Ian Hughes (epredator), Senior Analyst IoT, 451 Research, Sci-fi Author and Doctor of Technology (Hons) takes a look at what has happened to the games industry and its interaction with IT consumers and their parents.

Micro payments. Pay to play. Pay to win. When it comes to gaming, what has led to those pesky little drip feeds of cash we are persuaded to send to the creators of many of today’s games? We’re in a world of loot boxes, skins, season passes, downloadable content (DLC), episodes, subscriptions, skins, consumable resources and customisation. There are many more phrases and ideas but they all pretty much amount to the same thing: paying to continue playing our favourite games.

Many of these business models involve virtual currency. As you read on, we’ll discover that this isn’t as simple or as obvious as it first seems. Of course, commercial video games started by being coin slot operated arcade machines - the natural successors to the electro-mechanical tradition of pinball machines. It was just a few years after that, that the PC and console revolution happened. Here we trace the value inherent in video games, virtual content and virtual currency.

Shrink wrapped product

In the beginning, in our non-internet connected home gaming world of the 1980s, we bought games on disk, tape and cartridges - physical products with digital content onboard. There was no real opportunity for the developers to issue fixes or patches, the game was what it was when it was finished and shipped.

The gamer bought and owned the game; they could lend it or sell it on as they chose with significant issues for the game companies. Most significantly tapes and floppy disks were prone to copying and piracy. Despite this challenge to IT revenues, the industry grew. Numerous protection techniques were tried, with serial numbers and instruction books with hidden codes. Games had back doors - hacks that the programmers left in - and some had specifically added Easter eggs. These were treats for those willing to look for them.

Combat piracy with more action

Gamers wanted to get the best value out of the content they had purchased (or copied). They wanted to see and do everything they could. Cheat codes evolved from quick hacks into an industry in their own right.

Magazines would print codes (often acquired directly from the game’s production companies) to help players do more in the games. It was not quite downloadable content, but it offered a hint at the value constant communication with players could have.

Getting a few extra lives in an arcade game, skipping a boss battle that was way too onerous, or getting in-game coins or gems to buy upgrades were examples of this. Twists on the game’s content, changing a character’s clothing colour, making a different engine noise, big head modes - these were also prevalent. Specific programs and cartridges were developed and sold to help people hack the games and find these ‘secrets’ and this removed some of the control from the developers and the magazines.

Expansion packs

In the 1990s, we had the Atari ST, the Commodore Amiga and the IBM PC clone. Back then, developers began extending their games’ lifespans with expansion packs. This was much harder on the cartridge-based consoles that only had limited persistent storage. Computers had disk drives, so games could be updated and improved with new content. This would be sold at a fraction of the price of the original game, but the player would often need the original game disk to validate the expansion pack.

The longevity of revenue coming from a game was being extended. Beyond new content, expansion packs that also featured bug fixes - to cure any problems in the original code - started to be the norm. A bug-ridden disaster that tanked on release might get a reprieve if its makers issued a patch.

Gamers were still going into shops to buy these upgrade packs, but a cheaper expansion to a favourite game would take revenue from a competitor’s brand new, full price game. This did not stop new games being developed; indeed, it encouraged ongoing franchise development with refreshed full price evolving versions of games starting to appear.


From the 90s, the connectivity that the internet brought to computers and consoles accelerated everything. It all became faster: from quicker distribution of cheats, hacks and modifications, to the evolution of multiplayer gaming.

It was not solely related to the internet, though, as LAN parties (people getting together and plugging games computers into one another in order to compete) had also started. Games were built to support multi-machine and multiplayer. Initially, this was rudimentary with just two computers plugged together over a serial cable for something like a fighter dogfight.

This was theoretically good news for developers and their balance sheets. Each player would have to buy the game and possibly the expansion pack if they wanted to join the fun. In practice, of course, piracy spoiled the developers’ financial fun.

It should be noted that multiuser dungeon (MUD) was running back in 1978 when (now Professor) Richard Bartle and Roy Trubshaw wrote the game in their spare time - for the DEC PDP-10 mainframe at Essex University. This was the seed that led to massively multiplayer gaming, worldwide. Professor Bartle’s ongoing writing and work on the impact of games and the archetypes within gaming is well worth seeking out.

MMO subscription

The late 90s saw the growth of commercially run, massively multiplayer, online games (MMO). These were typically PC-based and provided a persistent world environment for players. Once they’d paid up, installed the game and logged on, gamers could gather, chat, compete or cooperate to achieve in-game goals.

This is where we saw the evolution of great names such as Ultima Online, Everquest, Warcraft and Eve Online. Some are sadly no longer running but have still had a major impact on the industry and on the economies brought about from virtual goods and currency.

A typical MMO of this type required an ongoing subscription - often on top of purchasing the game in the first place. Play involved characters gaining skills, equipment and assets based on their work within the game environment. Often this was within specific roles: warrior, wizard, pilot, sniper - depending on the game world - making these examples of a role-playing game (RPG), or MMORPG to give them their full acronym.

