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Valve Makes Team Fortress Free -- Because That's Where the Money Is



UPDATE: Huge news in the video game world as World of Warcraft announced it will go to a modified free-to-play system. Blizzard announced today it will no longer charge a subscription fee for anyone playing up to WoW's twentieth level. Users will have to pay to play beyond that. WoW had been charging for the base game plus a monthly subscription fee of $15. Blizzard also cut the price of the base game to $20.

Valve's decision to stop charging for its Team Fortress 2 game means it will probably make a lot more money. It is also the latest indicator that the pay-to-play business model may have seen its day in the video-game market.

TF2, a team-based shooting game, was first released in 2007 as part of a four-game bundle for $50. After that players were able to buy TF2 by itself for $10. Now instead of making money from sales of the title, Valve will get income from the sale of in-game items like weapons and clothes. This will probably mean a big spike in players and revenues judging by what has happened with other games that have done this.

Until last September, when it became free to play, Turbine's Lord of the Rings Online was charging $50 a game plus a $15-a-month. Since it went to free more than one million new accounts have been added and 20 percent of its former players have returned. The result of this is that it is now making three times as much money as it had before.

Later this year, Paragon Studios will shift its superhero role player City of Heroes over to a free model, as will Lego's Lego Universe. Although all of the companies have slightly different business models (Heroes and Lego will both offer monthly subscriptions that let players do more; Heroes will also sell game items), all are banking on the quality of the game play to entice an increased number of players to put down money.

The "freeconomics" model has been gaining traction across the web for several years but it has just hit game companies in a big way. In 2008, Chris Anderson of Wired wrote the trend-defining article on this topic:

The new model is based not on cross-subsidies -- the shifting of costs from one product to another -- but on the fact that the cost of products themselves is falling fast. ... The rise of "freeconomics" is being driven by the underlying technologies that power the Web. Just as Moore's law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.
This is radically different from previous free models like TV, which depended on cross-subsidies from third-parties like advertisers to foot the cost.

One of the factors helping game companies is that the sale of virtual items, as Valve is doing, creates markets that are extremely profitable because they are seemingly irrational. Even though the items cost nothing to produce (or close to it) and have no use beyond the environment of the game, they can sell for much more than the cost of their real world counterparts.

Nor are the game companies the only ones to profit from this. The offline value of the currency used inside games themselves has resulted in a number of mind-bending crimes. In CCP's science fiction role-player Eve Online, a player who was chairman of a large in-game bank reportedly embezzled roughly 200 billion ISK (the game's currency). He then exchanged the ISK for about $5,000 to pay off real-life debts. (Not a great exchange rate, but still, free money is free money....)

Photo: WikiCommons
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