Free2Play MMO Revenue Metrics

Posted by Dan on June 9, 2009

Gamasutra has a great article by Daniel James of Three Rings Design, about the metrics for measuring free2play MMO revenue: specifically, average revenue per paying user (ARPPU) vs. average revenue per user (ARPU). The piece argues that ARPU is a superior model for determining potential financial viability of a free2play game.

For instance, an average ARPPU may look like $50 (because it only includes paying/premium users), while an ARPU may be in the $0.80 to $3 range (because it includes free users as well as paying users). According to James, his ARPU is within $1-$2, but only 10% of his user base will ever pay him something. As a result, 5,000 gamers are generating $230,000 per month for him. James argues that the ARPU is the true number that any new paying customer is worth to you; it allows you to better forecast trends in revenue, and to make distribution and marketing deals with affiliates. James suggests a scenario where a publisher with a $3 ARPU can go to a distribution site and say “Hey, put my game on your site and advertise it, and I’ll give you $1 for every new user you send me.” Measuring by ARPPU would not give you that sort of freedom. James also notes that number of registered users is not an important metric in determining revenue streams – those 5,000 gamers generating the big bucks for him come from a pool of 7 million registered users.

The article does diverge a bit from common sense at one point. Jeremy Lliew, of Lightspeed Venture Partners (a VC firm focusing on free2play MMOs) suggests that “if you
can wrap your head around the implication of less money in and less money out …
and you can develop the games with relatively small, multiple teams that are
constantly turning them out like an assembly line … you’re going to find that
free-to-play MMOs are an exciting and worthwhile place to be.” I strongly disagree here. Churning out assembly line style games has a negative effect on the market, as one can see from the bargain basement stocks lining the shelves of Wal-marts everywhere. F2P games are no different, and with such a diversity to choose from, assembly line product will fall by the wayside — decimating that critical marginal increase in ARPU necessary to financial success. Games need to have some minimum standard of quality, uniqueness, and innovation to them to spur interest, especially via word-of-mouth marketing which is so critical to free2play games. Despite that small hiccup, the article is spot on. Interestingly, it also features a promise from Raph Koster, that he will release his ARPU/ARPPU numbers on Metaverse (his social gaming project) once the data is significantly developed. That’s something we’ll be looking forward to, for certain.

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