|March 16th, 2009|
At SXSW, Susan Choe of Outspark stated (and was promptly tweeted as having said) that Outspark manages to get $60 ARPU, which is quite a respectable figure.
The challenge there, of course, is that you have to know on what basis this is being measured. I immediately asked “was that ARPU or ARPPU?”
Average Revenue Per User is generally calculated by taking all of your users and dividing your revenue. In a freemium model, that tends to yield (for successful businesses) figures in the 50 cent to $1.50 range. (For more on freemium models, I highly recommend Andrew Chen’s excellent blog Futuristic Play.
Average Revenue Per Paying User is calculated by dividing up the revenue amongst the users who paid anything at all. This yields a figure that is significantly larger. In the case of a subscription MMO, the ARPPU, measured by accounts, is the subscription price, diluted slightly by free trials.
Historically, the histogram of revenues per user have shown a (surprise, surprise) power-law distribution, with a few users willing to pay exorbitantly high amounts. The Simutronics games make much of their living from the dedicated users willing to pay a lot of money. During the pay-for-time days in the AOL era, these high-end users had a price tolerance of thousands of dollars monthly.
Even today, when so many users have multiple accounts, it is more accurate to say that the ARPPU for a subscription game is some multiple of the subscription price; if your average number of accounts per human is actually two to three, then your ARPPU is more like $30-$45.
If you add onto this the likely amounts being spent buying items and virtual currency on the black market, then it’s likely that the average spend per user in the MMORPGs is actually right in the same range as the figure Outspark cited. And in fact, follow-up questions determined that Outspark was indeed talking about monthly revenue per average paying user.
The big reason to go with a microtransaction model is because it opens up both end of the curve. People who would not be willing to pony up the full $15 a month are enticed to pay at least something, thereby hugely broadening your market. And on the high end, users who were getting a phenomenal deal at $15 a month are instead offered avenues to spend the thousands that they were actually willing to spend on their hobby all along.
The big reason not to go with a microtransaction model is that it doesn’t have the commitment fallacy in its favor. Once we make a choice, we tend to stand by it. A subscription can be seen (like buying a box, also a hugely powerful psychological buy-in tactic) as essentially making a commitment; you then attempt to live up to the commitment, which is why two games of comparable quality will have different first month conversion figures depending on whether the user had to buy a box to get in or not.
Every time you pay you have to make a fresh decision, whereas many customers typically let subscriptions ride; in fact, there’s considerably more psychological effort demanded to cancel participation than there is to join in the first place. There’s a lot of social proof backing up membership (friends, community, etc), and you tend to build mental justifications for remaining a member.
Check out this anecdote from Robert Cialdini’s wonderful book Influence: The Psychology of Persuasion. Here a group of folks attended a session trying to sell them on Transcendental Meditation. If they signed up, they had to leave a $75 deposit. A logician stood up and made a rational argument against doing so; as a result, more users signed up. The logic?
The spokesman put it best: “Well, I wasn’t going to put down any money tonight because I’m really quite broke right now; I was going to wait until the next meeting. But when your buddy started talking, I knew I’d better give them my money now, or I’d go home and start thinking about what he said and never sign up.”
As Cialdini describes it, this potential customer had a real need, and they saw an opportunity to commit to it. The argument against actually served as an argument to take the leap, because it undermined their hope. And hope is a powerful driver — exactly the driver that subscriptions make the most powerful use of.
There’s a reason most mature industries (phones, cable TV, even theme parks!) have evolved to support both subs and pay-as-you-go a la carte plans. Your ideal is someone who is committed enough to subscribe, and who also then accepts upsell offers to maximize their revenue potential. In the meantime, we have to listen for the subtle difference between ARPU and ARPPU.