Make love not Warcraft

The intention of the original MUD (virtual world) was for player levels to be based solely on merit and the time and skill put into tasks, which gave an indication of value and status to fellow players. The presence of other humans means that social groups such as clans, tribes and corporations can form within games. Now, having status and levels in an environment encourages the player to keep returning and - in commercial games - paying the subscription. If the player stops paying, they will lose that status and those personal items earned through long hours of play.

Developers host an ongoing environment for hundreds of thousands of players for many years and have the ability to keep improving and adding details to the world, such as new plot lines and new tasks. Even the highest-level player will be interested in something unique to add to their collection to carry as a badge of honour. Quests and missions can be built that only allow the most expert players in a team to achieve the desired outcome. This further enhances online group bonds and provides a higher perceived value for those who have yet to attain those levels.

The developers of the environment are the ones governing the persistent world servers. One of the benefits of this, is that is they are able to control the uniqueness, or otherwise, of certain items. It is quite possible for an MMORPG to have a single item that is truly unique, as much as it is possible for them to provide the same thing to everyone in one go.

It is also possible to have consumable items that degrade through use, or over time. In the world of the PC in particular, there is a trade in the virtual items themselves between players and across third party auction sites. On third party sites, the original developer has no control over what someone is willing to pay for an item, they only know that a new owner has redeemed a valid code to take ownership of it.

What about virtual currency? 

It is highly likely that a form of money will exist in many in-game worlds now. Whether it is coins or gold, earned through battle or trade, this in-game currency can then be exchanged for other goods and equipment.

This invisible cash is often called virtual currency, but don’t forget - all currency is a virtualisation of value. Real currency is, of course, backed by national governments, but the world of crypto-currency is challenging that in the non-game world.

Initially, virtual currency was completely internal to the game environment, but many games evolved to allow players to buy more ‘game money’ with their real-world cash. Once inside the game, and with your virtual wallet stuffed, you can buy news, goods and services.

Clearly, where there is an exchange of cash, there is the potential for crime, as explored in the Charlie Stross novel Halting State. Account security also becomes a bigger challenge when hundreds or thousands of pounds are wrapped up in a game world. However, in some games, such as space epic MMO EVE Online, crime, piracy and corporate espionage are part of the experience with examples of organisations being infiltrated over the course of years to turn them over for tens of thousands of dollars’ worth of real money.

Economy balancing and gold farming

If an online game allows the purchase of more money to be used in-game, then the company running that title has the challenge of balancing the in-world economy, as it is going to get injections of new game cash at an unpredictable rate.

This makes the environment open to the same economic pressures that countries feel with inflation and currency exchange rates fluctuating. Gold farming, as it became known, involves real people being paid to spend days in-game doing the most basic tasks to earn currency or items which are then sold. The prices offered were often cheaper than the official exchange value to players who do not want to put the time in.

If a genuine player spends hours, days or months playing, or grinding, to get an item and then someone with a bit more real-world money can just buy straight into it, the collective value of the item is reduced.

If this upgrade is done in a grey, or black market, then this further complicates the value proposition. Much of this gold farming is now linked to in-game item and skin trading. To make a real-world profit, all you need is access to time poor and cash rich gamers - people willing to pay to win, or at least look like a winner.

Long running game worlds can be ruined prematurely when companies try and tinker with the economy. Similar ruination can happen when makers offer sales and incentives to keep players involved or attempt to attract new players. Likewise, they can be improved and tweaked to create positive outcomes.

A long-running game economy is a truly complex and chaotic beast. With the vast number of players globally - and the amount of money involved - virtual economic policy is no trivial task.

Game companies are turning to economists and behaviour scientists as much as to marketing and technology experts to deal with this challenge. The economies and player numbers in games are also now being influenced by the popularity of in-game streaming on YouTube, Twitch and Mixer. This willingness to spectate as people play games, sees the growth of professional gamers and sponsorship with bigger and bigger prize pots appearing with esports. This brings the games industry, which has already overtaken film and music, further into a mass media context.

Gambling - loot boxes

Many games have slipped into the habit of providing content to players via a loot box mechanism, as you may have seen in recent media coverage. These are like the Panini football stickers of the virtual world - you are not quite sure what you will get in the packet. On completion of some task or mission, the player is given a box of stuff which they click to open.

After a lot of fanfare, lights and action, the player is handed a selection of goods. In many games, this is just a way to randomly spin out content and aims to be just a bit of fun. In others, the loot can be more valuable in terms of providing gameplay advantage. However, in some in-game economies, loot boxes can be bought with real, hard-earned cash.

The constant is, the content of the boxes is unknown - it might be valuable because of its scarcity; it might be comparatively valueless. The point is, it’s hard not to see this kind of blind buying as a form of gambling. You pay your money, you take your chance.

Randomly assigning things to people, or asking them to pay to possibly get something of value has certainly got bad press. There is regulatory pressure to either stop loot boxes or to at least publish odds, just as any other form of gambling must do. It also seems that the perceived value of luck has less popularity amongst gamers than earning and sits alongside the dislike of gold-farmed or wealthy accounts having all the best gear.

