Video games are a very popular pastime among people of all ages, and there are now more ways to play them than ever before. With the advent of smartphones and tablets, as well as console and PC gaming, there are myriad options for how to get your game on. But what about the business side of things? How do video game developers make money off of their products? Let’s take a comprehensive look at the various business models used in the video game industry.
The different business models of video games – which one is right for you?
The business model of a video game company is the means by which the company generates revenue from its product. The three most common business models for video games are retail, subscription, and free-to-play.
- Retail
The retail model is the most traditional business model for video games. In this model, the customer pays a one-time fee to purchase the game outright. Once purchased, the customer can access all of the game’s content. This business model was dominant in the early days of video gaming when arcade cabinets and home console systems were the primary platforms.
- Subscription
The subscription model is similar to the retail model, but instead of paying a one-time fee, the customer pays a monthly or annual fee to access the game. This business model is most commonly associated with massively multiplayer online games (MMOs). World of Warcraft, for example, uses this business model.
- Free-to-play
The free-to-play model has become increasingly popular in recent years. In this model, the game is offered for free, and the player can choose to pay for optional microtransactions within the game. These microtransactions can include things like new character skins, in-game currency, and other cosmetic items. Many mobile games use this business model, as do some PC games such as League of Legends and Team Fortress 2.
There are advantages and disadvantages to each of these business models. The retail model requires a larger upfront investment from the customer, but it also provides the developer with a more predictable revenue stream. The subscription model can be less expensive for the customer, but it requires them to maintain their subscription to keep playing. Finally, the free-to-play model is the most accessible for customers, but it relies heavily on microtransactions for revenue, which can be a turn-off for some players.
Ultimately, there is no one “right” business model for video games. What works for one game might not work for another. Therefore, it’s up to each game developer to decide what business model is best for their game.
Types of market structure is the video game industry
The video game industry has four basic market structures: monopolies, duopolies, oligopolies, and perfect competition.
A monopoly is a market structure where only one firm produces a good or service. This firm has complete control over the price of the good or service, and there are no close substitutes. An example of a monopoly in the video game industry would be Nintendo, who has complete control over the production of Mario games.
A duopoly is a market structure where two firms produce a good or service. These firms have some control over the price of the good or service, but close substitutes are available. An example of a duopoly in the video game industry is Microsoft and Sony, which both produce consoles competing against each other.
An oligopoly is a market structure where a few firms produce a good or service. These firms have significant control over the price of the good or service, and few close substitutes are available. An example of an oligopoly in the video game industry is the console market, where only a few firms produce consoles.
Perfect competition is a market structure where many firms produce a good or service, and there is perfect information about the good or service. As a result, close substitutes are available, and no firm has complete control over the price of the good or service. An example of perfect competition in the video game industry would be the market for mobile games, where many firms produce games, and there is perfect information about the games.
