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The Changing Business Models of Gaming

The gaming industry has become exponentially bigger over its lifetime, starting out as something just for hobbyists and exploding into a multi-billion dollar industry that provides entertainment to around half of the planet’s population. 

It didn’t get to this point overnight. It is the culmination of decades of changes that have helped the industry to evolve and better meet the needs of players. This evolution has often been driven by a mix of consumer taste and technology. 

The Early Days – Pay Per Play

In the early days of commercial gaming, most users would have to visit a video game arcade if they wanted to play. The technology for home computers and consoles was still quite limited, so the best experience could be had by stuffing coins into a machine in exchange for an allotment of time or lives to use on a game.

There was also a social element to it as like-minded people would come together to share their passion for video gaming. This is why, although gaming was soon brought into the home, people continue to visit arcades today. 

A modified form of the pay-per-play model still exists in iGaming too. Real money versions of games like poker on popular sites like PokerStars involve players topping up the balance of their account using a method like Neteller or Mastercard and then using some of those funds on each round of the game that they play. 

Gaming in the Home – Pay Upfront

Aside from these exceptions, the gaming industry moved from the pay-per-play format into one where gamers would buy an entire title upfront and be able to enjoy it as much as they wanted from the comfort of their own home. 

There was still some travel required as they’d still need to visit a physical store to buy the game in the first place, but this also helped to retain some of the social aspects of gaming as there would be a place for these people to share their hobby. 

The pay-upfront model worked very well for several decades, with players acquiring almost all of their gaming content this way from the 1980s all the way through to the 2010s. 

Technology changed the way video games were distributed, first moving from physical stores to eCommerce with the physical shipment of discs, to complete digital distribution on sites like Steam where players would simply download the title to their computer – nowadays, this is also possible on all major consoles, like the Nintendo Switch, the PlayStation 5 or Xbox series X. 

But even as this happened, most games still have to be purchased in full before you could play them. 

Microtransactions – Expansions and Free-to-Play

From the mid-2000s, a new trend began to emerge, though it didn’t radically alter video game distribution for another decade. 

It started with players being able to purchase additional elements for their games, such as new maps for Call of Duty, new cars for Forza, and even entire sets of missions for Grand Theft Auto. 

But slowly, microtransactions began to become more significant drivers of revenue for gaming companies than the sale of their games up front, so a transition began from the mid-2010s onward. 

As a result, some companies began to experiment, hypothesising that if they gave their games away for free, they could make more money through these small but regular payments than if they used the pay-upfront model. 

They hypothesised right, and games like Fortnite, CS: GO, PUBG, League of Legends, and Dota 2 have grown into some of the most popular and highest-grossing video games. 

Slowing Down Game Development

Since players are (for the most part) happy with the continual stream of new updates to existing games that gaming companies are pumping out for their titles, we’re seeing a slowing down of the release of new games (though there are plenty of re-releases).

Rockstar first released GTA V in 2013 and it doesn’t look like the developer will be releasing a sequel until after it turns ten years old. League of Legends is even older, having first launched back in 2009, while Dota 2 and CS: GO are also of similar ages. 

Microtransactions are, therefore, having a far bigger impact on the business model of gaming than it first seems since it’s actually severely limiting the creation of new blockbusters. 

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