Are Freemium Apps Killing Game Developers?

The rise of freemium games has been ferociously quick and it continues to accelerate at an incredible pace. It’s estimated that adults now spend, on average, 5 hours and 46 minutes online and on their mobile devices. Time spent online has now surpassed time spend watching TV.


With more consumers than ever playing games on their mobile devices, developers have had to “evolve” to find the most efficient ways to monetise their potential customers and, from a revenue perspective, [tweetable]the ‘freemium’ model has almost completely killed ‘paid-for’ games[/tweetable].

Putting morals and ethics aside, the freemium route is absolutely genius. Freemium, especially on mobile, can generate vast amounts of profit for developers who manage to create popular applications.

When we ask the question, “are freemium apps killing game developers?”, it always generates an interesting debate. Let’s understand why.

What are freemium apps?

The term freemium can be defined as:

“A business model that provides a game to players free of charge, but charges a premium fee for special features, powers, or content.”

Take a look at the App Store whilst reading this post and you will see the overwhelming majority of top grossing applications are free to download.


To developers, these applications would be classed as “freemium” apps, but the majority of users who download these type of applications believe the developer is making it as difficult as possible to progress within the application in order for you to purchase ‘upgrades’, ‘coins’ or ‘power-ups’ that allow you to progress within the application.


Freemium applications started as an experiment, but very quickly became mainstream. In fact, it was reported last year that 76% of all iPhone app revenue came from in-app purchases.

From a developer’s perspective, freemium games are the preferred route. It’s where the majority of download volume exists and the highest earning revenue streams can be found. Most importantly, their prospective customers’ mindset has shifted. If you are not a ‘free’ game or application, you will have a much harder time selling yourself.

When you speak to independent game developers, they will tell you that more and more revenue could be generated from a free-to-download application. Take an example of a subscription-based game which might charge $20 a month to play. Only a few people might ever be willing to spend that – but far more would be willing to spend 10% of that on a freemium type game. The reality is, when you look at the metrics, there is little to no comparison. Free apps with in-app purchases are potentially much more lucrative.

On the other hand, there may be customers who, even if they were spending $20 a month on a game, would be willing to spend even more if they had the opportunity to. Legacy games never offered that type of flexibility, but things have changed and the top games developers are reaping the rewards.

The thought of ‘what if?’ really did start a new line of thinking. A line of thinking that eventually took the freemium model mainstream.

Why is Freemium seen as bad?

When you look at games from a hardcore gamers point of view, with the above scenarios in mind, you soon realise that the freemium trend is a real negative for them and their style of playing.

[tweetable]The core underlying aspect of freemium games is that you have to pay to continue playing[/tweetable]. Rather than pay a one off fee for a game which would take even the most dedicated gamer a while to complete, there are now deliberate parts of a game or application that force you to spend money in order to overcome a problem.

Roadblocks deliberately placed by a developer force a gamer to spend if they want to continue progressing. It’s this understanding, which has led to many negative reviews of freemium games and the mobile gaming industry in general.

When it comes to developing, freemium games are, arguably, easier for much larger game publishers to make, because these types of games require much more iteration than a traditional paid-for game might demand.

This means that the true independents have a higher barrier to entry than they did before. People expect a lot for free, and if you are not monitoring your audience with a deep level of detail, it’s very difficult to understand when the best time to monetise might be.

Example of the freemium model

Examples of the freemium model taking place inside a game can be found in many different scenarios:

Energy bars are everywhere. The new ‘World of Warriors’ game and ‘Clash of Clans’ from Supercell are good examples of energy meters. In both games, you have ‘food’ and various other ‘elixirs’ which are essentially energy meters. If you have ‘0’ food, you can’t play until it recharges. Regardless of what shape these roadblocks come in, they all serve an identical function: to slow down a player’s progress.

Mobile games would also appear to be getting easier and easier. The majority of these games would not work if a gamer could engage with them and play them for an hour at a time.

Energy meters and time constraints mean that you can only really play an app in small chunks. Unless you pay.

Naturally, a percentage of all users don’t want to wait for their timers to be refilled, so they will pay to get passed what was intended to be a roadblock.

In older, more traditional games, if the player was stuck at a specific part of the game, they would work hard to try and find a solution to the problem they face. However, now if you run into a problem, no matter the quality of the gamer, to get past what might once have been a complex problem – you can pay.

Another very common freemium model is charging for virtual items.

It’s difficult for game developers to understand what is a fair price to charge for various virtual items, but developers are now moving towards simpler monetisation tactics. For example, skipping a level or buying a considerable item which gets them past what was supposed to be a difficult level.

The problem with this is that items like ‘level skipping’ could be free, because it doesn’t actually cost the developer anything to offer hints.

If you compare this with a game we all know, Call Of Duty, giving a player the opportunity to buy new weapons or customise a character has cost the game developer/designer time and money.

Are freemium games killing developers?

Whilst consumers have obviously voted with their wallets that freemium games and applications are what they want to buy, some of us at Tapdaq believe that this has squeezed independent developers into a corner they might not necessarily have wanted to end up in.

There is no doubt about it, I think it’s harder to devote time into creating a game which is long and complex simply because of the natural shift to more casual gaming.

As with all markets, there are two sides to it. In this particular market, you have developers and you have players. If game players are so anti freemium games, then they need to do their bit. They need to start spending money on items which actually cost the developer resources to make, as opposed to buying hints and level-skipping upgrades which defeat the object of playing the game in the first place. They need to value the mobile gaming experience.

