The Effects of the “Microtransaction” Business Model

Although I am currently studying in a International Relations course, my thesis is based on economics and anthropology.

Due to a broken hand, I have found it difficult to work on my bachelor’s graduation thesis. I have already written around 4000 words. I am looking for someone to help find statistical data and help analyze the impact of microtransactions on the gaming industry in Japan. I would also like to analyze the impact of microtransactions on the global market and how it may correlate (or not) to the impact it has in Japan. Lastly, I would like to add a discussion and conclusion section to the thesis. If it seems to be too difficult to write 6000 words, we could also add more sections and information to existing sections of the thesis.
There is no limit on how many references should be used. However, I would prefer if more references were used.

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This essay will look at the history of social gaming and how it rose to become one of the biggest markets within the video game industry. During recent years, therapid proliferation of electronic products throughout the past few decades have ushered in the ‘digital age’. As a form of entertainment, users have turned to video games. One of the more popular genre of video games are social games. These games are designed to cater to large audiences in their design principles and values, a free-to-play revenue model, and a multiplayer function that utilizes a social networking platform, allowing these games to be easily accessed and playable with friends. Popularized by Facebook and their hit game ‘Farmville’, Japan has taken this formula and refined it for their local audience. The Japanese social-mobile industry shifted their focus on producing anime-oriented social games that were more relatable to the domestic audience. The micro transaction business model had also seen a change, as it adopted a ‘Loot Box’ type system in which users will randomly get an item for virtual currency or real-life currency. Through the overwhelming popularity of these games, the Japanese social-mobile games industry has seen large margins of profit.

 

     Keywords:Video Games, Social Games, Microtransactions, Market Share, Virtual Currencies

 

 

 

 

Table of Contents

 

Abstract ii

 

  1. Introduction:

 

  1. Literature Review

 

  • Research Theme

 

  1. Findings and Discussion

 

  1. Conclusion

 

  1. Bibliography

 

 

  • Appendix

 

 

Introduction

 

The rapid proliferation of electronic products throughout the past few decades have ushered in the ‘digital age’. Gone are the trends of the past, with newspapers and physical toys being slowly phased out from society. Human beings around the world have now incorporated a variety of electronic products within their daily lives due to the accessibility and functionality that they provide to the user. One of the functions that these devices provide is entertainment. Through objects such as mobile phones, laptops, or consoles, users can experience crafted scenarios and stories that differ from those they experience in real-life. Experiences in the virtual world are unlike the ones that are based in reality, and a platform to encounter such stories can be through video games (Cheong et al., 2017). What are ‘video games’ you might ask? Video games are known as an electronic game that aims to interact with a player through multiple interfaces to generate a coherent image/story (Cheong et al., 2017). These interfaces can be broken down into two categories: video and sound. It is through the creation of a visual image and sound cues, that allow this platform to immerse the user into a crafted scenario that the developers have created (Cheong et al., 2017). Along with digital devices, video games have rapidly grown over time. There exist many different genres of games in this day and age, such as adventure games, puzzle games, and so on. However, none would see a rise in popularity such as ‘Mobile’ Games.

 

Throughout the decade, mobile gaming has evolved to become a juggernaut of the video game industry. In 2019, mobile gaming comprised of 60% of revenue for the entire gaming market, generating almost $50 billion USD in revenue (Green, 2020). At the forefront of mobile gaming is Japan, with multiple hits such as ‘Fate/Grand Order’, ‘Puzzles & Dragons’, and ‘Monster Strike’ dominating the top of the charts in the ‘Google App Store’ and the ‘IOS App Store’ (Sheikholeslamy, 2017). It does not stop there, as according to Statistia.com (2019), “The market size for mobile and social games in Japan amounted to approximately 1.42 trillion Japanese yen in 2018, up from about 1.37 trillion yen in the previous year. The value of the market more than doubled since 2015. In 2018, it accounts for more than 60 percent of the online content market in Japan.” (Statistia, 2019). After reading these statistics, many would be impressed at the monetary value that these games hold. But this does raise the question, ‘Why is mobile gaming in Japan so popular and why does it generate such a large profit margin?’. The answer is embedded into the root of Japanese society and the early development of mobile services in Japan. To support the impact that mobile gaming has on Japanese society, we will also need to explore the rise of ‘gacha’ games. Thus, this essay will aim to link a variety of factors that allowed for the Japanese mobile gaming market and gacha games to rise to the top of the video game industry. First, we will analyse the development of mobile gaming in Japan and the factors that contributed to it. Second, we will look at Japanese Gacha games and how they function. Third, through the previous sections, we will analyse how Japanese work culture, otaku culture, and various other factors led to the expansion of mobile games (gacha games).

