From Minnow to Whales: An Empirical Study of Purchase Behavior in Freemium Social Games

Abstract

This paper empirically investigates whether and how social dynamics, in combination with user past performance, drives purchase propensity in freemium social games online. Two essential elements of freemium social games are (1) social dynamics — users can perform various levels of social interactions, and (2) freemium setting — users can play fully functional games for free, or make multiple cash purchases to enhance their gaming experience. The key to success of such flexible freemium games is to encourage users to make continued, large purchases even though they could enjoy the product for free. Using an online freemium social game data set, the authors find that both formal social groups formed within the game and informal social connections influence purchase decisions. Furthermore, informal social connections moderate the effect of user past performance on spending. Managerially, the study proposes several design and targeting strategies for freemium social games and other businesses adopting a similar model, including fostering a social environment at various levels; implementing targeted promotional activities based on social status and social connections will benefit revenue in this flexible freemium context.

Keywords: freemium, Customer retention, in-app purchase, online social games, purchase behavior, social dynamics