Tag: app monetisation

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How to Make More Money with Enterprise Apps

enterprise apps

According to our latest developer research, 20% of mobile app developers primarily target enterprise apps. This decision produces a significant boost to their revenues, with 43% making more than $10K per month versus 19% of those who target consumers above the same revenue level. Similarly at the $100K+ per month revenue level we have 18% of developers who target enterprises versus just 7% of those who target consumers. Aside from selling to businesses, government or non-profit organisations rather than consumers, what are these developers doing differently?

profiling-enterprise-app-devs

Custom apps

Although it’s far from the only thing developers are building to sell to enterprises, 64% of enterprise app developers are making enterprise-specific apps. In some cases this will be apps that are common to a particular vertical that are either re-skinned or sold as part of a service offering. In other cases these will be entirely custom apps designed and built for one company. Automating or streamlining parts of business processes that naturally happen away from a desktop computer via mobile apps can enable significant efficiency savings that businesses are very willing to pay for. Allowing developers to do more of their work whilst mobile can also improve productivity and company efficiency. This type of development can also cover apps that are explicitly designed to help make more money, for example, sales aids, such as product visualisation or demonstration solutions.

The second most popular category for enterprise developers, at 52%, is business & productivity tools. This is likely to include typical cross-vertical apps for functions such as human resources, customer relationship management and accounting. Also, 20% are making more general utilities and 17% are developing communications and social networking apps for enterprises. In the latter case we see [tweetable]some of the innovation in the consumer apps space being brought to the business world[/tweetable].

Globo_03

Better revenue models

Enterprise app developers have a very different mix of revenue models to consumer app developers. By far the most popular revenue model, used by 49% of enterprise developers, is contract work. Part of this is the bespoke app development discussed above but even those selling products into enterprises will often have a significant customization component. In general, the larger the company, the more likely they are to have complex integration needs for a new software product. Subscriptions, in the form of Software-as-a-Service is the fastest growing segment of enterprise software spending and 27% of enterprise app developers are already using this model. Moving software to the cloud, where upgrades and maintenance are continuous and shared with other users, makes a lot of sense for most businesses. Once key software a business uses is in the cloud it’s often highly desirable to have it accessible from mobile devices too, giving SaaS providers with a strong mobile offering a major advantage.

It’s not so surprising that we have to wait for 3rd place in the revenue models list to find app store sales, with 21% of enterprise developers using it. Indeed, although Apple has special volume discount programs for businesses and schools, it’s slightly surprising that the percentage is still so high. For some SaaS offerings, the mobile client or extra utilities to interact with the service are paid extras. This will probably reduce as mobile support becomes the norm rather than a differentiator. App stores for businesses and education are probably still working as discovery mechanisms for some too. This is also likely to reduce, just as the consumer app stores became so full that it’s almost impossible for most apps to get noticed, so will enterprise app stores. Also higher than average in terms of preference for enterprise app developers are selling physical goods and royalties & licensing. Having an app as a component of a larger hardware product is increasingly popular. A tablet can be incorporated into all kinds of kiosk or point of sale systems. Developers can then capture some of the value of the software through higher margins on the hardware. Alternatively, high value software is often sold to enterprises on a per-seat or per-device licensing basis – mobile is no exception. For high value software where sales are typically made directly it’s entirely sensible that this is done as a licensing deal rather than sold through an app store with the store owner taking a cut.

More platforms, much more web

Enterprise app developers are more likely than average to support each of the major platforms. The majority of them support Android and iOS. Most also support at least one other platform too, with the mobile browser and Windows Phone being the top candidates for that. When we look at priorities though, the picture is slightly different. [tweetable]Enterprise developers are slightly more likely to prioritise iOS than average[/tweetable] (with 33% doing so versus 31% for all developers) and slightly less likely to prioritise Android (39% versus 42%). When we consider only full-time professional developers though, these differences are not significant. The major differences are further down the platform mindshare list, with enterprise app developers being significantly more likely to target and prioritise the mobile browser. Also, whilst they are slightly more likely than average to target Windows Phone, they are less likely to prioritise it. Overall the platform picture is one where more platforms must be supported to serve enterprise clients and there’s a heavier emphasis on the web.