 

Development of ‘Social’ Games and the Microtransaction Business Model

 

Social video games first saw a rise to popularity during the late 2000’s. Although not exclusively known as the definite description of social gaming, the term has found itself synonymous withcasual video games played on social network services such as Facebook(Paavilainen et al, 2013). According to Paavilainen et al (2013), “The term social game emphasizes the role of the distribution platform, social network services, which distinguish social games from other types of video games.” (p.g. 3). Apart from Facebook, there exists social games that are distributed through varying platforms. Albeit for the simplicity of this example, Facebook will be used as an example for a social gaming platform. It was not until 2007 where the first few social games were released, coinciding with the launch of Facebook’s new ‘Developer Platform’ (Mäyrä, 2011). This platform opened the gateways to allow for third party developers to publish apps, widgets, and games on the social media network. Together with the increase in popularity of Facebook, came the release of the first major social game ‘Farmville’.

 

Produced by the company ‘Zynga’, the game was an agriculture-simulation social game that tasked the player with various tasks related to farmland management. These tasks could include actions such as ploughing land, planting, growing, and harvesting crops, harvesting trees, and raising livestock (Higgins, 2010). Although the gameplay itself is simple and repetitive as players are tasked with repeating the same actions every day, there were some takeaways that contributed to the addictiveness of the game. One of these aspects is through the multiplayer aspects of social games. In Farmville, players are able to invite friends or visit their farms to see progress between each other. It is through the social aspects of the game, such as sending gifts, visiting your friends’ play spaces, and interacting with them that creates the enjoyment factor in the otherwise ‘boring’ game (Ricchetti, n.d.). Even if users have friends that do not play the game, they can invite them to start through the Facebook app. Doing this generates a larger player base in which more players are incentivised to play, whether it be because of social pressures or because they find enjoyment in playing the game (Ricchetti, n.d.).Further supported by the rise of the interconnectivity through the internet, the player base of these games have expanded to create social gaming communities. This is shown through the formation of gaming/discussion groups, development of competitive gaming worldwide, and the increase in players through the ability to share the game on social networking platforms. Comparatively speaking, users can also compete with their friends to see who can create the largest/best looking farm. Through competition, players may spend a large amount of time playing these games (Ricchetti, n.d.). Owing to these overarching factors, it leads to players investing physical time and in-game profit into each harvest.

 

Virtual economies are another primary reason as to why players are addicted to social games. Through the use of time and effort, players can earn in-game currencies which allows users to spend on decorations, animals, buildings, and even bigger plots of land (Higgins, 2010). In a bid to collect cosmetics that may have value to those playing, users spend most of their time within the game. Having said that, there exists a method in which users can sidestep the time needed to earn in-game currencies. This would be the process of spending real money to purchase in-game items, upgrades, and so forth. Known as the term ‘microtransactions’, this would become a major source of revenue for social games (Higgins, 2010). Factoring in the sustaining production costs through simplified game mechanics and not having a need to use discs and cases, mitigating R&D costs with monthly subscriptions and micro transactions, companies being able to expand their market/player base to other countries, social games provides economic benefits for both the company and the user (Paavilainen et al., 2013). It is from games like Farmville and the introduction of micro-transactions that we see a shift in the market. Rather than the development of premium games, video games have slowly transitioned into the ‘freemium’ game model that was first displayed in the social games such as ‘Farmville’.

 

Development of Mobile Gaming in Japan

 

Mobile gaming in Japan has reached new heights within recent years. However, compared to countries such as the U.S., Japan has been in the mobile gaming industry for a long time. One of the reasons why the Japanese/Asia mobile gaming industry has become extremely popular is due to the Japanese audience having prolonged exposure to mobile gaming itself. Japan was one of the first countries to pioneer mobile gaming, with the country developing devices such as ‘Game and Watch’, the ‘Gameboy’, and the ‘PlayStation Portable’ (Hjorth & Richardson, 2016). Due to their unique premise of portability and accessibility, they captured the heart of gamers as they could take their console anywhere and everywhere. This also seemed revolutionary as at the time, the market was saturated with products such as large consoles and hefty computers/desktops that could not be carried around (Steinbock, 2008). With its relatively cheap pricing, handheld game consoles dominated the market during the early 2000’s.Apart from handheld consoles, Japan had access to mobile ‘keitai’ (phone) games for quite a while as well. However, the popularity of these mobile platforms could not have happened without the development of a solid foundation in regard to software and hardware.

