The Horse Armor That Changed the Gaming Industry

It started in a street fight

Microtransactions originated from the conversion of real money into virtual currency within games. One of the earliest examples of this practice was Double Dragon 3: The Rosetta Stone (1990). The US version featured item shops where players could use their coins to acquire power-ups, weapons, additional moves, and new characters in one of the first forms of microtransactions in a video game. This system was eventually removed in the Japanese version of the game released later.

From South Korea to the World

The microtransaction model gained popularity in South Korea with the success of free-to-play online games from Nexon, such as QuizQuiz (1999), MapleStory (2003), and Dungeon Fighter Online (2004). These titles introduced monetization based on the sale of virtual items and premium currency.

In the West, games like Habbo Hotel (2001) and Second Life (2003) helped consolidate this model globally, allowing players to customize their characters and environments by purchasing items with virtual currency.

The Role of Microsoft and Xbox Live

While the PlayStation 2 was still taking its first steps in the online world, Microsoft moved ahead with the launch of Xbox Live for the original Xbox. This action paved the way for a scenario of increasingly connected games that would later be sold in parts.

In 2005, as part of the strategy for the arrival of the Xbox 360, Microsoft introduced the microtransaction model as a new source of revenue in games. The proposal was to allow developers to continue profiting even after the sale of the base game. According to the company, this model would also benefit players, who could pay lower prices. Instead of spending $20 or $40 on complete expansions with elements that might not interest them, players could spend $5 or less, just for the desired content.

To demonstrate the potential of microtransactions after the launch of the Xbox 360, Microsoft made a variety of additional content available in its games. These included a winter outfit in Kameo: Elements of Power, new maps for Perfect Dark Zero, and extra cars in Project Gotham Racing 3.

Bethesda already had experience releasing large expansions and additional content to maintain its games. As an industry veteran, recognized for its large-scale titles, the "next step" was to invest in smaller content. This idea arose from its active modding community, which served as inspiration for the company to explore small-scale DLCs, marking the beginning of a new era for additional content in games.

In 2006, Bethesda released the acclaimed The Elder Scrolls IV: Oblivion, which was met with praise from both critics and players. However, without a clear understanding of appropriate pricing or what types of content players would be willing to buy, the developers faced challenges in creating and selling smaller DLCs.

The beginning of the "Horse Armor" controversy

A year after the release of The Elder Scrolls IV: Oblivion, Xbox Live was already a huge success, and Bethesda capitalized on this. In April 2006, the "Horse Armor" DLC was released, marking the beginning of microtransactions in AAA single-player games.

Costing 200 Microsoft Points (approximately US$2.50), the pack offered different sets of horse armor within the game. However, many players were surprised by the high price of the cosmetic item, especially since horses in Oblivion were easy to steal and lose, making the purchase unattractive to many.

To illustrate this situation well, imagine if it were possible to buy a special horse in Red Dead Redemption 2? Now imagine that, after spending your hard-earned money, your horse was simply run over by a train minutes after buying it. We know that in Red Dead Redemption 2, if a horse dies, we lose the virtual equine from our inventory forever, forcing us to spend money again!

Although RDR2 doesn't have a microtransaction system, anyone who has experienced losing their precious steed understands the frustration. It's that moment when we're left with a blank, gray stare, knowing that a new, gigantic challenge awaits us to find another horse worthy of our caliber.

The Impact of the "Horse Armor" DLC

Oblivion's "Horse Armor" was a kind of test for this new microtransaction market, but it ended up triggering chaos in the world of video games.

And imagine this scenario in 2006, when everything was still new? Players paid dearly for the horse armor set, and some time later simply saw their hard-earned money disappear after their horse was killed or stolen in the game. Frustration was inevitable, and this episode ended up becoming one of the most controversial moments in the history of microtransactions.

The players' immediate reaction

The content was considered too small for the price charged. Some lamented that they couldn't even afford it in their own countries, while others questioned the point of buying cosmetic items in a single-player game.

On the other hand, there were those who defended the idea, comparing microtransactions to the sale of ringtones and wallpapers for cell phones, something quite popular at the time.

