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Duh! Microsoft Xbox Live Finally Discovers the "Freemium" Model

Microsoft (MSFT) will reportedly be the first console maker to allow publishers to give away games for free. Players can download an XBox 360 game and, if they like it, pay to unlock new levels, items, or other in-game purchases to get the full experience. The real question is, what took so long? Microsoft and competitors Sony (SNE) and Nintendo have all offered downloadable games for a while, but none have taken advantage of the freemium model yet.
The freemium concept fits downloadable game services like Microsoft's XBox Live because its games are different than traditional console games. First, because of bandwidth limitations, downloadable tend to be shorter than traditional console games. Second, they are usually much cheaper than store-bought games, running $10 or less compared to $60.
Shorter games mean smaller development costs, which makes XBox Live a natural haven for independent game publishers. With freemium games, potential customers can try these indie titles for free -- a boon for developers that do not have as much brand recognition as a Sega or Electronic Arts (ERTS).
To see how the freemium model can thrive, Microsoft need only look at Apple (APPL). Apple, of course, didn't invent the freemium concept, but its iPhone, iPad, and iPod games have made buckets of money from it:

  • Alongside top free and top paid apps, the Apple Store added a third top 10 app list for top grossing apps, which are apps that bring in the most money not just through purchase price, but from in-app purchases
  • Freemium apps like Smurfs' Village are making a killing, successfully selling some in-game items for as much as $100
  • Publishers were originally angry at Google (GOOG) Android for not supporting in-app purchasing, a feature the mobile platform just added last month
And like XBox Live, mobile Apple games are low cost and packed with indie publishers. Microsoft is making a wise move adding freemium titles, but it is a move it could have done years ago.

Photo courtesy of yaybiscuits123 // CC 2.0
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