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How Do Free Games Make Money on Steam?

Have you ever wondered how free-to-play games generate revenue? Especially on PC platforms like Steam, where there is no barrier to download and start playing right away?

I used to think "free" meant the developers didn‘t make any money. But it turns out there are some really clever ways game creators monetize free users without charging upfront.

In this guide, we‘ll explore the major business models that allow free games on Steam to turn a profit. You‘ll learn the strategies top titles use to earn from their player bases, even when the games themselves are free.

Let‘s dive in!

How Free Steam Games Generate Revenue

Free-to-play Steam games make money through:

  • In-game advertisements
  • In-app purchases and virtual goods
  • Early access game trials
  • Affiliate marketing systems
  • Crowdfunding and fan donations
  • Using the free game to promote other products

By combining these money-making systems, a free game can become highly profitable, especially with a large user base. Let‘s look at how each model works.

In-Game Ads – The Most Common Revenue Driver

The most popular way free games monetize players is through in-game advertising. Developers partner with ad networks to display banners, interstitial videos, and other interactive ads during gameplay sessions.

The advertisers pay the game creator based on user engagement with the ads:

  • CPM (cost per impression) – Advertiser pays for every 1,000 views
  • CPC (cost per click) – Pay per user click/tap on the ad
  • CPA (cost per action) – Pay for users signing up or making purchases

According to SuperData Research, in-game ads earn an average of $0.01 – $0.02 per impression. With tens or hundreds of thousands of daily active players, these small amounts generate sizable revenue.

For example, Warframe reportedly makes $7 million per month from its in-game ads. Multiplayer shooter CrossFire earned over $1 billion in lifetime ad revenue.

Dota 2, CS:GO, and other popular competitive games also leverage in-game ads due to their extremely large player bases and long average play sessions.

In-App Purchases – "Whales" Drive Revenues

In-app purchases (IAPs) are another key way free-to-play games generate income. Users may download the game for free, but many pay real money for virtual goods that enhance the experience:

  • VIP Memberships
  • Coins and gems
  • Power-ups and boosts
  • Customization options like skins
  • Progression shortcuts

This freemium model allows "whales", who spend large amounts on IAPs, to subsidize the costs for other players.

For example, Fortnite earned over $1.8 billion solely from in-app purchases in 2019. Top mobile earner Honor of Kings grosses over $100 million monthly thanks to virtual goods sales.

A key factor is creating desirable virtual products that provide enough value to convince players to pay real dollars.

Early Access Trials – Paid Previews

Steam‘s built-in Early Access program is another smart monetization tactic for free-to-play games.

Developers can charge money for gamers to play early, unfinished versions. Fans pay for the sneak peek, while developers earn funds to complete the full game.

Once the game launches for free, the developer collects no more revenue from sales. So Early Access lets them profit while in ongoing development, before transitioning to a free model.

Popular titles like Dota 2, Warframe, and Dead Cells all benefited from millions in Early Access sales before their free debuts.

Affiliate Marketing – Passive Income

Some free games on Steam make money through affiliate marketing and partnerships. Developers team up with other brands who want exposure to their player base.

When users click on in-game brand promotions and make purchases, the game earner earns a commission as a reward for referring traffic.

For example, World of Tanks has featured branding for peripheral partners like gaming headset companies. If players click those links and buy headsets, World of Tanks earns affiliate revenue.

This allows games to passively profit from their users without overt advertising or relying on IAPs. Partners gain visibility while developers monetize through commissions.

Crowdfunding & Donations – Fan Funding

Crowdfunding through Kickstarter or direct donations are another revenue stream for free Steam games.

Fans can donate one-time payments or ongoing monthly contributions through services like Patreon to support developers. Donations help fund costs and special projects.

Shovel Knight earned over $300k from Kickstarter backers ahead of launch. Top Patreon earners like Vinesauce receive thousands per month from fan patrons.