Statement from the Bethesda designer

At the time, and for several years afterward, the DLC continued to be criticized and generate controversy. Skyrim's lead designer, Bruce Nesmith, later revealed:

"Millions must’ve been sold, I don't know the exact number, I probably knew at some point, but I don't remember anymore. And that was kind of a reflection point for us: you're all making fun of it and yet you still buy it."

Bruce Nesmith also admitted that, at the time, Bethesda had no idea what they were doing, as this model was something totally unprecedented in the industry. In fact, it all started as a simple test for distributing downloadable content, without the team having a full understanding of the impact this would have on the future of games.

"One of the things about the Horse Armor that you need to remember is that Bethesda, I believe, was the first company to make downloadable content expansions; nobody had done that before for platforms. We literally pioneered it. And, at the time, Bethesda had no idea what it was doing. We didn't know! Only looking back do we realize that this wasn't what people wanted."

Despite strong criticism from the "Oblivion" player community, Bethesda continued selling the armor and, later, themed houses for the characters. Instead of a cabin, you could live in a wizard's tower or a mysterious thieves' guild, as long as you bought the extra content.

Even though it's always remembered as an example of microtransactions done wrong, the "Oblivion" horse armor remained among the top 10 best-selling items for the Bethesda game. Even more incredible: armor sales continued to be recorded daily by Bethesda in 2009, three years after the game's release.

The fact is that a simple horse armor paved the way for the gaming industry to adopt this trend. The release of the "Horse Armor Pack" marked the beginning of game fragmentation, becoming a symbol of the moment when titles began to be sold in parts.

Advantages for companies

Companies quickly realized the lucrative potential of microtransactions, triggering a veritable wave of sales within the gaming industry. To justify this model, they began presenting these small purchases as a way to offer free access, allowing players to experience titles without initial cost and encouraging the adoption of microtransactions.

Furthermore, they highlighted financial sustainability, guaranteeing a continuous source of revenue for developers, enabling frequent updates and prolonged support. Finally, one of the most lucrative aspects was personalization, giving players the opportunity to customize their experience, making it unique and differentiated.

Disadvantages of selling

But not everything is roses in this business model. Although the disadvantages are easily overcome by companies, they still exist. Pay-to-win can create a significant competitive imbalance, favoring players who spend more money and causing outrage in the community. Loot boxes are widely criticized for their similarity to gambling, especially when minors are involved. But the most worrying problem is the clash of accounts, in which players, mainly children, accumulate unexpected expenses without realizing it, often leaving their guardians to only discover the situation when they receive the credit card bill, which generates an extremely negative image for video games.

The Era of Mobile Games and Live Services

Subsequently, there was a huge boom in Flash games, starting what became known as "The Era of Mobile Games and Live Services". This new phase of microtransactions consolidated the business model on mobile devices, becoming a dominant trend. A great example of this period is FarmVille (2009) and Clash of Clans (2012), in addition to numerous other titles such as Happy Farm and the classic acclaimed by mobile gamers in bus queues, supermarkets and the like, Candy Crush, which, in essence, were practically the same, only changing the names.

But the historic phenomenon of microtransactions was yet to explode with Fortnite (2017), which became a cultural phenomenon. By copying PUBG's format and adopting a free-to-play model, Fortnite consolidated and popularized microtransactions, offering cosmetic skins and generating billions in revenue.

In addition to constantly releasing paid skins, Fortnite also helped popularize the Battle Pass mechanic, a system originally created by Valve and first implemented in Dota 2 (2013). In this model, the player pays to access a system of progressive tiers, unlocking cosmetic items throughout the gameplay, making it one of the most lucrative forms of monetization in modern games.

In the case of Fortnite, the Battle Pass represents the pinnacle of microtransactions. Players who purchase it gain access to various skins for a lower price than buying them individually in the game's store. However, to unlock all the items, constant gameplay is required—meaning that, in addition to encouraging spending, the system also keeps players engaged for longer.

Dragon's Dogma 2

Another example derived from Bethesda's "Horse Armor" is Dragon's Dogma 2, a single-player game that generated controversy due to the large number of paid DLCs. Capcom's RPG arrived on the market with various separately sold content, with prices ranging from about $1.00 to $20.00. Microtransactions allowed the purchase of items and functions that affect gameplay, including the ability to edit the character and even access fast travel, which raised debates about monetization in single-player games.

