The Influence of Microtransactions on the Revenue Models of Indian Gaming Companies

Back in 2006, the game ‘The Elder Scrolls’ offered cosmetic horse armour for $2.5. Most gamers found the idea of buying a virtual item funny. But unbeknownst to them, this meant that the concept of microtransactions entered gaming for the first time. 

In real money poker and rummy games, transactions are an integral part of the game. For instance, many platforms offer micro stakes in online poker, with blinds as low as $0.01 in the US market. For non-real money games, microtransactions have proved to be an excellent way of integrating financial flow in gaming.

Microtransactions Are All Around You

Ever booked a flight ticket for several thousands of rupees and paid another ₹150 for the aisle seat? The latter is a microtransaction integrated into the flight ticket booking journey. Nowhere is it as prevalent as it is in gaming. 

Appearing in free-to-play games, microtransactions are a revenue opportunity for game developers. The developers offer the game for free but showcase interesting virtual items to the players, which are available for a price. These in-game purchases have proven to be major revenue earners for many gaming studios.

Microtransactions should not be confused with downloadable content; the latter brings story expansions, new routes, missions and characters. Loot boxes, on the other hand, are indeed microtransactions. Globally, microtransactions have turned the fortunes of many game titles and studios.

Prominent Microtransaction Case Studies

To counter a fall in popularity, the first-person shooter game Counter-Strike: Global Offensive introduced gun skins for sale. Specifically, they offered a random kit of weapon accessories for $2.49. Fortnite introduced an in-game currency called v-bucks, which players could win or buy. These are then used to buy skins and hidden features in the game. Fortnite players can also buy battle passes, which speed up their game progress.

With the game League of Legends, the Riot Games studio introduced the concept of Riot points. These points could be purchased by League of Legends players and then used to buy skins, unlock different characters, and so on.

The universally popular mobile game Candy Crush Saga offered additional lives or boosters to its players. These were available for a price and helped players to tread through the difficult stages of the game. Candy Crush Saga kept the boosters as an optional purchase. These were good-to-have items for the players rather than must-haves, which made the experience less intrusive.

Rising Importance of Microtransactions in India

Microtransactions are no less important for Indian gaming companies. Subscription purchases and pay-per-use purchases fall behind in-app purchases, as observed in recent Interactive Media and Gaming Research. This is not a sudden trend that has emerged after the global popularity of microtransactions. More than 62% of Indian gamers preferred small in-game purchases over one-time subscriptions, even five years ago.

There’s no denying that the popularity of online poker apps like Pocket52 makes real-money games a major force in the Indian gaming industry in terms of revenue contribution. In FY2023, real money poker, rummy and other similar games brought in $2 billion as revenue. The total industry revenue during the year was $3.1 billion. In-app purchases amounted to $0.5 billion. In FY2024, revenue from real money games increased to $2.4 billion, while in-app purchases increased to $0.7 billion. Thus, in-app purchases grew at double the rate compared to real money games. 

It must be noted that the real money games segment has matured over the years, while microtransactions and other in-app purchases are a comparatively recent phenomenon. Experts believe that by FY2029, in-app purchases will exceed real money games and become the largest revenue contributor to the gaming industry. The breakdown of the estimated FY2029 revenue of $9.2 billion includes $4.3 billion through in-app purchases, $3.6 billion through real money games and $1.3 billion through advertising income.

Securing Game Development Finances

Releasing a free-to-play game and pinning hopes on advertisement income alone can put game developers in a precarious position. Grant Thornton reported that 90% of mobile games adopt the freemium model, which offers a free game followed by optional in-app purchases. These purchases amount to nearly 90% of the revenue for these mobile game developers. Interestingly, less than 2% of the players who play these popular mobile games spend on in-app purchases.

For indie developers and smaller studios in India, microtransactions have acted as a key revenue source in a highly competitive industry. Apart from the investments made in the development of the game, games must spend on regular updates, new features and storyline expansions. Microtransactions can act as the financial aid needed by the game developers for these expenses.

Redefining Revenue Flow

Microtransactions have redefined the revenue model of gaming companies in India and overseas. Rather than relying on one-time income, game developers can now continue to innovate within the game. Consequently, they identify and implement microtransaction opportunities in the game. This not only keeps the cash register ringing but also refreshes the player’s interest in the game.