For smaller indie studios, crowdfunding and donations can provide a revenue lifeline without relying solely on in-game monetization.

Promoting Other Products – Free Advertising

Some developers release free games not to directly profit, but to boost visibility and sales of their other products.

For example, Riot Games‘ titles League of Legends and Valorant are free-to-play. But their large player bases provide exposure for Riot‘s paid cosmetics.

So free games can be seen as marketing vessels for upselling players rather than direct revenue sources themselves.

Experts Weigh In – Industry Insights

"free-to-play games are reliant on squeezing the most money from as few players as possible. Only about 3% of mobile gamers account for 90% of revenue from free-to-play titles." – Tommy Palm, Mobile Gaming Veteran

"Cosmetic items and account services are smart ways to generate revenue from free players. Time savers also work well, allowing high spenders to skip grinds other players endure." – Seamus Blackley, Inventor of Xbox

"Striking the right balance between reach and revenue is critical for profitable free games. More monetization touches will shrink your potential user base, yet you still need compelling incentives to pay." – Jane McGonigal, Game Design Researcher

Controversies Around Free-To-Play Models

While free games have proven profitable for many creators, they aren‘t without controversies. Critics argue some titles overly rely on addictive hooks and predatory tactics to squeeze money from players.

Specific monetization practices like loot boxes have faced backlash as akin to unregulated gambling targeted at kids. Government regulation looms as a potential threat.

Developers counter that most revenue comes from "whales" voluntarily spending, versus broadly manipulative design. But concerns persist around excessive monetization in free titles.

There are also technical risks, as evidenced by the disasterous launch of top earner Babylon‘s Fall. The game bled over 95% of players in months after failing to incentivize purchases.

So while free Steam games open the door to more potential players, creators must carefully balance monetization and design to succeed long-term.

Steam vs. Other Platforms – How Does Revenue Compare?

It‘s also useful to compare Steam‘s free game money-making models to other platforms:

  • Mobile app stores – Rely more on ads and microtransactions. Higher total revenue potential but lower per-user.
  • Consoles like Xbox & Playstation – Fewer opportunities for in-game ads. Revenue mostly from upfront game purchases.
  • Web & browser games – Ad models play a bigger role. Less focus on in-app purchases and virtual goods.
  • Steam – More focus on driving in-app purchases from a dedicated PC gamer audience.

In general, Steam provides a very strong monetization environment, perfect for free games geared towards in-app spending among loyal players.

Major Shifts in Free-To-Play Games

Two recent trends have greatly impacted free gaming revenue models on platforms like Steam:

Live Service Games – Titles like Fortnite are constantly updated with new content vs. set releases. This extends engagement and monetization over a longer period.

Battle Pass Model – Users pay for season-long progression and rewards. Creates recurring revenue. Popularized by Fortnite then adopted across many games.

These evolutions help explain the explosive growth from major franchises like Fortnite, Warzone, Genshin Impact, and Apex Legends.

Free-to-play design is also expanding beyond shooters and MOBAs to even premium genres like fighting games (Multiversus) and RPGs (Diablo Immortal). More players than ever are embracing free-to-play experiences.

Key Takeaways – A Recap

After exploring major monetization models, here are the key points to remember:

  • In-game ads and virtual goods purchases drive most revenue from free Steam games. Offer players value and choices.

  • Large player bases increase opportunities for revenue – aim for mass reach and engagement.

  • Leverage Steam functionality like Early Access and crowdfunding for diversified income.

  • Balance monetization and design carefully – avoid overly aggressive tactics.

  • Compare monetization approaches across platforms and top performers for insights.

  • Keep innovating models as market evolves – the future remains bright for free games!

So while "free-to-play" means no upfront payment, savvy developers have plenty of options to build thriving businesses around their games.

Does this help explain how your favorite free Steam titles generate income? Let me know if you have any other questions!



Michael Reddy is a tech enthusiast, entertainment buff, and avid traveler who loves exploring Linux and sharing unique insights with readers.