How "Free" are Free to Play (F2P) MMOs?
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Sources: FreetoPlay.Biz , MCVUK.com, Gamasutra.com

Overview
Free-to-play
(F2P) refers to any Game that allows its players to play without paying. MOst often this involves dowloading the game client from the company website and most often (but not always) without a monthly subscription fee.

However, understand that these gaming companies are just that ...COMPANIES...they didnt work for years to develope a fantastic 3D world and NOT make any money. These companies are out to make a profit. However, the way they obtain their profit is different from the traditional Pay to Play (P2P) MMORPGs that we are often used to. However, they way these games can leach money out of you can be insidious and players are sometimes quite surprised that they pay more for F2P games than they would of in P2P games.
A new report by analyst firm DFC Intelligence has claimed that the total worldwide market for both online gaming subscriptions and the trade of virtual in-game items will surpass $13 billion by the year 2012.

However, recent estimates report 91 percent of the online PC gaming that kids under 18 do is of the free to play variety. As such, Virtual items offer a small conversion rate -- some 90 percent of users will never purchase them.

Below I go through the ways companies make money in the F2P MMO market.

Virtual Item Sales
Virtual item sales is the practice of allowing users to purchase functional, decorative, or functional & decorative in-game items for use in and out of gameplay. A virtual item system often has two currencies - money obtained within the game (Gold dropped by mobs, etc) and a real money-based currency (that you have to buy). Typically, 5-15% of users opt for the latter currency and the influx of real world money is what provides the virtual item sales revenue stream.

Now many people are saying: "HAH ...IM a strong gamer, I wont need to buy any items. I can make it through the game with my smarts, strong will, and expertise in all things MMO". In some games, that is correct and you can find yourself doing well. In Others you will find that life is tough..you will see players fly by you in levels and power...but with time, you may be able to catch them. In a small few games...you will be fodder. Doomed to a life of feeding those who did purchase ingame items that augments their in game strength to a degree you could never hope to achieve.

The most common items players buy in F2P games are not ultimate swords and armor, but actually clothes and other items that allow your avatar to look unique. Sometimes Fashion >> function. After that comes Leveling trinkets/potions where your experience is doubled/tribles/10X normal for a select duration of time. There are some games where the XP curve becomes exponential at the higher levels making these items a neccesity. Finnaly comes movement items and mounts. As many MMO players know the pain of traveling, it is not surprising these are often purchased (and some of the most expensive).

Subscription Tiers
A tiered subscription model allows users to play the core game for free, but those that desire access to elite weapons or other game content, must pay a small fee for access to this content. Not too many games employ this but their numbers are growing.

Tournament Fees
Several games, most often in the sports genre generate revenue by offering tournaments which players pay to enter. The winners of the torunements recieve cash prizes. This is often seen in Sports and gambling styles of free to play games. Beware that several states in the USA are in various stages of restricting or outlawing this kind of practice.

Advertising
Game ad agencies typically serve ads within game products. These can appear as the bottme of the side in the use interface and may rotate through a series of ads. Some games use popups which can be quite intrusive. Often these ads are screened and are appropriate for the players playing the games (No XXX Boobs popping up on screen)

Expansion Packs
A game does not use a monthly subscription fees for its revenue, but relies on the sale of successive expansion packs. Most Pay to play games also use expansion packs to inject revenue into the company in addition to the monthly subscription. Expansion pacts can vary in cost but most often are equal to or less than P2P games.

Summary
There are other ways in which F2P games generate revenue (i.e. take your money). These are the main ones that I have seen. In The end, the best way to approach a F2P game is to keep in mind that somewhere and at some time you will face a decision to buy a virtual item, enter a tournament or pay for an expansion. There is NO dishonor in doing so. If you enjoy playing a game then it will ultimatly serve your interests in participating. The money you give will only help the makers of the game tyou love and give them incentive to create further content or more games that you may also like.

Good Luck and I hope this helps.

Additional Comments by F2P playersCorrections suggested by F2P players
I agree with much of this article and would add
My experiences have been different in this way