Although it's possible to obtain the items simply by playing, many players believe that Capcom developed Dragon's Dogma 2 with microtransactions in mind, making it more difficult to obtain certain resources to encourage purchases with real money.

Other Controversial Cases

Microtransactions have been a source of controversy in gaming for years. In Dragon Age: Origins, BioWare and EA added paid extra content, including missions and essential items for story progression, which generated criticism from the community. A similar situation occurred with Dead or Alive 5 and Dead or Alive 6, which became targets of controversy after Koei Tecmo sold DLCs at high prices, including season passes and character customization through microtransactions.

Another controversy involving EA Games and microtransactions occurred in FIFA Ultimate Team. To obtain better player cards, Electronic Arts implemented a system of randomly distributed cards, encouraging users to spend real money to increase their chances of getting rarer and more competitive athletes.

Sony wasn’t left out, acquiring Bungie for billions of dollars, aiming to leverage the studio's experience in games as a service to create long-lasting and highly profitable online titles. However, the path proved challenging. While it achieved great success with Helldivers 2, PlayStation also wasted resources on two canceled projects that could’ve become major "games as a service" titles: a Spider-Man multiplayer game and the highly anticipated The Last of Us Online.

Not even the iconic Mortal Kombat escaped the controversies surrounding microtransactions. In Mortal Kombat 1, NetherRealm Studios began selling special finishing moves in the game's store, which generated outrage among fans and led to changes in the game's monetization system.

Another impact of the famous horse armor from "Oblivion" was on multiplayer games, where microtransactions began to play a central role. Over time, online games have transformed, and in-game purchases have become an essential part of the experience, altering how players interact with these titles.

Games like Counter-Strike 2 and the Call of Duty franchise are clear examples of this change, generating billions of dollars in revenue from the sale of weapon skins. The success of digital cosmetics in these games is so great that some skins are sold for significant amounts when converted to real-world currency, solidifying microtransactions as one of the main business models in the gaming industry.

Criticisms and Regulations

Microtransactions have been the subject of debate and regulation, especially with regard to loot boxes. In some countries, such as Belgium and the Netherlands, these mechanics have been classified as gambling and banned. Furthermore, consumer organizations frequently criticize the lack of transparency regarding the actual costs of microtransactions and their financial impact on games.

The Future of Microtransactions

The future of microtransactions points to a continuation of this model, with the industry increasingly focused on free-to-play games and monetization through cosmetic items and extra content. From their origins in arcade games to their consolidation in freemium and live service models, microtransactions have become an essential part of the gaming ecosystem. They’ve allowed games to be offered for free, democratizing access, while generating billions in revenue for companies.

Despite criticism, microtransactions continue to evolve. The success of games like Fortnite and the popularization of the Battle Pass show that there’s room for models that balance profitability and player engagement. Personalization and customization, especially through cosmetic items, have proven to be an effective way to monetize without harming the gaming experience.

Practices such as loot boxes and pay-to-win generate debates about ethics, transparency, and competitive fairness. The similarity of some mechanics to gambling, especially when involving minors, has led to regulations in several countries. Furthermore, the financial impact on players who accumulate unexpected expenses, often without realizing it, is a growing concern, and all we can do is hope that some abusive practices will be reviewed.

Microtransactions reflect the evolution of the gaming industry, which has adapted well to technological changes and consumer expectations. Whether viewed as good or bad, they’re a reality and are here to stay. Now, companies will face the challenge of finding a balance between generating revenue and offering a fair and satisfying experience for players. Innovation in business models, such as subscriptions and seasonal content, can be an alternative to reduce dependence without sacrificing the integrity and fun that are the essence of video games.

Finally, all of this makes us think that this entire trade in small electronic items in games began with a simple outfit to decorate a digital horse. Initially, without any idea of ​​the price, they charged approximately US$2.50, which at the time caused outrage. But what the developers didn't know is that in the future they could charge up to ten times that amount, and with that, microtransactions began to generate billions of dollars, completely changing the values, aesthetics, and direction of the gaming industry.

So, what’s your take about microtransactions? Are they a necessary evil, a sustainable model for the future, or the monster that will devour games? Share your opinion in the comments.

Until next time!