Heavier tool users

In order to support more platforms, enterprise app developers turn to cross-platform tools much more frequently than their consumer app developing peers. 41% of them are using cross-platform tools to reduce the cost and complexity of supporting multiple platforms. However, it’s not just cross-platform tools that are more frequently used to create enterprise apps. Other important tools are push notifications (28%), crash reporting (28%) and mobile Backend-as-a-Service (18%). User analytics, at 46%, is still the most popular tool amongst enterprise app developers, as it is in the developer population as a whole, although used slightly less than average. Heavy use of user analytics and crash reporting tools suggests a greater emphasis on quality. Push notifications are key workflow and efficiency enablers, providing access to timely updates and the latest info available at a glance. Last, but not least, mobile Backend-as-a-Service lets developers rapidly build out cloud services to accompany their apps. The features of these BaaS solutions for enterprise apps are likely to become increasingly differentiated from those designed for consumer apps. Most legacy backend systems were designed before mobile access was even a consideration and they often aren’t very suitable for direct interfacing. We expect to see significant growth over the next 5 years or so for solutions that can simplify the integration of legacy systems whilst enabling rapid development of mobile apps. Where we’ve seen consolidation in the consumer tools sector giving rise to mega-SDKs for solving multiple needs, it’s not surprising that several enterprise focused tools vendors are already covering most of these developer needs in a unified package.

Enterprise developers clearly have slightly different tools and tactics from consumer app developers for good reasons. Consumer app developers looking to switch their primary audience in search of better revenues should re-evaluate what they build, how they build it and how they sell it.

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Business

How to make money with apps

A major theme in our State of the Developer Nation reports is an increasingly gloomy picture of typical developer revenues. [tweetable]The vast majority of developers make very little money from their apps[/tweetable]. However, there are a lot of developers out there and a decent fraction of them make a good living, some are building thriving businesses on the app stores and a few at the top are even creating multi-billion dollar companies. So, what’s different about the developers that are succeeding financially versus those that are living in app poverty?

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Are you making money from your app? Let us know and you might discover new tools that can make you even more profitable. Start here.

There are two major risks when analysing groups of successful individuals or companies to try to work out why they succeed when others fail; the first is survivorship bias – ignoring the many failures that may have done exactly the same things, the second is confusing correlation with causation. In the latter case there are many things that developers do because they have a successful app, like porting it to lots of other platforms, that are completely unrelated to how they became successful in the first place. [tweetable]There isn’t a magic formula for success on the app stores[/tweetable] but we can try to avoid falling into these traps by looking at factors that might increase your chances of success.

In our last report we showed two major factors that correlate with higher revenues, targeting enterprises rather than consumers and using 3rd party tools. The former is almost certainly a direct cause of financial success, the later is probably indirectly related, tool use indicates a more sophisticated approach to app development as a business. There are many more factors that can make quite a significant difference to the chances of financial success with apps, so lets take a look at some of them.

As our benchmark we’ll use the rather modest (but challenging) goal of making more than $5k per app per month. This is a revenue level that would allow a single app to support a developer in the US or Western Europe but is below a typical employed developer salary in those places. In some countries it would support a whole team living very comfortably. How much more likely are developers to be earning above this level depending on which platforms, categories and device types they target or what revenue models they use?

Platforms

It’s been widely reported that iOS is still ahead of Android for revenues but there are suggestions that Android is closing the gap. Looking at overall revenues from the platform or the earnings of the very top developers, this may be the case. Some even earn more on Android than iOS. However, revenue is more concentrated at the top on Android than iOS, so the chances of earning above the $5k per app per month level are still much higher for those who primarily target iOS. Despite the decreasing popularity, targeting the mobile browser is quite far ahead of building Android apps too. In this case though, many targeting the mobile browser may already have successful desktop web businesses, so this might not be so easy to replicate for those starting new businesses. Windows Phone and BlackBerry 10 are both offering very low chances of a decent financial return as primary platforms. Note that this doesn’t imply that there’s no revenue available on either of these platforms, it could all be going to apps that succeeded on other platforms first and then ported.

