Tencent Crossfire: Nothing Ventured, Nothing Gained

Tencent, one of the biggest and most influential IT Corporation in China, had launched its signature first person shooting game Crossfire in 2008. Based on reported statistics, it has over a million online users every day1 and always ranked top place in a lot of game websites. Many Other IT companies always pursue profits when forming their price strategy, but Crossfire is free to play, which seems bizarre and risky. Ultimately, there must be other ways for them to generate the cash to operate the system as well as to earn profits.
Firstly, Tencent promised Crossfire is totally free to play, but the underlying strategy is smart and shocking. People may not believe it because everybody knows there is no free lunch in the world. Anyhow, when they give a try, most of them feel surprised that Tencent might have kept its promise. It is definitely free to register an account and download the game package. Tencent will not charge you a cent for it even when you literally play the game. However, after few days trail play, the commitment Tencent made has become pale and weak. That is to say, not only you have to pay, you have to pay a lot. Crossfire is a game in which you will have a gun battle with other online users. People try their best to kill their enemies with the ‘weapons’ in their hands. The ‘weapons’ are usually a gun or other ammunitions, but they are virtual goods. When you are new players, it is capable for you to survive with a simple pistol because you are protected from high level players. Yet you will find it is getting harder and harder facing other veteran players with simple, basic weapons in your hands when you finish the rookie training. Thus, in order to survive, to save your dignity, or if you are already addicted to the game, you have to purchase the weapons you need. The higher level the weapon is, the more it costs you.
In fact, this strategy is a very clever move in the online game market. By adopting ‘freemium’ strategy, Tencent enjoys 29.5% share of revenue in China2 and is a nightmare for its competitors. First of all, the revenue is from creating and selling virtual goods at almost zero cost. Moreover, it is a great opportunity to expand their influence in the market. Sometimes, the choices of a teenager can be random. When playing a game, all they want to do is to have fun with their friends. So if many teenagers are attracted by ‘freemium game’ at first place, the guys left out will soon switch to the same game. When more and more people are playing this game, the social influence will emerge and spread out rapidly, and other products from Tencent can easily take advantage of this. What’s more, it threatens or even damages its competitors in the market. By stealing customers from other games, Tencent compresses the room for other companies since the time people spend on online games are stable. That is, they would not double their play time when he plays two games. Therefore, once a customer is attracted by Crossfire, the profit of the other game which offers hourly based payment will be hugely decreased while Tencent is risk-free with its ‘freemium’ strategy.
Also, Tencent is a company that is very good at modeling consumers’ behaviour. Tencent knows that people don’t mind to give a try for free stuff because they think they have nothing to lose. This could be true in reality, but not in Tencent’s world. Online games are addictive, especially for teenagers. Instead of blocking teenagers out by expensive payment at first place, Crossfire let them in and enjoys the game. Then, as time goes, the simple challenge cannot satisfy their needs. Finally, they are addicted to the product and willing to spend money on it. Similarly, the proof is not hard to find in the Apple store, in which the freemium games are leading all app revenue models and are now accounting for more than 65% 2of app revenue.
Finally, ‘freemium’ age has come. As a consumer, it is necessary to know the fact behind the ‘fairy tale’ of free. But for a company, the way of earning money is changing all the time. As the saying goes, “nothing ventured, nothing gained”. Undoubtedly, Tencent is just the perfect explanation for the proverb.

Reference:
1. http://en.korea.com/blog/tech/games/crossfire-%E2%80%9Creaches-2-million-users-in-china%E2%80%9D/
2. http://www.buzzom.com/2011/09/online-gaming-market-in-china-reaches-usd-1-3b-chinese-firms-dominant/
3. According to Flurry’s analysis http://blog.flurry.com/?Tag=Freemium