 

Given the history, Japan had more time to incorporate mobile gaming into its culture then other countries. This was further supported by the booming software and hardware industry in Japan during the early 1990’s, up to the late 2000’s (Hjorth & Richardson, 2016). Many of the mobile games from the past had tools which allowed for short/long distance communication with other players. While these tools were standardized and supported by the market in Japan, the West did not have access to these tools/options as Japanese companies were not looking to sell their products internationally. One of these tools that help propel the mobile gaming industry was the introduction of NTT Docomo’s, ‘I-mode’, in 1999. I-mode was introduced as the world’s first mobile internet service and allowed for its users to send emails to other users, browse the web, make payments and shop on specially formatted websites (Hjorth & Richardson, 2016). Apart from these features, NTT had invested in the development of game apps on its platform in an attempt to attract more customers. This investment allowed for creators/publishers such as ‘Square Enix’, ‘Capcom’, ‘Bandai Namco’ and more to create titles for the services in an attempt to gain a monopoly on the newly introduced market (Hubbard, 2020). Unbeknownst to many, this would be the introduction to online media and gaming for millions of Japanese. ‘I-mode’ quickly became popular as it was the only mobile internet service of its time. Monopolizing the market, mobile phones were soon incorporated as a tool within Japanese society. We could say that these game apps operated as a precursor to contemporary mobile games we know and love today. Without ‘I-mode’, who knows if mobile gaming would be as popular in Japan. However, it was due to the mobility and accessibility factor of mobile games, coupled with a solid infrastructure and popularity of the mobile phone itself, that allowed for the people of Japan to get hooked on mobile gaming. This solid development base soon paved the way for the genre of ‘gacha’ gaming to take over the mobile gaming industry.

 

GACHA-pon and Japanese Gacha Games

 

As mentioned in the beginning of the essay, Japan has dominated the app store with multiple games. In short, these games are known as ‘gacha’ games due to the micro-transaction systems that were developed for the game. Originally, the term was derived from the term ‘gachapon’, due to its similarity to the popular Japanese toy vending machine that is still popular within the country (Kwan, 2017). These machines often contain a set number of toys that are unknown until purchased and dispensed. Children could get a random toy within the set for 100 yen (Hornyak, 2017). Gacha games function similarly to these machines, except apart from getting physical toys, players could get characters, items, or skins from within these games (Kumikones, 2019). It is because of the shared similarities with these vending machines, that the public quickly settled for the ‘gacha’ term as a way of describing them.

 

As to how the gacha mechanic is implemented in these games, they come in the form of rare items, weapons, characters and so on. These items are usually featured under ‘banners’, similarly to the set number of toys within a gacha vending machine (Kumikones, 2019). By spending in-game currency or real-life currency, players can choose to ‘roll’ under the banner, whereby certain items, characters, or weapons are given a higher summoning rate for a limited time. Often, when a desirable item is featured on a banner, the limited availability of these special rates will encourage players to spend in-game currency or actual money to obtain these items (Kumikones, 2019). Depending on the game, this gacha method will have varying results. Games that are related to an existing IP/title, such as Fate/Grand Order, tend to pull a larger spending quota from its players due to the existing popularity of its characters. This will be further explored in the next section regarding ‘otaku culture’.

 