App categories

It’s no surprise to see enterprise apps and business and productivity software at the top of the high earning app category charts. What’s more interesting is the “other” category between them. Developers who seek out and dominate niches outside the standard app categories are doing very well; it’s not the route to a billion dollar company but it’s a smart strategy for a small business. Despite the many reports of fitness trackers ending up unused in drawers after a few months, health and fitness related apps are doing quite well. It’ll be worth watching how the major platforms health and fitness data platforms impact this category. The success of the communications and social networking category at this revenue level is slightly counter-intuitive, this is a category with significant network effects favouring a few big winners. It seems that this is such popular use case for mobile devices that there’s room for a lot of developers to add value. To contrast with these, the categories at the bottom of the list are Kids (16%), Games (17%) and Education (17%). These bottom categories are pulled down by their popularity with hobbyists, giving full-time professionals targeting these categories a lot of free competition.

Device types

Smart TVs and set-top boxes are a surprise leader in terms of device types to target first. Only a tiny fraction of developers in our survey had these as their primary target, so this isn’t a reliable sample. It’s hard to get visible on TV platforms and you usually need content, so this might not be a strategy to emulate. The Internet of Things is also unexpected at number 2 considering how immature the market is. It may be the case that hardware sales are involved in many of the higher revenue earning businesses here, in which case there are much higher costs associated than for pure software businesses. While smartphones are a massively more popular primary target than tablets, the chances of an app earning above the $5k per month level are quite a lot higher on tablets. There are likely to be several factors involved here; less competition, more tablet apps targeting enterprises and with the reliance on free apps making most of their money from a small fraction of users, it can pay to provide an optimum experience for the heavy users on a larger form factor. This last point is valid right up to the highest revenue levels – Supercell have built their games tablet first with a scaled down experience on smartphones.

Revenue models

At the top of the revenue model tree is per device royalties or licensing fees.This is likely to be a mixture of enterprise apps and successful apps that have managed to get pre-installs on devices. This is a highly desirable revenue source but certainly not available to all apps. The next best is contract work at 30% of developers earning more than $5k per app per month. Contracting gives a decent chance of making higher revenues but of course the app belongs to whoever it is built for, so the upside is also very limited. At the same time this is by far the lowest risk model, with twice the chance of making more than $5k per app per month than the worst model, advertising. Subscriptions and e-commerce are tied for third place at 29% and affiliate and CPI programs are not far behind at 28%. These models are often harder to implement but our data suggests that the effort is likely to be worth it if they can fit the app concept.

Finally, an interesting comparison towards the bottom end of the revenue model scale is paid downloads (18%) versus free apps with in-app purchases (19%). There is very little difference between the two revenue models at this level of revenue. This is a very strong contrast with the total amount of revenue earned through each of those models. This probably reflects the fact that getting a freemium model with in-app purchases to work is difficult – there’s a very big risk of just giving a free app to a massive majority of users and getting no more paying users than for an equivalent paid app.

Conclusion and warning

There are a number of different ways you can target your apps and select your revenue model to increase your chances of financial success. What we haven’t analysed here is how these combine. Some of them probably won’t, for example, tablet first and iOS first is a good combination, but tablet first and Android first probably isn’t. Our analysis in the State of the Developer Nation report has also shown that some of these combine in an additive way, for example, building enterprise apps for iOS has very high chances of financial success.

 

Take the Developer Economics Survey, test your skills and compare them to the global average. You can work on those skills that need improvement and become more competitive. Cool, right?

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Business

Fame From a Game: 5 Game Developers Dealing With Overnight Success

successful game developers

The mobile app market has completely overhauled the video game market. In an industry that once required thousands of dollars and a legion of programmers to produce a product, individuals and small groups of entrepreneurs can now produce games grossing millions of dollars from their bedrooms. However, the success of a #1 selling game does not come easy and sometimes causes more problems for the now wealthy developer. Here are five examples of successful game developers who had to learn how to handle success almost overnight.

Which game development tools help you become successful? Let us know of your favourites in the Developer Economics Survey.

