Why Loot Boxes?

I've been working on RNG drop and specifically loot box design a lot more in recent years and I began to wonder on an essential question -- why are loot boxes so widely used in F2P games? 

As a psych major, when I first started working in F2P back in 2007, I thought of loot boxes as effective purely because variable rate schedules are more effective in reinforcing behavior. This is the same mechanic that makes gambling a compelling activity, and the usage of this design is probably at the heart of all complaints about F2P games being predatory.

As I was working on a loot box drop rate though, I realized I had missed an equally basic and powerful aspect of loot boxes: pricing. 

Many contemporary F2P games which have loot boxes at their heart like Overwatch, AFK Arena and Empires & Puzzles often price a single loot box in the ball park of US$3. If a particular item within the loot box has a drop rate of 5%, it would take an average of 20 rolls to acquire one, giving that item an effective price of $60. But even this sort of pricing would be considered gentle in F2P. 

In Empires & Puzzles, the top Western RPG on mobile for 2018, the base price of a roll is $3. Legendary Heroes appear 1.5% of the time and there are 20 of them. If you were looking for a specific Legendary Hero, it would have a 0.075% appearance rate and an effective price of $4,000. 

Games that directly sell content like League of Legends, Fortnite and Warframe have very modest prices in comparison, with legendary skins in the $20-25 price range. 

While there's some history in the West for individual digital items sold for thousands if not tens of thousands of dollars, safe to say I would reckon if Empires & Puzzles or Overwatch tried to sell a piece of content directly for more than $1,000, very little good would come out of it.

To support a design with very low drop rates on highly desired objects, a developer will need to either generate an enormous amount of content (to fill out the other drops) or resolve duplicates. Dupes are most commonly solved with dust i.e. reducing the dupe into a small amount of a resource that can be used as a hard currency or similar. In the general case, the dust conversion process generates a 80-90% reduction in effective value e.g. a US$3 dupe being reduced to US$0.30 of dust.

Loot boxes, outside of being a powerful reinforcement of behavior, is essentially a mechanic that when supported by content or dupe resolution designs, allows developers to effectively price individual drops at prices otherwise deemed unacceptable by the masses. 

One last note: what stunned me recently was how certain F2P developers truly, deeply understood loot box design and have been pushing it in ways that exploit its potential even further. Some very recent successes in F2P RPGs tap into this by making dupe resolution the primary feature of their metagame. Players have to acquire duplicates to progress in power; the mid-late game PVP was almost entirely funded by power gained from fusing duplicates.

So let's say you have a 0.075% chance of getting a Hero X. If you need 10 of Hero X in order to fund its progress to its maximum level, at US$3 a roll the effective price of progressing Hero X to its maximum would be US$40,000. This design and this level of spend ceiling is already live on the market, used most effectively by AFK Arena, and propelling it to become a top 10 grossing RPG in the West mere months after its release.

Loot box design in some games are moving away from purely a mechanical feature to distribute and price digital content, to containing its own metagame which has significantly increased its spend ceiling. That metagame also reduces the occurrence of unrewarding pulls, which used to be duplicates, and keeps the reinforcement effect stronger for a much longer period of time. 

Skill-based F2P games that rely primarily on vanity monetization will find limited opportunity to utilize lootbox metagame designs, but I expect progression-based F2P metagames to tap into this more aggressively in the next few years.