character.

I remember that!

Didn't you make like $350?

Way to game the system, babe!

I thought so, too.

But if you add up what it cost me to get there…

$50 to buy the game, $30 for the expansion pack, $15 a month subscription fee… after

a few years of that, I'd sunk around $500 into that one game.

Not to mention the countless hours I'd spent leveling up my character.

Yikes.

Well, at least you were able to mitigate the loss a bit.

And you genuinely enjoyed playing it, right?

I think so… or was I just addicted?

Remember when buying a video game meant… you owned it?

And you could play the whole thing without spending one more dime?

Ah, the good old days!

That sales model has been largely replaced by one that asks players to continuously pay

money throughout the course of the game.

And that economic transition has been very lucrative for the games industry.

If you asked an 80s gamer to spend $500-$1000 on a video game, they'd probably choke on

their Hawaiian Punch.

But today, millions of players do that every year, perhaps without even realizing it.

How did we get here?

The first “free-to-play” game was released in South Korea in 1999 and over the next decade,

the idea spread across the globe, as developers realized that capturing a large audience could

be more valuable than any purchase price--kind of how the rest of the internet works.

[facebook, youtube, etc.].

Once you have their attention, then you can advertise to them, or sell them little upgrades

and cosmetic items in-game.

These so-called “microtransactions” have been incredibly profitable.

Remember Farmville?

This “free” game was making well over $1 million a day from in-game upgrades and

boosts back in 2010.

The current free-to-play champ, Fortnite, reportedly brings in over $2 million a day.

And according to surveys, 90% of people who play the free online game League of Legends

have spent over $1000 each on the game.

And remember: unlike material goods, these products cost the company nothing to manufacture.

Once the cost of design is offset, it's pure profit.

P: So how do these companies pull off this nifty trick of getting people to overspend

on something that's technically free?

Like most marketing, the strategy is mostly based on exploiting the customers' psychology.

First of all, if you want people to keep spending, you need them to keep playing, which means

these games have to be open-ended and addictive.

Forget beating the final boss or rescuing the princess, now it's all about climbing

the leaderboard, raising your level, or expanding your kingdom--objectives that could theoretically

go on forever.

And the distribution of rewards--like unlocking a new weapon or a bigger castle---has been

carefully crafted in look, sound, and timing, to deliver a powerful dopamine rush that players

will crave again and again.

Developers also know that as much as people like winning, they hate losing more.

In economics, this is called “loss aversion,” and it leads people to spend more and more

money just to avoid that terrible feeling of being a loser.

In Candy Crush, once you run out of moves, you've technically lost.

But you can use one “Lollypop” to get three extra turns.

And you've only got a few seconds to decide - hurry before it's too late!

This might not seem that different from the earliest days of video games, where players

could pump another quarter into the arcade cabinet to keep playing.

But at least you could run out of quarters, and have time to rethink your life goals on

the way to the change machine.

Today, those little arcade cabinets we keep in our pockets are often linked to our bank

accounts, so you can keep continuing and continuing until there's nothing left.

Quarters also have the advantage of saying exactly how much they're worth, right on

the front.

Many of today's games require you to convert your money into unfamiliar currencies, like

Fortnite's V-bucks or League of Legends' Riot Points.

They know people are more likely to spend money if they don't know exactly how much

they're spending.

The newest innovation in microtransactions seems to be inspired from the casinos of Las

Vegas: loot boxes.

Instead of selling items outright, some games ask you to buy a mystery box that might contain

a super rare level 20 Energy Sword… or a worthless stick.

Loot Boxes, card-packs and other random-chance items exploit what economists call “variable

rate enforcement”.

Our brains love unpredictable rewards.

Just like with slot machines, the dopamine rush is more intense when the reward is a

surprise.

So opening a loot box and finding that Hot Pink Top Hat you always wanted can feel more

like a win than buying it outright--even if you spent more to get it.

Do these strategies work on everyone?

No.

But they don't have to.

A study in 2016 found that almost half of all spending on mobile game microtransactions

came from 0.19% of players, with a very small number (known in the industry as “whales”)

spending thousands on their favorite games.

So, in effect, these companies are okay with most people enjoying their product for free,

as long as they can soak a handful of super-addicted gamers.

Unfortunately, a lot of these “whales” turn out to be “calves.”

(That's what you call a baby whale.)

Yep, children are uniquely susceptible to these psychological tricks, probably due to

their impulsivity and lack of understanding of what they're actually doing.

You've probably heard the horror stories.

The 17 year old who racked up $7,500 on his dad's credit card for microtransactions

in FIFA '16.

Or the 7 year old who spent over $6,000 on Jurassic World for iPad.

Game developers typically refuse to refund these charges and still have not done much

in the way of child protections.

However, there has been some push-back from parents, legislators and gamers alike.

EA tweaked its rewards system for the popular Star Wars-themed game Battlefront 2 in response

to player criticism.

The game heavily advertised Darth Vader and Luke Skywalker as playable characters, but

one gamer calculated that unless you're willing to pay for shortcuts, unlocking the

characters would require 40 hours of in-game grinding… each.

And legislators in states and countries across the world have considered regulating loot

boxes like a form of gambling--especially now that secondary markets have sprung up

where people can sell the rare contents of those loot boxes for hundreds or thousands

of real dollars.

And indeed, research has pointed towards a link between the amount one spends on loot

boxes and the likelihood of having a gambling problem.

If you're a parent, you might consider only buying games for your kids that are “Pay-Once-and-Play,”

or at the very least avoid having any credit card accounts linked to gaming devices.

If you are a consumer of video games yourself, remember that enjoying a game is not the same

thing as being addicted.

And like most non-essential expenses, you should keep track of exactly how much you're

spending on it a month.

Microtransaction purchases are designed to be impulsive and thoughtless, so just being

aware of what you're doing is still the best meta.

The best what?

Such a noob.

Okay stop.

And that's our two cents!