Halfbrick Studios (Fruit Ninja)

Image via Flickr by Rosenfeld Media
Image via Flickr by Rosenfeld Media

Before Fruit Ninja, most people had never heard of Halfbrick Studios. They had worked on a handful of games like Rocket Power: Beach Bandits, Age of Zombies, Monster Dash, and a variety of Avatar — The Last Airbender installments. However, Fruit Ninja had the right combination of addictive and visceral gameplay to make it a virtual overnight success. For others dealing with a windfall of cash, Halfbrick Studio’s story is a good one to follow. Instead of tripping over their own feet after a massive growth spurt, the close-knit group of developers decided to focus on quality over quantity, avoiding the route companies like Zynga took (how many “___-ville” games can you name?). The developers said the success of Fruit Ninja has given them breathing room to perfect games they want to make.

The new Developer Economics survey is live – featuring thousands of developers all over the world! Join them now and voice your thoughts!

OMGPop (Draw Something)

Image via Flickr by ljguitar
Image via Flickr by ljguitar

Second in our list of successful game developers comes the OMGPOP team. A mobile gaming take on the classic pen-and-paper game of Pictionary, Draw Something is a study in how persistence can lead to huge success in the app industry. Before their top-selling drawing game took off, developer OMGPop had produced around 30 games that quickly fell into relative obscurity (do you remember Hamster Battle? No? Didn’t think so). A short time after Draw Something started topping charts relatively overnight, Zynga bought OMGPop for roughly $200 million, and the CEO of OMGPOP, Dan Porter, later went on to work for them as the vice president of their mobile division for a little over a year. Porter now continues to climb the corporate ladder and currently serves at the Head of Digital at William Morris Endeavor, the world’s largest diversified talent agency.

.GEARS Studio (Flappy Bird)

Image via Flickr by naka_hide
Image via Flickr by naka_hide

Not all overnight success stories end well as the tale of .GEARS Studio’s Flappy Bird shows us. Dong Nguyen’s creation was pulling in $50,000 a day—a veritable golden goose—making it one of the most popular games for smartphone users. However, a litany of complaints ranging from the game’s addictiveness, difficulty and resemblance to Super Mario 3 was too much for Nguyen to handle. Something about the fame mixed with user criticisms struck a nerve with the overnight app celebrity, who ultimately took down the game from app stores in mid-February 2014 without selling out to another company. It also begs the question—Was success too much for Nguyen, or was it all a stunt to generate interest for his next title?

King Digital Entertainment (Candy Crush Saga)

Image via Flickr by David Guo's Master
Image via Flickr by David Guo’s Master

Candy Crush Saga, produced by King Digital Entertainment, is one of the mobile gaming world’s most addictive releases yet. To capitalize on their virtual overnight success, King decided to try their luck on Wall Street by announcing their intent to file for an IPO, following Twitter’s example.

Rovio Entertainment (Angry Birds)

Image via Flickr by Garrett Heath
Image via Flickr by Garrett Heath

The Angry Birds franchise is the most successful smartphone game the world has ever seen. The series’ multiple installments have garnered over two billion downloads worldwide, but things weren’t always up for Rovio. It took them 51 tries on other apps before Angry Birds came around. Rovio’s strategy to deal with the success was simple—diversify. Expanding beyond the mobile platform, Rovio now produces Angry Birds clothing, books, cartoons, educational materials, movie franchise tie-ins, and more. They’ve even been eyeing the Hello Kitty franchise, looking for some indication in how they can expand their own enterprise.

Overnight success in the gaming industry is happening more and more everyday thanks to mobile technology. However, millions made in a night is no guarantee for smooth sailing. Developers soon discover they need savvy business acumen to stay afloat.

– Joe
Joe Fortunato is a tech writer based out of Tampa, FL. His extensive work for T-Mobile has afforded him the opportunity to explore many different avenues of the mobile world. App development, NFC technology, and new device specs are some of his favorite areas to cover. To get in contact with Joe, give him a shout on Twitter at @joey_fort.

If you are trying to hit the successful game developers list, then you first need to understand the Science of Mobile Game Marketing.

Which are your best and worst game development tools? Let us know and you might win amazing prizes and gear, in our Developer Economics Survey.

