep 7, 2023

tl;dr: I outline why I the IAP model is attractive for developers.

Contents:

  • Baldur’s Gate 3 invokes fuzzy memories of revenue models gone by
  • Online gaming brought new cost challenges: revenue models adapted
  • Mobile gaming cemented IAP as the firm favourite.

A breath of fresh air: Baldur’s Gate 3

With the recent unveiling of Baldur’s Gate 3, the gaming community has found itself at the crossroads of a fervent debate. The game, which has been widely lauded by players, offers an immersive experience for a flat fee of $60. No additional subscriptions. No hidden microtransactions. It’s a comprehensive package that promises — and delivers — a complete gaming experience.

Thanks to GoG for the image (link to the store page)

However, not everyone shares this enthusiasm. Some developers from major game publishing houses have either critiqued the game or been reluctant to herald it as the new gold standard. Their hesitance suggests that Baldur’s Gate 3 might just be setting the bar too high — pushing boundaries and redefining expectations.

This whole scenario reignites a recurring debate in the gaming world about the role of in-app purchases (including microtransactions). From the notorious gacha and loot-box mechanics to the more subtle in-game purchases, the question remains: What’s fair play?

Personally, the allure of a complete game for a one-time payment is undeniable and the fatigue from freemium games has taken its toll on many. I think the amount of entertainment per cost is questionable.

Yet, the financial success of such models is unmistakable. The big publishing houses love this model and it is undeniable that the developers require payment to cover the costs of building and running the games.

It’s a conundrum even prominent figures in the gaming community grapple with. For instance, Asmongold, in a recent commentary on the Baldur’s Gate 3 situation, acknowledged the legitimacy of the microtransaction business model. Notable because he called out Blizzard for their controversial monetization strategies in World of Warcraft some years ago.

Asmongold on the BG3 situation. Timestamped at 11:40 for the comment about microtransactions.

In this series, I will unpack the intricacies of the debate. In this piece I will cover the allure of the model for developers, justification if you will, but then counter-balance that with the ethical considerations.

Freemium without in-app purchases

With the advent of online gaming, the historic monetization of a one-off fee had to change. The promise of constant updates, expansions, server maintenance, and community engagement, the financial framework had to evolve to cover the ongoing costs.

A subscription-based approach is a pragmatic solution: players commit to a monthly fee, and in return, they receive uninterrupted service, periodic content releases, and a dynamic gaming environment. It’s an exchange of money for consistent entertainment and arguably it offers excellent value. Just to illustrate: a monthly fee of $10-$15 can grant players numerous hours of gameplay overshadows the entertainment value of an unlimited cinema ticket.

However, while the subscription model has its merits, it also presents a significant hurdle: the commitment barrier. Prospective players can be reluctant to pay upfront for a game they’re not certain to enjoy. Recognizing this challenge, some games, like RuneScape, adopted a ‘freemium’ approach. (caveat: RS3 now has something like IAP too)

RuneScape membership was cheap back in 2002, ~$5 iirc. (image source)

Under this model, players can access a portion of the game for free, serving as an appetizer of sorts. If they crave more, they can opt for a subscription to unlock the full experience. It’s a win-win: developers attract a broader audience, while players get a taste before they invest. Emotionally, this model feels fair. If your enjoyment wanes, you can cease payments without any lingering bitterness.

As mobile gaming surged in popularity, and with the rise of casual gamers, the industry saw an opportunity for a new monetization method: in-app purchases (IAP). Let’s delve into the origins of IAP and how it carved its niche in the gaming landscape.

The Allure of Microtransactions for Developers

The Birth of Microtransactions and the Free-to-Play Revolution:

The origin of microtransactions appears ambiguous. Wikipedia notes that such purchases existed in the arcade game Double Dragon 3: The Rosetta Stone (1990). Some of the earliest PC games came from Nexon in the late 90s.

As the gaming industry began catering to an ever-growing audience, including casual gamers on mobile platforms, more developers saw the need for a revenue model that could cast a wide net. By allowing anyone to download and play a game without an initial financial commitment, the player base skyrocketed.

Of course, there is no such thing as a free lunch. Someone has to pay. With a large enough player base it was known that someone would be happy to pay for cosmetic changes and even power advantages. These in-game sales became the lifeblood of the free-to-play (F2P) model (subscriptions are an optional addition).

Games like FarmVille and Candy Crush Saga popularized this approach, offering players quicker progression, aesthetic upgrades, or gameplay advantages for small fees. This approach has been dominant on mobile since 2011.

Microtransactions should, in theory, only be used to refer to small transactions, however many in-game purchases can easily be $20 or $100. The term microtransaction is lazily used to refer to any in-game purchase.

Source: FarmVille Press Kit IGBD

Why Game Developers Favour In-App Purchases:

The free-to-play model with microtransactions has led to unparalleled financial successes for many developers, but this isn’t the only allure. Apart from the obvious monetary gains, the IAP model brings with it a plethora of other attractions:

  1. Tailoring Player Experience: At its heart, the microtransaction system provides choice. Casual players might never spend a dime and still enjoy the game. Meanwhile, those who are more invested, either emotionally or time-wise, can opt for purchases that amplify their gaming experience. By catering to such a diverse audience, developers can ensure broader appeal and longevity for their games.
  2. Increased Player Engagement: A dynamic in-game store or the promise of fresh, purchasable content can keep players returning. Whether it’s a new outfit, a unique weapon, or a limited-time event, these elements enhance player engagement, encouraging them to dive back into the game time and time again.
  3. Data Collection and Player Insights: Each purchase acts as a beacon, providing developers with a glimpse into player behaviour. Which items are most coveted? When do players choose to spend? Answering these questions can help developers refine their future offerings.
  4. Flexibility in Monetization: The IAP model is fluid. Developers can test different pricing strategies, introduce seasonal discounts, or launch exclusive offers to gauge player reactions. This flexibility allows them to fine-tune their approach, striking a balance between player satisfaction and revenue optimization.

Even a small percentage of paying users can generate substantial revenue when the total player base is enormous. These “whales” (high spenders) can contribute a disproportionate amount of the total income. Developers continually experiment with different tantalizing deals, such as limited-time spending events, bonuses for cumulative spending, discounts available only on certain days, and so on. The idea is always to add a psychological pressure to encourage spending, especially from the whale accounts.

Clash of Clans — premium currency for sale (source)

Conclusion: The Cost of Play

While the IAP model has undeniably benefited the pockets of developers and publishers, so while it has done wonders for how developers earn, the positive side for gamers feels lacking. Concerns have arisen about the potentially predatory nature of the business model.

There’s a fine line between providing players with a choice to enhance their experience and pushing them into a cycle of spending they might later regret.

Many players long for the simplicity of games like Baldur’s Gate 3, where a one-time fee grants full access. Yet, it is clear from the industry’s direction that IAPs and microtransactions are here to stay.

In the next post, we’ll explore the ethical quandaries of this revenue model, before considering how a player might justify such spending in the third part of this series. Latterly, I will outline a potential alternative that could reshape the industry that I think works well on top of blockchain technology (not just NFTs).

Just to be clear: NFTs by themselves do not solve the dilemma. It is perfectly possible to implement NFTs in such a way that player’s gain little net benefit over the current status quo in gaming. One deciding factor will be the nature of ownership. This will be obvious to some, but I wish to explore this point later.

Acknowledgements

Thanks to ChatGPT for the debates and copy-editing this piece. Ultimately, I do the final editing but having my own words re-written has proven helpful. I feel that my own phrasing is sometimes clunky or immature.

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