Like software, video games used to almost always be monetised using the traditional sales model where customers paid upfront and received a cassette, cartridge, or disc to take home. It worked for several decades, with publishers distributing each new release via brick and mortar retailers or mail-order catalogues.
Things changed a little with the advent of the internet though, with some computer users beginning to share games with their friends online. Some companies attempted to block such behaviours with all kinds of weird and wacky copy protection systems that used wheels, plastic prisms, and basic cryptography.
Others embraced the sharing of their software, offering some levels for free and giving people the option of buying extra content. One of the most famous examples of this is Doom. Around 3 million physical copies of the game were sold between 1993 and 1999, with another 1.15 million sold via its shareware model.
Despite the pioneering efforts of Doom’s publisher, the traditional distribution method remained the most prevalent monetisation method in the industry well into the 21st century.
The Beginnings of the Saas Model
One persistent problem that video game publishers struggled with was the second-hand market. When consumers got tired of playing a game would trade it into their local video game retailer or sell it online through sites like eBay.
Others would lend games to their friends, meaning two, three, or even more people could play a single copy of a game. And this is before you consider the issues with piracy, with PC games shared readily online with patches that meant a disc wasn’t needed to make it run.
Unhappy about missing out on all this extra revenue, companies like Ubisoft and Electronic Arts began experimenting with passcodes that granted gamers access to the online portions of the game.
For a short period in the late 2000s and early 2010s, a code would be printed on a card placed inside each game case. It could be used once to grant a single player or machine to access online features.
If the gamer then sold their copy, the purchaser would have to pay a fee to the publisher for a new one-time license code.
Understandably unhappy with this, consumers were very vocal in their displeasure with this model, and publishers quickly withdrew it. In its place, they looked to SaaS companies for inspiration.
From the 7th generation of consoles (PlayStation 3 & Xbox 360) onwards, publishers began releasing additional features and content after a game was released. Players could pay for this downloadable content (DLC) piecemeal or subscribe to receive all of the updates.
Over time, this has morphed into the microtransaction model we see today where games are often free to download but players can pay for premium features or extra in-game content.
SaaS Games Are Dominating
Free-to-play games, which are the video game equivalent of a subscription to Dropbox or Microsoft Office 365 are quickly becoming the most dominant titles on the market. Among eSports competitions with the highest ever prize funds, the top three are all free-to-play titles.
Even games that aren’t free-to-play are making more money from these recurring transactions that they do from the initial game sales. In 2020, Take-Two Interactive, the company that publishes titles like Grand Theft Auto; Red Dead Redemption; and NBA 2K, announced that it now makes more than 50% of its revenue from microtransactions.
In 2021, the company is also beginning to make separate free/cheaper versions of its online games to encourage more players to spend their money on microtransactions instead.
They’re not alone either, Activision, the publisher of the best-selling Call of Duty franchise released a free-to-play multiplayer version for smartphones in 2019, breaking several records for downloads in the process. Electronic Arts, the company behind hit sports franchises like Madden and FIFA also features microtransactions heavily in its games.
These games are able to capture the interest of players for so long because, like SaaS products, they’re continually updated with new features. These features create novelty in the gameplay, meaning there’s always something novel and exciting to try out and explore.
With so much money to be made and so many players appearing to enjoy the regularly updated content, the SaaS concepts in the video games industry are likely here to stay.