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Tools

Which App Stores Should You Use?

Publishing your app in a store can involve significant effort. Depending on your goals some app stores can be more attractive than others. If you’re looking to earn direct revenue from your apps, which are the best stores to target? What follows is some general advice backed up by data from our latest survey.

app-stores-you-should-use

To publish, or not to publish?

If you only want to build an app as a hobby, first consider whether you need to publish it on a store at all, or whether you can just share it privately with interested parties. There are more than enough apps already in the stores and the poor developers trying to make a living from their apps have to contend with a lot of noise in the very basic search results as it is. If reaching an audience is an important part of your hobby creation then building an Android app and publishing on Google Play is the obvious option. It’s low cost, there are few rules and there’s a very large user base.

Apple is where the money is

If you’re building an app to generate revenue directly then an iOS app on Apple’s App Store is still the best option initially unless you’re only targeting countries where the platform has very low market share. Even with an ad-supported revenue model, the larger user base on Android is usually more than compensated for by better engagement and higher rates on iOS. When aiming for reach then the most important thing is to match the target demographics with those of the platforms. In most cases you’ll want to target both iOS and Android.

These are the common cases and this is fairly common knowledge. As such you can see it reflected in the overall popularity of the various stores below.

If you already have an app published on one or more stores, the decision to add it to another is not always an easy one. Even if you don’t need to port your app to a new platform to access a new marketplace, you still need to learn about the publishing process, create (and usually pay for) an account, publish the app and future updates and monitor reviews and visibility within the store. If the audience using the new store won’t be reached by your existing marketing efforts you may have to expand those as well.

More stores = more money?

Looking at the average revenues of developers based on how many stores they publish on, it’s tempting to think that publishing to as many stores as possible (and thus using a cross-platform development tool) is the way to go.

However, this is getting causation backwards. There is an improvement in revenues for almost anyone adding more potential customers but looking at the median rather than mean we can see this is unlikely to cover the cost of managing the app across several extra stores. What we can really see here is successful apps tend to port to more platforms and so [tweetable]it’s apps that already have high revenues that then publish in additional stores[/tweetable]. There is also a [tweetable]higher than average proportion of developers working on a contract basis who publish to five or more stores[/tweetable], which pushes the median revenue up.

The same phenomenon causes the average revenue of all developers who publish in a particular store to be very misleading. Developers publishing in the smaller stores often already have successful versions of the apps on the leading platforms, or are simply contracted to port those apps. If we split developers by the number of stores they publish on and look at revenues by platform then the differences become clear.

Where to publish next?

Looking at developers who only publish on a single store, [tweetable]Apple’s App Store is far ahead of every other store except the Amazon Appstore[/tweetable]. However, the number of developers who only publish to Amazon’s store is extremely small (only 16 in this sample) so this figure is not reliable. That said, [tweetable]developers who publish in Amazon’s store and one other are far more numerous and have high average revenues[/tweetable], plus data from Distimo suggests that some Android developers are seeing significantly better revenues from Amazon than from Google Play.

If we consider those publishing to two stores then Apple leads with Google in a clear second place, while Amazon still shows relatively good revenues. The other interesting data here is “where do BlackBerry developers go” – those publishing to BlackBerry World are much more likely to have Google Play or the Windows Phone Store as their second store than others. Only 11% of developers publishing to BlackBerry World and one other store also publish to the Apple App Store. That’s somewhat surprising given BlackBerry’s previous dominance of the enterprise market and that iOS is now taking over in that space.

When developers publish to four or more stores we see a significant jump in revenues for those publishing to the Windows Phone Store. Since the revenues for those who only publish to that store are so low, it seems unlikely that it’s revenues from Windows Phone itself creating the difference. More likely is that Microsoft and Nokia have been providing incentives for the most successful apps to port to their platform. Microsoft’s Windows Phone platform is strongly differentiated from the others. Developers have to design a new UI and generally build it with different technology in order to target the platform. The associated costs are much higher than adding another Android or web-based platform’s store. As such, at similar scale to many alternatives, Windows Phone is unlikely to produce a good return on investment unless Microsoft provides a strong financial incentive.

