Moving Consumers from Free to Fee in Platform-Based Markets: An Empirical Study of Multiplayer Online Battle Arena Games.

Companies in platform-based business markets have widely embraced freemium business models, in which profit is primarily determined by a minority of paying customers. However, the key challenge of these models is transitioning participants from free users to paying consumers. To encourage paid consumption, companies often rely on product differentiation such as providing consumers who pay for products or services with enhanced features. Product differentiation can be broadly classified into two categories: taste differentiation and quality differentiation. The authors demonstrate that extending the magnitude of taste differentiation is an effective differentiation strategy. Quality differentiation, however, is a double-edged sword and should be used with care. Increasing product differentiation leads to greater perceived value of the service, but undermines fairness perceptions. Companies in platform-based business markets have widely embraced freemium business models where profit primarily depends on a minority of paying customers. However, the key challenge of these models is transitioning participants from free users to paying consumers. To encourage paid consumption, companies often rely on product differentiation such as providing consumers who pay for products or services with enhanced features. However, limited research has addressed how such product differentiation may convert consumers from "free" to "fee." Our research examines the multiplayer online battle arena (MOBA) game as a compelling example of a freemium platform-based business model. We contribute to the freemium literature by introducing three new MOBA-specific differentiations—character competency, character variety, and character-appearance differentiation. We also extend consumption values theory into a dual-path model to unveil the underlying mechanisms through which product differentiation influences in-game purchase. We empirically validate our dual-path model using data from a two-wave longitudinal experiment and three cross-sectional experiments. Our findings support opposing mediating paths for product differentiation in character competency and variety and indicate that these two types of differentiation can indeed undermine perceived game fairness. Conversely, character-appearance differentiation exerts only a positive influence on players' purchasing of in-game items. Consequently, the findings of this study have important potential implications for platform-based companies leveraging freemium business models that seek to increase their share of paying customers. History: Eric Zheng, Senior Editor; Robert Gregory, Associate Editor. Funding: This work was supported by the National Natural Science Foundation of China [Grants 71901172, 72171189, and 72132007], the China Postdoctoral Science Foundation [Grant 2020M673434], and the Social Science Foundation of Shaanxi Province [Grant 2021D002]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2022.1127. [ABSTRACT FROM AUTHOR]