Another reason why mobile gaming is popular in Japan is because these games tend to have content that is quick to finish and easy to sink time into. If we look at Japanese top mobile games on the ‘Google Play Store’ and ‘IOS App Store’, we can see that games such as ‘Monster Strike’, ‘Granblue Fantasy’, and ‘Fate/Grand Order; have been dominating the charts for the past few years (Sheikholeslamy, 2017). These games adapt an RPG-esk concept to its game design, as there are multiple different levels, quests, items, and events that allow for any player to enjoy the game(Karamian, 2018). These battles tend to last only a few minutes, as the primary goal of these games is to collect items to upgrade your characters, weapons, and items. Players are further limited with a stamina system that somewhat limits the amount of battles that can be played in a single session (Kwan, 2017). Ultimately, this allows for mobility and portability for the player as they do not have to sit down and spend copious amounts of time defeating one battle. With that being said, players have the option to repeatedly play these quests to obtain the item they want. Through stamina restoration potions, the limitation on how many battles that could be played per session is effectively negated. Producers of these games also update these games with new weekly/bi-weekly events which provides an incentive for the players to continue playing (Kwan, 2017). Couple with the various in-game features such as upgrading weapons, story quests, and so on, allow for the player to sink their time playing these games. It is an amalgamation of the aforementioned factors that allowed for many new players to get hooked onto these games.

 

Work Culture, Otaku Culture, and the Impact of Anime Gacha games

 

Now how does the aforementioned factors link together with the popularity of mobile gaming and gacha games in Japan. Firstly, it is imperative we look at the ‘Chapter 2’ and ‘Chapter 3’ of the essay. Through the innovation and popularity of ‘I-Mode’, the use of mobile phones has become a staple within Japanese society. Because of how ingrained ‘keitai’ culture has become, it would be difficult to find a person in Japan that do not have access to a phone out during their break time. In a bid to pass time, users commonly turn to playing simple mobile games. This is especially prevalent in Japanese ‘Work’ culture and the amount of free time that are given. Many corporate workers are not given a large chunk of free time but are given multiple breaks that are broken down into small proportions. Whether it be commuting to/from work, going to a lunch break, or going a smoke break, many workers will be using this time to play games (Hjorth & Richardson, 2016). Because of how quick and simple these games are, workers can pick up and enjoy these games instantly. It is also portable and accessible compared to console gaming. Many Japanese workers often stay and work overtime. When they arrive home, they often do not have the time to sit down and game as they would have to rest and prepare for their next day of work. Coupled with console gaming being quite pricey and mobile gaming being free, mobile gaming provides a more attractive option to pass time. (Hjorth & Richardson, 2016)

 

Another reason why mobile gaming and gacha games have become popular revolves around Japan’s ‘Otaku Culture’. Mentioned in ‘Chapter 3’, many of these mobile games are based off of existing franchises that have a somewhat large fanbase. Take ‘Fate/Grand Order’ for example. It is based off the ever-popular ‘Fate/Stay Night’ Visual Novel/Anime Franchise. Thus, many of the in-game characters are already well known by the fanbase (Kwan, 2017). If the developers decide to release new characters, it is no surprise if characters from the main franchise are implemented to the mobile game. This is where the gacha component comes to play. Having a game that is based on off an existing title, the release of new characters from the franchise would often be through a gacha banner. Players would only have a randomized chance to obtain that said character (Kumikones, 2019). If the character is somewhat beloved by the fan base, the release of that character could encourage greater monetary investment from its players to obtain that character (Kwan, 2017). Even more so if the said character were a powerful unit that could contribute to how the game is played. The amalgamation of all these factors has the potential to drive players into spending money into the game’s gacha.

 

Not all games are based off existing franchises, making it difficult for them to garner a large fanbase. However, that is not to say that there are not still ways to attract players into sinking their time into a game.Japanese gacha games can appeal to players through an assortment of characteristics relating to the anime/otaku sub-culture (Kwan, 2017). A prime example of this can be seen through the game ‘Granblue Fantasy’. The game was designed with the art style akin to those in anime, thus, leading to its characters to take on similar appearances. It is because of these designs, that anime fans may develop a strong attraction to the characters personality traits and visual presentation (Kwan, 2017). Through the development of personality traits and lore relating to certain characters, players may be attracted to roll for the character when a strong form of them is released. This was certainly the case in 2016, as during a 2015/2016 new year’s event, there were several cases reported that players were spending large amounts of money to obtain a particular rare character. According to Nakamura from the ‘JapanTimes’ newspaper (2016), “One player livestreamed his attempts and ended up needing 2,276 gacha rolls and USD 6,065 (JPY 700,000) before being successful. Another player who published his attempts on Twitter spent USD 6,950 (JPY 810,000) without being successful” (Nakamura, 2016). Other than the anime art style they have adapted to portray the game, the characters within the game feature well-known voice actors. Similarly, to idols or celebrities, voice actors are considered to be famous within the otaku sub-culture. Thus, players may aim to get these characters as they are supposed fans of these voice actors (Kwan, 2017).