Conclusion

For developers not looking for direct revenues, an Android app on Google Play is probably the obvious first choice. For those who are looking to monetize their apps directly, Apple’s iOS App Store is the clear leader, with Google Play as the first place to expand after that. BlackBerry World appears to be very unattractive versus the other options from a revenue perspective. Beyond that, the Windows Phone Store seems to be more popular than it deserves (although this might be due to ports paid for by the platform owner) whilst the Amazon Appstore seems unfairly unloved. Some developers have had issues with Amazon’s developer agreement and pricing policy but the results of those using Amazon’s store suggest it’s worth another look.

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Business

Mobile Gaming’s Dirty Secret

mobile gaming and revenues

Mobile gaming is a major growth industry. Revenues and profits are soaring and the most successful companies are attracting valuations in the billions of dollars. However the market dynamics are such that very few can succeed and those that do have incentives which are a long way from maximising fun for players. Where are all the revenues coming from? Is the market fundamentally broken? If so, why aren’t the platform owners trying to fix it?

Mobile Gaming's Dirty Secret

Spectacular Growth

[tweetable]In 2013, games accounted for around 40% of all app downloads across the iOS App Store and Google Play[/tweetable] but approximately 75% of the revenues (according to App Annie). Game revenues more than doubled year over year on the App Store and more than quadrupled on Google Play. By the end of 2013, revenue from games on Google Play was still only about 60% of the iOS App Store equivalent. Since Apple had $10 billion in App Store sales in 2013, we can estimate very roughly that [tweetable]there were around $10 billion of games revenues across the two stores[/tweetable]. This is not far from Gartner’s estimate of $13.2 billion for all mobile games in 2013, projected to rise to $22 billion in 2015.

Increasingly Freemium

According to Distimo 90% of all games revenue on the iOS App Store came from free apps with in-app purchases in November. The percentage of revenue attributable to freemium apps in the entire store grew from 77% to 92% across the year. [tweetable]On Google Play 98% of all revenue was generated by freemium apps in November[/tweetable], so the games revenue there clearly favours the freemium model to an even greater extent than on iOS.

Now there are very good arguments that all successful digital content will eventually use some kind of freemium model, here’s a good recent summary. However, there’s a special subset of freemium that’s really generating all the growth and revenue, so called free-to-play games selling virtual goods (e.g. coins, gems, lives). Only a small fraction of users pay at all, only 1.5% according to Swrve, then a fraction of those pay so much more than you could ever get for a paid download or unlocking levels that the average revenue per user (ARPU) is higher than all other models – at least when the game mechanic and purchases are well designed to optimise for this behaviour.

Winners Take All

The games with a combination of high ARPU and broad appeal (so they get high conversion rates on user acquisition spending) can afford to bid the most for new users, squeezing others out of the best user acquisition channels. This creates a feedback cycle with the store charts, bringing in even more users organically. Our Developer Economics survey data confirms this: the typical games developer monetising via freemium and in-app purchase business models makes only about twice as much on average as those using the roughly equally popular paid download and advertising models. This difference is nowhere near enough to account for the highly skewed revenue distribution in the app stores. A large fraction of the total revenues are being made by a handful of top publishers.

Who’s Paying, How Much and Why?

Up to this point it sounds like the industry has hit on a fantastic profit formula to be emulated by all. However, if you look at the numbers and their implications then things start to look a little darker. Of the 1.5% of players who pay anything for their “free” games, 10% of those account for more than 50% of the revenue (see Swrve report above). Indeed just 1% of paying players, that’s 0.015% of all players, account for 13% of revenue; contrast with 11% of revenue from the bottom 50% of payers. Even with the astronomical size of mobile user bases, some basic arithmetic suggests the top 1% are spending more than $10k a year each on these games, even the top 10% are spending hundreds of dollars.

The free-to-play games industry likes to call these high spending players “whales” after the high rollers in the casino industry. However, high rollers only account for a small fraction of revenues in the gambling industry and they have a very real chance of winning big too, even if the odds are tipped in the favour of the casino. A better analogy from the gambling industry would be the slot machine addicts who generate a large fraction of the revenues. In fact, these mobile games are designed to be “addictive” it’s just that for some players the addiction becomes very real and they lose all rational control of their spending. So rather than hunting for the high-spending whales, this part of the industry is really exploiting vulnerable digital narcotic addicts.

