However, we're now seeing yet another race all the way to the bottom: free. Even as the PC space is largely adopting a free-to-play, microtransaction-driven business model, the shift is similarly occurring in the mobile market. Recent F2P hits have started a run of similar titles, with some paid apps adopting a free-to-play option.
The change began subtly. Rovio's breakout hit Angry Birds may have stuck near the top of the Top Paid Apps charts, but the Top Grossing arena was ruled by little blue men early last year. Smurfs Village spent months as the Top Grossing app, no doubt bolstered by co-marketing for the then-upcoming film. Still, the free app had an inviting price point, and even a few 99 cent purchases per user would easily push it above the revenue for a one-time dollar fee. Then, Tiny Tower became the talk of the iOS App Store blogosphere, using a similar model inspired by social gaming on Facebook, even garnering recognition as Apple's official Game of the Year.
In the past year, the free-to-play model has taken off in force. Zynga frequently offers free, ad-supported versions of its popular games. Capcom recently put up Ghost Trick as a free download for the first few chapters, with the others available for purchase. EA has published a licensed Simpsons title that it expects to be one of its biggest mobile revenue generators. Halfbrick's Jetpack Joyride, which went F2P as a limited time promotion in December, is still available at no cost after it shot to the top of revenue charts. In fact, many of the current Top Grossing games in the App Store use a free-to-play model.
Imangi, the studio behind Temple Run, had been releasing paid apps since the App Store's inception. As a result, the small studio has seen both sides of the pricing spectrum. "When we first released Temple Run, it was released as a paid app," co-founder Natalia Luckyanova told Joystiq. "When we set it free at the end of September, that's when it really took off. It hit the top three apps, and the revenue immediately went up. At that point it was a no brainer to keep it free; it was getting 50,000 downloads a day."
The increased revenue is a by-product of another advantage: word of mouth. Since free apps have such a low barrier of entry, they have the opportunity to spread like wildfire. Even users who don't make any in-app purchases can contribute to the viral marketing. "It's definitely been huge because kids and people in high school talk to each other so much about apps, so that's been a huge viral driver," said Luckyanova. "We've heard from a ton of adults who say, 'oh my daughter loved your game,' and that's where they learned about the app."
A much larger player base also means the developers have to offer much more support, for customers who may never purchase anything. Luckyanova pointed out that 40 million downloads "results in quite a bit of e-mail," while Marsh pointed out that the studio had to learn how to handle such a large player base.
Depending on the free app's revenue model, it can prove an inconvenience for users as well. A recent study [PDF] of Windows and Android phones found that free apps that use an ad-supported model drain significantly more battery life than paid or non ad-supported apps. This wouldn't include F2P games that rely strictly on in-app purchases, but the free versions of many of Zynga's word games rely on pulling down ads fairly often.
As the market slowly moves in this direction, the developers that were ahead of the F2P curve can't use that factor to stand out anymore. Just as we saw when most apps dropped to 99 cents, a standard price point makes it harder for developers who had been using the low price to differentiate themselves. That puts the onus squarely back onto quality. "I would hope that the most well-crafted games that provide a great experience for players will rise to the top," Marsh told Joystiq. "The more popular the app market gets, the more difficult it will become. It's definitely more difficult now than it was a year ago."
I would hope that the most well-crafted games that provide a great experience for players will rise to the top - Nimblebit's David Marsh
Then again, popularity isn't everything. Luckyanova points out that under the free-to-play model, chart position isn't as important as it once was. If a dev can sustain a smaller, dedicated user base, they don't need to remain at the top of the charts. "If you compare top grossing and the top free, a lot of these games that are top grossing aren't getting as many downloads," she said. "So with this monetization model, you can have fewer users. I think a lot of those companies that make freemium games are trying to keep their users up and not care about chart position."
Her co-founder and husband, Keith Shepherd, pointed out that loyal fans sometimes reward developers for the simple enjoyment of the game. "We designed and tested it without the in-app purchases to make sure you could progress without that speed, but there's still a percentage of people who buy. There are people who are like, 'Hey, I play so much I wanted to support you, so I bought a coin pack.'"
The issue of loyalty is one that has become more important than ever for Nintendo and Sony. Each company's hit franchises and more traditional control schemes gain them the respect of most core gamers. But the games themselves were already staggeringly expensive compared to the original bottom-level price point: 99 cents. That gulf grows even wider when price is removed from the equation completely.
Sony offers free-to-play experiences on PC and PlayStation 3 with its Sony Online Entertainment catalog, and dipped a toe in smaller, cheap downloadable games with the PSP Minis. While some original Minis are available for use on the PlayStation Vita, no new marketplace scheme has made its way to Sony's new portable device. Nintendo has its own game market for the 3DS with the eShop, but most games are still priced at $2 and up. Neither company seems ready to adopt free-to-play for these devices. Making such a model profitable relies on in-game ads or purchases, which could be tricky for either portable system.
That very problem may be the key difference keeping Sony and Nintendo from challenging the iPhone market. Without an open platform, both companies need to personally oversee each game that's approved, leading to higher costs for developers and fewer opportunities for small indie studios. Counter-intuitive as it may be, the free-to-play market attracts indie talent and has become a huge revenue generator for developers and mobile markerplaces alike. The longer Nintendo and Sony delay in moving in that direction, the more of a head-start the mobile market has on them in the new generation of portable gaming.
Steve Watts is a freelance writer based out of Baltimore, MD. His work has been featured on Shacknews, 1UP, The Escapist, and GamePro. You can follow his Twitter at @sporkyreeve.