In one of my Comm 101 guest lectures on Operations, Mr. Mahesh Nagrajan spoke about his experience of working with a  freemium game company Candy Crush Saga and I was intrigued by the idea of such firms. I always wondered how an easy concept of charging a minimal amount to progress in virtual game could be so profitable. I was further fascinated by the operations and the core idea to generate revenues using this business model by watching a SouthPark video on Youtube.

The video explains the role of micro financing (spending in this case) as a medium to earn higher revenues. The business model is simple, it asks users to join and use the game for free without any restrictions. This makes the accessible for potential gamers who would not go out of their comfort zone to buy and experiment on a game. They introduce the concept of competition with friends, hence by human nature we try our level best to be on top. Gradually once the users get addicted or moves along the game the game get difficult and the users are introduced with an easier option of buying virtual money such that the game can be made easier. This poses the users with two options: To struggle and waste time on the same level vs. pay a small amount and proceed further.

Collective minimal pay from consumers turn into large revenues, while the costs remain low as the overhead charges are low since the firms are not manufacturing anything these turn out to be highly profitable.

P.S. (Please click on the image to view the image source)