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Pay to play?

The “War of Tanks” case reveals certain dangers in the “freemium” model for startups.

Zooming along the smooth roadway, you ease into the next turn. Grinning with pleasure, as you zip past Fernando Alonso you glance over and see him leaning hard against the steering wheel, gritting his teeth. And then … you run out of gas. The spell is broken. You can either lay up on the side of the road as other cars whistle past, or buy more fuel. Here, on your tablet or smartphone, you make a decision: to stick to the “freemium” model or shift up to the paid premium model.

That’s the business model for gaming apps. But freemium is a model applied across other types of goods and services (such as Skype or Gmail), and is also attractive for startups. The way it works is that the basic product or service is available for free, but to obtain certain functions or certain virtual assets, you have to buy a premium version or make micropayments. An obvious advantage of freemium is that it is relatively easy to sign up users, because many customers are attracted to the idea of something for nothing. But in promoting goods or services of this type, it is easy to run afoul of consumer regulations.

This lesson was learned by a Polish game developer advertising the smartphone app “War of Tanks” (Wojna Czołgów) when the case reached Poland’s consumer watchdog, the President of the Office of Competition and Consumer Protection (UOKiK).

How does the game work? The user plays the role of a tank commander who follows a strategy to eliminate the opponent’s tanks and conquer new territory. The player expands his zone of influence by achieving successive military ranks and obtaining increasingly sophisticated weapons. The game is played in three modes. The basic mode, “Campaign,” is free. In this mode, the player performs tasks and builds up his strength. The “Manoeuvres” mode is available free of charge only for players who already hold a certain military rank, while the “Polygon” mode, which allows multiplayer games on one telephone, is available only for a fee. Some functions of the game have time limits, such as the settings for shooting parameters. These limits can be removed by using certain game options for which a fee is charged.

The game also features a virtual currency, which players use to buy weapons and other equipment. The currency may be obtained for free (e.g. by winning battles) or for a fee, from a virtual cash machine, which requires the player to send an SMS to a number provided in the app. The cost of the SMS depends on how much virtual currency the player wishes to buy each time. In short, the game is based on a classic freemium model.

But the consumer regulator was not concerned about the use of the freemium model as such, but the way the game was advertised by the developer, through print ads and SMS/MMS mailings.

The print ad read, “WAR OF TANKS SMS WJ9 TO 8064 FOR FREE!” The President of UOKiK found that this ad copy was true in a literal sense. Indeed, the consumer could send a free SMS to the number given to order the game. The consumer could also order the game app for free and use it in a certain mode, i.e. “Campaign” or “Manoeuvres.” Nonetheless, the regulator found that the selection of information and the manner of presentation could create a misleading impression for the average consumer concerning the true conditions for using the game, by suggesting that use of the game is totally without cost. The average consumer might conclude that the phrase “FOR FREE!” referred not only to the free nature of the SMS which should be sent to the number given to order the game, but also to the use of the game. The phrase “FOR FREE!” was placed parallel to the name of the game, and the second part of the name, “TANKS,” and the word “FREE!” were written in the same size font. Considering the dimensions of the ad box for games (about 5.3 × 2.4 cm), the consumer could not be sure that the phrase “FOR FREE!” applied only to the price of the SMS.

In the SMS/MMS messages, the developer stated: “CONGRATULATIONS: you will receive the game FOR FREE! War of Tanks awaits you at” These messages were received by persons registered at the Wap.Ster service owned by the developer who were not users of the “Game of Tanks” app. In the opinion of the President of UOKiK, this advertising message could also be misleading to consumers, suggesting that they could play the game without incurring any costs. This was demonstrated not only by the wording of the message but also the graphic form, such as the stress on the words “CONGRATULATIONS” and “FOR FREE!” It was also pointed out that the disputed message was sent to people using other products and services offered by the same developer (SMS gateways, wallpaper, ringtones and so on). According to the regulator, this reinforced the impression among consumers that the free game could be a bonus for their use of other products and services from the same company.

The President of UOKiK held that both of these practices violated the collective interests of consumers. They suggested that the game was totally free. The user was not informed that at a certain stage of competition, he would have to pay a fee. Because the developer modified the copy used in the press ads, the regulator found that the developer had ceased the first practice. But the regulator ordered the developer to cease using the second practice, and imposed a fine on the developer for both practices totalling nearly PLN 40,000.

This case is not all that recent, as the decision by the President of UOKiK was issued on 20 June 2012 (Case No. RPZ-61/24/11 JM, Decision No. RPZ 11/2012), but became newsworthy again when the Court of Competition and Consumer Protection issued a judgment on 30 May 2014 upholding the decision. The judgment is not yet legally final. Nonetheless, both the decision by the regulator and the judgment from the court fall in line with a global trend toward providing protection for consumers using the freemium model. The goal is to assure accurate and complete information about the costs of goods and services, eliminate the automatic nature of in-app purchases, and enable the user to communicate with the developer of the app.

Clearly, the freemium business model requires developers to reach as many users as possible to optimise the venture and make it profitable, because relatively few free users—some 2–5%—decide to purchase the paid options for the product or service. Therefore, when selecting an effective promotional model and drawing up the advertising message, developers need to assure they are interesting to users but not very interesting to regulators.

Lena Marcinoska, Intellectual Property and New Technologies practices, Wardyński & Partners