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Freemium games are successful because companies and consumers set their own prices, venture capital, analyst says

Freemium mobile games have become successful because they allow companies and consumers to agree on a price at an individual level, according to a an article on the Wall Street Journal by Ben Holmes, a partner at venture capital investment firm Index Ventures.

Holmes contrasts downloading and trying out mobile games with the previous business model in which companies had to box their games and sell them at a specific price through retail outlets. The act of doing so raised the barrier to entry for many consumers.

"Freemium games by contrast are an almost unique case where companies can perfectly price-discriminate down to the level of the individual consumer," he writes. "Customers are not confronted with any upfront price barrier. On mobile devices, downloading and trying a game for the first time can now be an almost frictionless process."

Rather than exploiting consumers, Holmes argues that the freemium model allows a broader base of players to experience the product and make individual choices about what, if anything, they'd like to spend. Those choices are inherently based on each consumer's personal preferences and desires.

"Purchasing more energy to play further in a game appeals to those who are time-constrained and unable to wait for their energy to refill," he wrote. "For those with more time to play and a competitive instinct, a greater portion of spending may be invested in performance enhancers."

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