If you want to see an example of what that looks like in real life, read the New York Times interview with George Yao, a long time top player in Supercell’s Clash of Clans. He spent $3k of his own money on the game in 3 months before wealthy clan mates started to bail him out. At one point he was taking 5 iPads into the shower with him to help maintain his ranking. In his own words about the experience:
“Looking back, I think I must have been insane,” he told me, with a mix of pride and revulsion. “I was so immersed in it at the time. I knew it was abnormal, but never to the extent that I see it now.”

What Next?

Apple and Google could easily stop this with some sensible limits on monthly IAP spending per app. That could cut off billions in revenue through the stores of which they take a 30% cut. However, the revenue itself is not that significant to either business. More important are the headline revenue and growth figures enabled by this that maintain developer interest in the platforms. As such we’re likely to see external regulatory action before any strong voluntary action on the part of the stores. Apple have already created the Kids section in their store which has extra review criteria to protect children from IAP and targeted advertising but they’re not currently doing anything to stop apps targeting children with purchases that aren’t attempting to list in this new “safe zone”. In most countries, children are not the only consumers protected from questionable business practices. The EU has just announced meetings with the app industry to discuss consumer protection issues – this is likely to repeat elsewhere until the real cost of “free-to-play” games is made more clear to consumers.

If you are interested in Business Models in Mobile Gaming, have a look at the three part series on battle insights by a mobile game CEO.

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Business

App monetisation tip: Go for niche markets, not user reach

Mobile apps have enabled some developers to reach unprecedented scale in an incredibly short time. The companies that do this best have hundreds of millions of users and are typically valued at billions of dollars. The winners in this battle for mass market attention and appeal are either backed with millions of dollars in venture capital or created by companies already worth billions. Can developers without quite so many resources behind them achieve a smaller scale of success by following the same formulas, or might targeting a smaller niche achieve better results?

VisionMobile

Continue reading “App monetisation tip: Go for niche markets, not user reach”
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Business Platforms

Mobile Gaming And The Pyramid Of Scarcities

pyramid of scarcities

Distimo - App Revenue Distribution

According to Distimo’s latest report, apps with “freemium” business models, i.e. free apps monetized by in-app purchases (IAP), have dominated revenue charts in 2013. This spurred me to take a deeper look at the “economics of free” and explore new opportunities for innovation in these business models.

The Economics of Free

Let’s begin by taking a brief look at the “Economics of Free” or the “Economics of Abundance”, as described by Mike Masnick. Here’s a short, 2 minute video introducing the concept:

Economics is essentially a social science that examines the best possible way to allocate “scarce” goods or resources, i.e. ones with meaningful marginal cost and limited supply. However, digital goods like apps are abundant because the marginal cost of creating an additional copy is zero. Given the nature of near-efficient competition in the digital world, price naturally approaches the marginal cost of zero.

This explains the decline in popularity of paid app downloads and the decline of numerous traditional business models. However, cheap or free content allows developers to reach a much wider audience which consequently increases demand for related scarce goods or resources. In the music industry, the advent of digital music precipitated a steep decline in US recorded music sales from $14.6 billion in 1999 to just $6.3 billion in 2009, but concert ticket sales grew from $1.5 billion to $4.6 billion over the same timeframe. In other words, digital music converted a scarce resource (recorded music albums) into an abundant resource (cheap, easily downloadable singles), which then increased demand for a related scarce resource, i.e. concert tickets.

