How IAPs Fuel Player Retention and Growth in F2P Games

Consider an experiment on a given game; IAP is turned on in one version, and in another, IAP is turned off. After one year, which version has more players? It’s the one with IAPs on! Monetization increases engagement; far from a tax, it’s a subsidy.

In a rush to emphasize the unique low conversion and hyper-skewed nature of F2P, evidence rarely is presented as a time series. We often lament that “less than 1% of players pay!” but this isn’t true on a time series basis. The retention rates of players who choose to pay are significantly different from those who do not. Over time, the share of DAU that’s made at least one payment rises; it’s also why we see ARPDAU rise. With enough time, payers outnumber nonpayers. Top games like Galaxy of Heroes or Summoner’s War likely maintain 60-80% payer-to-nonpayer DAU ratios. While mostly adverse selection, there’s causal evidence of payment retention.

One rumored King experiment turned off IAPs, just as I described. The result? Payers churned. Without the ability to pay, payers struggled to progress and, as a result, churned. Belgium and the Netherlands count rulings required the removal of loot boxes from top games; I suspect an empirical investigation would find long-run DAU dips as a result. Economists, this is your Batsignal; natural experimental evidence is yearning for analysis.

Famed game designer Sid Meier warned against developers focusing on monetization, claiming:
“The real challenge and the real opportunity is keeping our focus on gameplay. That is what is unique, special, and appealing about games as a form of entertainment. When we forget that and decide it’s monetization or other things that are not gameplay-focused, when we start to forget about making great games and start thinking about games as a vehicle or an opportunity for something else, that’s when we stray a little bit further from the path.”

Meiers is wrong. Monetization isn’t some foreign agent to the body of design we need to develop antibodies against; it’s part of the organism itself. Monetization was present at the birth of the commercial medium with arcades, and it has never been more integral to its ability to thrive.