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Will freemium drive e-commerce in India?

28-February-2011
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Will freemium drive e-commerce in India?

Microtransactions and virtual goods are a market that is woefully underexplored in India today. Even as companies like Zynga prove that there is a multi-billion dollar industry in this model globally – the company was recently valued at $10 billion, according to a report in the New York Times; they also opened up their first office outside the US in India, as a large portion of their sales go to India, China and other Asian countries – Indian companies are only now starting to consider this area of e-commerce.

Buying and selling virtual goods is not actually a new idea in India – we’ve been doing this for a long time now, every time we pay to download a ringtone or wallpaper. But outside of this, there is still little development done in the field.
Zapak is one of the companies with a presence in this space. Deepak Abbot, VP-Product at Zapak, said, “We offer many games based on the freemium model of microtransactions, including Crazy Kart, Toon Football and Power Soccer. We will be adding more games to the catalogue as well, where the monetisation happens through virtual goods.”

Selling a virtual item, like a special jersey which your character can wear, for example, can be big business. Rajesh Lalwani, Founder, Blogworks, said, “Selling of virtual goods is starting to take off in India. This is particularly true for mobile, where platforms like Mig33 and RockeTalk are some of the leaders in the space, because billing isn’t an issue here. You don’t need a credit card. If you have a phone, then there is a billing pipe already in operation.”

Abbot added, “Virtual goods help prolong the playability of games, keep the users engaged, and reward players creating a strong revenue model based on microtransactions.” This is further augmented by building in a social layer to such engagement. Abbot said, “Social games’ success on Facebook has established the importance of incorporating the social graph into games. This enables collaborative and competitive gameplay, and so users don’t mind indulging in microtransactions to stay ahead of their friends.”

The cricket fantasy league, Dream11, is another company which has invested heavily in building a free game experience around watching cricket. Founder Harsh Jain said, “Instead of supporting the game through advertising, like others could, the company is looking towards microtransactions,” perhaps through the creation of custom avatars and gear for them, though the company has not decided on exactly how to implement this, but is “considering the various implementations of microtransactions for best integration with our offering”.

Low end & high end – both can benefit
A freemium model is a way to create low cost products, which have a potential for viral adoption and have points of purchase for small transactions. The delivery costs, support costs and set-up costs can be kept in check since free users are not expecting highly complex applications, but this doesn’t mean that only simple products, like Zynga’s games, can benefit from the model.

Take for example the ‘Lord of the Rings’ Online game by Turbine. This high end game, which cost the company millions to make, recently announced that they tripled their monthly revenues after switching over from their original, subscription-based model, to a free-to-play model.

Another example is that of Electronic Arts’ Play4Free games. While the company also makes games that are fully paid, they invested heavily in new versions of the games that people can play for free. Then, if they choose, the users can pay for a new gun for a soldier in ‘Battlefield’, or a new part for the car in ‘Need for Speed’, which is also supplemented by completely free games like ‘Mirror’s Edge 2D’. Not only does this drive revenue through microtransactions, but also cements the brand identity of the paid games leading to sales.

Beyond virtual goods
This is not to say that the only services that can offer freemium services to quickly grow users and build revenues are games offering in game items. Rather, the model can be implemented for most online services that do not have a physical component.

One interesting example is in e-books. If you download the Kindle reader, you can quickly gain access to thousands of free e-books on a variety of topics. At the same time, if you so choose, you can also pay for and buy the latest novels, but this comes at a premium. Instead of paying one time for an app and then using its features, freemium then can extend the life and transactions between a customer and a provider. It also enables people to pick and choose what services they want to pay for, adding further value to the actual sales.

Another interesting non-game example is Skype. Using the free service, you can make calls to other Skype users, but if you choose, you can also make paid calls to physical phones. In this case, the service itself is the virtual good you are paying for, as per your needs and convenience.

The same can be said for other implementations of freemium models as well, and clearly, this is one which companies in India need to explore, or watch money be spent on foreign providers instead.

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