  1. Marginal Cost – Cost of producing an additional unit
  2. Efficient Competition – Participants do not have the market power to set prices

The Pyramid of Scarcities

This particular study focuses on scarcity-driven monetization opportunities available to developers of free-to-play (F2P) games like Candy Crush Saga, Angry Birds, etc. As shown in the image below, the scarcities created by F2P games can be segregated into 3 categories, in order of increasing scarcity (or decreasing availability)

  1. Induced Scarcity
  2. Scarcity of Goods
  3. Scarcity of Time or Access

Pyramid of Scarcities

1. Induced Scarcity

Induced scarcity is one that does not exist in reality, but is created artificially — for example, in-app purchases of digital goods. The availability of these goods isn’t really in question and therefore, the value placed on each purchase or transaction is quite low. Consequently, effective monetization depends on maximizing transaction volume from these low-value digital goods, i.e. micro transactions. This strategy is most effective when scarcity is induced because of direct player engagement, and not when it is forced onto players. Game design plays a critical role here as in-app purchases need to be naturally blended into gameplay elements. King’s games like Candy Crush Saga are perfect examples as players pay for boosters to help them progress through difficult levels. In fact, King’s revenue is expected to top $1 billion this year, almost exclusively driven by micro transactions on Facebook and mobile games.

However, exclusive use of this monetization strategy also brings up some challenges. King’s “Games Guru”, Tommy Palm, recently said that 70% of the players on Candy Crush Saga’s final level “haven’t paid anything”. While this is a great sign for consumers, King seems to be losing out on monetizing their most engaged players and biggest fans (excluding a minority population of “whales”). The only reason these players haven’t become paying customers is because they don’t consider digital goods to be scarce enough. The solution isn’t to create “paywall” equivalents, but to explore additional monetization opportunities with even scarcer products.

2. Scarcity of Goods

Scarcity of goods refers to physical products that have a tie-in with an F2P game — for example, branded or licensed merchandise. Since physical goods aren’t as abundant as digital ones, the value placed on each transaction is automatically higher. However, this comes with the trade-off of lower transaction volume. Rovio’s Angry Birds franchise is a great example of a successful merchandising strategy. Led by sales of Angry Birds plush toys, merchandising and IP sales made up 45% of Rovio’s $195 million revenue in 2012. This year, Hasbro sold over one million “Telepod” figures within a month of Angry Birds Star Wars II’s launch. This year, King also dipped its toe into merchandising with a range of Candy Crush themed candies and socks.

These products are likely to appeal to fans of F2P games even if they have never purchased digital goods. However, the biggest fans and most engaged players may be looking for something even scarcer.

3. Scarcity of Time or Access

Scarcity of time or access can be leveraged through a direct connection with the most ardent fans — for example, events like gaming competitions or conventions. Conventions tap into scarcity of time from key personnel like game designers, while social gaming competitions tap into scarcity of access to exclusive benefits and direct competition with other “superfans”. The monetization opportunity from events is likely to be immense, even though the actual frequency may be low.

So far, very few game developers have utilized this particular strategy — a related example from the non-F2P space is Mojang’s Minecraft Convention or MineCon. 7,500 tickets to the event sold out in roughly 5 minutes, generating roughly $1 million in revenue. This may seem like small change for large gaming companies, but it’s important to keep in mind that Mojang may view MineCon as more of a promotional event. Expanded ticket sales and advertising partnerships could easily make gaming events a significant revenue opportunity. Given the competition in allied industries like mobile hardware, there will certainly be no dearth of advertisers.

Opportunity for Innovation

The monetization opportunities outlined in this post show that the free-to-play mobile gaming industry still has a lot of room for growth. Most publishers have focused on just one of these strategies and I have no doubt that we will see more business model innovation from these companies as we move forward.

Having said this, these strategies are only useful for companies if their games remain popular. The gaming industry has proved again and again that companies cannot rest on the laurels of a single mega-hit. Therefore, developers need to focus on continuous innovation across a wide catalog of games. What’s most important is to ensure that players have fun. After all, isn’t that the entire point of playing games?

– Sameer

This post was originally posted in Sameer’s Tech-Thoughts blog – you can find the original article here.

Sameer is a business strategy professional with expertise in mobile ecosystems, asymmetric business models and disruptive innovation. Over the last 6 years, he has held various roles in strategy consulting, investment management, M&A and venture capital. During this time, he has developed a keen interest in the intersection between technology, innovation and business strategy. You can follow his work on his blog at Tech-Thoughts, on Twitter @sameer_singh17 or on LinkedIn.