‘Business model’ is a term used widely in many organisations but what does it mean to consumers, and does it affect the way consumers perceive and engage with a company and their products? To mark Video Game Day we are sharing a study by Joost Rietveld examining the video games market which indicates that a good business model can capture value and improve how consumers perceive an organisation’s products and better enable consumers with heterogeneous preferences to act on their willingness-to-pay.
Joost is an expert on video games and has more than ten years of experience working with video game companies and is a member of the Association for UK Interactive Entertainment (Ukie). He has published findings from his research on the video game industry in leading academic journals in the fields of strategy and entrepreneurship.
Joost’s study explores how consumers engage differently with freemium and paid games and how this affects the games respective performance. The study concludes that consumers spend less time and money on freemium games than paid games. Freemium games can partially offset this disadvantage by offering a wide variety of paid items at different price points.
Using data from both the gaming market and experimental evidence, the study concludes that as a result of these differences, freemium games generate less revenue than paid games. Joost suggests that to achieve competitive parity with organisations operating the premium business model, organisations operating the freemium business model need to create more value (e.g., through improved product quality, income from advertisements, or unlocking network externalities) or operate at lower costs.