Microtransactions (sometimes abbreviated as MTX) are a business model where users can purchase virtual goods with micropayments. Microtransactions are often used in free-to-play games to provide a revenue source for the developers. While microtransactions are a staple of the mobile app market, they are also seen on PC software such as Valve Corporation's Steam digital distribution platform, as well as console gaming.
Free-to-play games that include a microtransaction model are sometimes referred to as "freemium". Another term, "pay-to-win", is sometimes used derogatorily to refer to games where buying items in-game can give a player a disproportionate advantage over others, particularly if the items cannot be obtained by free means. The objective with a free-to-play microtransaction model is to involve more players in the game by providing desirable items or features that players can purchase if they lack the skill or available time to earn these through game-play. Also, presumably the game developer's marketing strategy is that in the long term, the profits from a microtransaction system will outweigh the profits from a one-time-purchase game.
Loot boxes are an increasingly growing form of microtransactions. Through purchasing a loot box, the player acquires a seemingly random assortment of items. Loot boxes are mostly used on PC and console games. The concept behind loot boxes is that, despite gaining more items for a given price, the player may not want those items, and can end up buying the same item multiple times. Instead of a one-time purchase for the desired item, users may have to buy multiple boxes. This method has also been called a form of underage gambling.
Items and features available by microtransaction can range from cosmetic (such as decorative character attire) to functional (such as weapons and items). Some games allow players to purchase items that can be acquired through normal means, but some games include items that can only be obtained through microtransaction. Some developers ensure that only cosmetic items are available this way to keep gameplay fair and balanced.
Microtransactions are most commonly provided through a custom store interface placed inside the app for which the items are being sold. Apple Inc. provides a framework dubbed "in-app purchases" for initiating and processing transactions. Google's framework for the same use is referred to as "in-app billing", named more from the developer's point of view. Apple and Google both take 30 percent of all revenue generated by microtransactions sold through in-app purchases in their respective app stores. Steam offers support for microtransactions in games on its platform through the Steamworks SDK.
Mobile web analytics company Flurry reported on July 7, 2011, that based on its research, the revenue from free-to-play games had overtaken revenue from premium games that earn revenue through traditional means in Apple's App Store, for the top 100 grossing games when comparing the results for the months of January and June 2011. It used data that it analyzed through 90,000 apps that installed the company's software in order to roughly determine the amount of revenue generated by other popular apps. They discovered that free games represented 39% of the total revenue from January, and that the number jumped to 65% by June, helped in part by the fact that over 75% of the 100 top grossing apps are games. This makes free-to-play the single most dominant business model in the mobile apps industry. They also learned that the number of people that spend money on in-game items in free-to-play games ranges from 0.5% to 6%, depending on a game's quality and mechanics. Even though this means that a large number of people will never spend money in a game, it also means that the people that do spend money could amount to a sizeable number because the game was given away for free.
A later study found that over 92% of revenue generated on Android and iOS in 2013 came from free-to-play games such as Candy Crush.
Electronic Arts Corporate Vice-President Peter Moore speculated in June 2012 that within 5 to 10 years, all games will have transitioned to the microtransaction model. Tommy Palm of King (Candy Crush Saga) expressed in 2014 his belief that all games will eventually be free-to-play. According to Ex-BioWare developer Manveer Heir in a 2017 interview, microtransactions have become a factor in what types of games are planned for production.
Free-to-play/microtransaction may be used as a response to piracy; the developers of the mobile game Dead Trigger switched the game to the free-to-play model due to a high rate of piracy. While microtransactions are considered a more robust and difficult to circumnavigate than digital rights management, in some cases they can be circumvented: a Russian developer created a server to fake authentication for iOS in-app purchases, allowing users to obtain microtransaction features for free.
Many consumers have referred to video game micro-transactions as a means of 'milking' their product for more profit. "Companies take content they've already developed for their games and put it behind a paywall, asking for $20-$30 to access the 'season pass'."
Consumer organizations have criticized that some video games do not describe adequately that these purchases are made with real money rather than virtual currency. Also, some platforms do not require passwords to use a credit card to complete microtransactions. This has resulted in customers getting unexpectedly high bills (known as bill shocks).
When Star Wars: Battlefront 2 was released it received huge backlash from the video gaming community, the backlash was so severe that it eventually caused some governor officials to seek some sort of legal action against the microtransactions. With it getting to the point that it was reported that the CEO of Disney (the current owners of the Star Wars brand) had a talk with the CEO of EA (the publishers behind Star Wars: Battlefront 2) Andrew Wilson. It was also reported that Disney was having thoughts of revoking the Star Wars license from EA.
From late 2017, some organizations, such as Belgium's Gaming Commission, have called for the banning of loot boxes, claiming they are a form of gambling.
In response to this the company Electronic Arts has resisted the efforts of Belgiums Gaming Commission by refusing to remove the ability to purchase FIFA points in its popular game FIFA 19. Hit with a lawsuit the company eventually gave up on their resistance and removed the ability to purchase premium currency in FIFA 19.
On May 8th 2019 Senator Josh Hawley of Missouri stated that he wants to introduce legislature banning "pay-to-win" and "loot box" practices in video games especially directed at those who market to children. 
Microtransactions have become increasingly common in many types of video games. Smartphone, console, and PC games all have conformed to the use of microtransactions due to its high profitability. Many companies and games, especially smartphone games, have taken on a business model that offer their games for free and then relying purely on the success of microtransactions to turn a profit.
The collection of this data on consumers, although technically legal in the United States, or outside the EU, can be considered unethical. Companies are selling data about consumers, involving their spending, bank information, preferences, etc, all to overall understand the consumer better, making business models for gaming companies safer and more profitable. With the microtransactions already under a negative spotlight from the gaming community, people may not be happy to hear that data on them is being shared to make microtransactions possible.
Data from a variety of sources show that microtransactions can vastly increase a companies' profits. Three free-to-play mobile games that made heavy use of the practice, Clash Royale, Clash of Clans, and Game of War, were all in the top five most profitable mobile games of 2016. Microtransactions are also used in larger budget games as well, such as Grand Theft Auto V (2013) generating more revenue through them than retail sales by the end of 2017. This trend was consistent with many other popular games at the time, leading to the practice being widespread in the 2010s.
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- An example of a game like this is Path of Exile
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