 

Effect and Profitability of the Japanese Social Game Market

The popularity of the freemium game model is nothing to scoff at in Japan. Sales within the industry are at an all-time high, with the projected profitability expected to rise until 2024 (Allcorrect, n.d.). To a greater extent, the dominance of the social-mobile gaming industry is shown in the sales figures of 2017. Analysing the data provided by NewZoo.com, the total revenue earned by the Japanese video game market was estimated to be around $12.5 billion USD (Warman, 2017). In comparison, data from Statistia.com, it shows that the social-mobile market was estimated to have earn a revenue of$6.184 billion USD (Statistia, 2017). If the data proves to be true, that means that the social-mobile game revenue accounts to around 50 percent of the video game market.

 

To analyse the profitability of the market, it is imperative to see what makes the Japanese gaming market special. Simply put, the market is supported through two main reasons, a high number of social-mobile game users and the spending habits of said users. According to studies shown in Statista.com’s 2017 Japanese video game market breakdown, around “68.5 million users are playing mobile games. Internet penetration is about 54.1%, so more than half of the population of Japan plays mobile games.” (Statistia, 2017). Compared to figures shown abroad, such as Asia-Pacific region, the percentage of mobile game users are significantly the lower. Data presented by NewZoo shows that the average users for social-mobile games in the Asia-Pacific region was only 28.3% compared to the rest if the domestic gaming market (Warman, 2017). With a large player base, there is bound to be an increase in revenue due to having varied sources of income.

 

If the average revenue per user (ARPU) were to be analysed, in 2017 alone, Japan had an average ARPU of 90.25 USD. Compared that to the rest of the world at 30.64 USD, the data shows that Japan has an ARPU of almost three times higher than the world average (Allcorrect, n.d.).). The spending habits of Japanese users was reflected by a case in 2016, which involved a game called ‘Granblue Fantasy’. At the end of 2015 year, there werereports of several cases in whichusers from the game spending absurd amounts of money to obtain a rare character that came out during the New Year. According to sources provided by the JapanTimes newspaper (2016), one user has spent 2,276 around a total of USD 6,065 (JPY 700,000) in the chase to obtain the aforementioned character (Nakamura, 2016). Although this example does not reflect the common spending habits of a normal user, it does show the potential lengths players are willing to spend. In turn, this drives up the ARPU and contributes to the overall success of the social-mobile game industry in the domestic sector.

 

 

Conclusion (Temp)

 

In conclusion, should a person ask about the prominence of Japanese mobile gaming, it needs to be understood that there are multiple factors that helped form this juggernaut. If Japan had not established a market with regards to mobile phones during the early 2000’s, we do not know if mobile gaming would be as popular in the country as it is today. Coincidently, mobile gaming went hand-in-hand to the ‘salaryman’ work culture that had already been established. Due to a lack of time for workers to sit down and play games, they often turned to mobile games as a pass time. It is important to note that the development of anime-type games pushed mobile gaming to a whole other level, as it brought the anime fanbase along with it. The introduction of popular anime games contributed to the large monetary gains that the market was making, as players feverishly spend money on collecting characters. All of this amalgamated to the dominance of Japanese mobile gaming that we see today.
History of the video game

History of f2p games (first game and company and why), How it spread, talk about the model

What other games use it

What it looks like today

What is the market share of F2p, marketing strategies

Analysis of F2p games in the market compared to AAA premium games

 

 

Why does free to play work and link it to an economic model, is it sustainable

Cheap productions cost of F2p games compared to AAA games, spending little amounts compared to a one-time big payment.

Development of community and fanbase

Find parallels to other entertainment industry, (pachinko cheap slots, Candy at the front of register in supermarkets)

Backed by trust

Go through the process of creating a game

How does that keep companies afloat?

Psychology of addiction, why people want to buy it, why they market skins, dlc, expansions

Comparison with other players, jealousy, pride

Loot Boxes

Social-economic impact (people who can’t buy AAA games)

 

 

Collect scholarly data and link it to the essay

Thesis Topic: Economic Marketing Strategies on how to improve the ‘Free-to-Play’ games (new type of freemium marketing model)

                        History of ‘Free-to-play’ games

                        Ethics and Psychology of F2p Games

                        Why f2p games are so popular and profitable

           

 

 

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