User generated content

The actions of players in assembling a diverse and personalised inventory and offering a degree of character customisation, led to the rise of user generated content (UGC) in persistent online environment, which offers another perspective on the value of virtual creations. Environments like Second Life, with the boom it had in 2006-2009, revolved around a combination of social gathering online, highly customised avatars and the ability for anyone to create new virtual content, both graphical and code-based.

Some of this content consisted of clothes and adornments for avatars, tapping into the value of self-expression. Other elements revolved around the world itself: customised islands (read that as a server) and the buildings, installations and scenery that exist for the community that uses it. Creators are able to sell their developments in exchange for the in-world Linden Dollar. As in many of the game worlds, the Linden Dollar is able to be bought with real dollars; it has a fluctuating exchange rate based on demand. Unlike many game worlds, though, money is also able to be taken out of the environment back to traditional currency. Those creating content can choose any price and any volume; they can make high price unique items or lower price mass market ones.

There still is a lot of trade in clothes, hair, tattoos, furniture, animations and almost anything you can think of. I first rented two islands named Hursley and IQ back in 2006, which I offered to the growing IBM Eightbar community as we grew our skills in virtual worlds. These neighbouring islands formed part of my Feeding Edge business in 2010 and are subsequently now sub-let to many individual Second Lifers, who are still very active in the environment. On them, my virtual and augmented reality based sci-fi novels Reconfigure and Cont3xt sit as exhibits linked to their e-book counterparts on Amazon, but are also virtual goods that I can send to fellow Second Lifers.

The islands are not run for profit, but real money is needed to pay for the two islands and the virtual rent coming in is used to offset that as much as possible. For over 13 years, my servers/islands have run and been part of a piece of virtual world history and development amidst all the many other public and private spaces in Second Life.

There are now many UGC environments, with increased game customisation and many different approaches to the monetisation of these. It is the community that matters and has value across them all.

Free to play

Free to play (F2P) is a relatively new approach games companies have taken in all forms of multiplayer online experiences. They have dropped subscription and shrink wrap purchase in favour of an immediate download. F2P can bring a large audience very quickly, as Epic found out with their take on Battle Royale: Fortnite.

Once people are playing these games, publishers can entice a drip-feed of money from players in the form of unlocks for customisations. These games also target younger players, who can then use ‘pester power’ on parents, asking for pocket money-sized purchases which can add up significantly over time.

Taking Fortnite as the example, players play and earn new decorative elements: clothes, dancing animations and the like. However, earn rates for better upgrades depend on whether you have paid a nominal sum to be part of a season. The season pass means you get to keep all the items you have levelled up to earn. If you don’t pay, when the season finishes after a couple of months, those items are gone. The season mechanic effectively acts as like a pay as you go approach, rather than a contractual subscription.

Additionally, Fortnite sells content that you can’t win by playing. The game’s business model depends on some players drip feeding small amounts of revenue and ‘whales’ splashing lots of cash for new items. The in-game action is key high thanks to lots of players who might not pay anything. Combine all of this and it worked well enough to make its publishers $2.4bn from 200 million players in 2018.

Downloadable content, unlocks and pre-orders

Somewhere in between the full MMO experience and full UGC, many games now offer some form of extra cost downloadable content (DLC). In some cases, this is already part of the game code that is installed, rather like the earlier cheat codes and Easter eggs.

Lots of high-end games now offer multiple bundles for purchase; usually as an online pre-order, months in advance of release and reviews. These provide enhancements like new cars, guns or characters when ‘silver’, ‘gold’ or ‘ultimate’ bundles are bought. Knowing the worth of the extras can be confusing if the game is completely new, but for many that are on a fifth or sixth generation of game, these collectors’ extras are valuable to the player.

Games, but like Netflix

The rise of app stores to sell download-only games, has kickstarted another shift in the economics of games that increase the hook of DLC (downloadable content). As an example, Microsoft now offers a curated collection of 100 or so games that players get access to for one monthly subscription. These include back catalogue favourites, small independent company games and also Microsoft studio AAA games.

Not everyone is happy to spend £70 on a full game, but a few pounds a month to play whatever and whenever, including high-end titles can attract customers. This approach has also replaced the purchase of DVD movies in favour of streaming with Netflix and Amazon, or music on Spotify.

The games can still be purchased and they still sell DLC and season passes, but it gives players a chance to explore many titles without paying a fortune. They may eventually need to buy a favourite game in order to keep the use of any DLC or character development they have built up, or to keep it when it eventually rotates out of the curated list – but it will probably be cheaper by then, too.

Longevity and ownership

The games we play and the memories we develop through interacting with virtual content and fellow gamers all have a personal value, just as any life experience does. Amassing virtual content does not mean that it will last for ever. Ultimately, games are a business: a service is being run and we are purchasing or earning content from that service. Once it shuts, that content is gone. There are organizations trying to archive and keep old games alive. But, it is very much easier to keep a single player arcade game available on an emulator than it is to preserve an entire, ever-shifting community, in an ever-evolving virtual environment.

The advent of social media, in-part driven by the fact that gamers were connecting to discuss games, does bring a way to digitally preserve some of these fantastic environments and worlds. We keep photos and videos of virtual interactions, just as we have those with family and friends in the physical world.