New freemium games come out every week in today’s quickly evolving mobile gaming market. This is a business model that, for the foreseeable future, will impact the games we all play. Therefore, game players need to go out and support games that are fair as well as fun to play. Players passionate about game sustainability must vote with their wallets as well as their words.

Looking at the graph below, freemium is proving to be great for developers, but it might have adverse effects, and who knows when we might start to see diminishing returns.

Freemium still has a large share of the market, but it’s unlikely to make you rich.Freemium still has a large share of the market, but it’s unlikely to make you rich.

I think we’ll continue to see larger game developers dominate the top grossing in various app stores for the foreseeable future, and I don’t think freemium as a business model for games gives a fair platform for genuine independent studios to thrive. However, individuals and small studios who create games are usually far more dynamic and should adapt to evolution faster than larger corporations.

So, is freemium killing developers? The answer is, we can’t be sure yet. One thing is certain, though,the industry will continue to be driven by its customers and customer perceptions of “free” games. Recent events have shown that there is a split between those who are happy to pay for games and additional content within them, and those who expect the game or updates to be free.

A winner for preferred business model has not yet emerged on the mobile platforms, and it is very possible that mobile gaming will evolve in a similar vein to its desktop/console brethren – with games adopting different monetisation methods based on their audience, content and personal preferences.

Let me know what you think in the comments below.

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The Three Waves Of Mobile Marketing

With over one million apps in the Apple and Google stores, you‘d think that app development has become business as usual. As we enter 2014, the making of apps is a sought-after commodity. But [tweetable]the marketing of apps remains part art, part science[/tweetable].


App marketing and advertising took off early in the history of the app economy. The freemium model (generally speaking, apps that are free but monetize through premium upgrades, in-app purchase items or advertising), took place a couple years after. On the App Store, in-app purchase items (IAPs) were only introduced as of late 2009. On the Google Play Store, they had to wait until 2011.

Since the freemium app model started making a name for itself, the parameters and requirements of app advertising and user acquisition have been in constant evolution, strongly influenced by transformations of the app ecosystems. In particular, app publishers, marketers and other stakeholders have constantly needed to adapt to the evolving policies and barriers enforced by Apple and Google.

In fair consideration, many of the steps the two companies took were also in reaction to the evolution of advertising techniques and practices within their ecosystem. The dynamic is therefore mutual.

Looking back on the brief history of app marketing, there are three main phases or “waves” of app marketing, presented in the table below. Each phases has distinguishing features in terms of business objectives, marketing strategies and practices, technology focus, transparency standards, platform regulations etc.

The three waves of mobile app marketing:

1st wave 2nd wave 3rd wave
Timeframe 2009 – 2011 2012 – present 2013 – present
Goal Volume through top chart position Volume with a focus on the price of installs Volume with a focus on the quality of installs
Marketing strategy Incentivized Downloads Shift to quality: Non-incent ROI-positive media buying
Pricing Methods
  • Flat fee
  • Cost Per Click
  • CPM
Cost Per Install
  • Cost Per Action
  • Cost per Reengagement
  • adjusted CPI (aCPI)
Technology focus None
  • Install attribution tracking
  • In-app analytics
  • Post-install, in-app event tracking
  • Programmatic buying
  • Deep linking
  • (Cross-device) Retargeting
Tracking technology
  • iTunes Connect
  • UDID matching
  • MAC Address
  • openUDID
  • Fingerprinting
  • Platform-specific device identifier (IDFA, Advertiser ID)
  • Social Media login
Level of platform regulation and transparency Low Medium High
Market dynamics Emergence of new “pure” players Growth, stronger positioning of existing players Consolidation, M&A activity, older players start getting involved
Advertising formats Banners, editorial advertising, incentivized Interstitials, video ads Native ads

I’ll discuss these three waves along their most important characteristics.

The first wave: the early days, focus on volume

The early days of app marketing date back to 2009. They were characterized by the emergence of the Apple App Store as the main platform for user acquisition. [tweetable]Publishers mostly relied on the top chart rankings to gain visibility[/tweetable]. This led many of them to resort to the so-called burst campaigns, either incentivized or natural such as editorial app “boosters” and blogs. These campaigns generated large amounts of downloads in a short period of time in order to climb the app store rankings.

In this context, performance models, whereby advertisers only pay for the installs generated, mostly served for incentivized campaigns, and burst campaigns were often sold on a flat-fee basis. For the burst campaigns run on a Cost Per Install (CPI) basis, downloads were accounted for using iTunes Connect data or at best UDID matching. Consequently, there was neither technology focus nor need in terms of tracking. In short, user acquisition was not data-driven.

During that time, many pure players, such as Tapjoy, Flurry, or AppGratis, entered the space, as it was a land grab with low barriers to entry. Platform regulations were still relatively lenient, as the tenants of the ecosystems didn’t wish to curtail their growth. For instance, incentivized downloads were still allowed by Apple until April 2011.

The second wave: focus on quality and performance tracking

The second wave of app marketing started around 2012. The volume remained the main marketing objective, but CPI-based campaigns gained momentum and performance marketing started becoming widespread. More generally, a discrete shift towards more quality tracking in advertising campaigns was taking place.

In terms of regulation, Apple tightened its grip on a fast-growing ecosystem and cracked down on players accused of taking advantage of the top chart ranking algorithm. In April 2011, incentivized downloads were banned and in October 2012, Apple enacted clause 2.25, forbidding “Apps that display Apps other than your own for purchase or promotion in a manner similar to or confusing with the App Store”. This led to the ban of several of app discovery services, the most famous being App Gratis which was pulled from the Apple’s store in March 2013. App publishers themselves suffered the consequences of these restrictions, such as Animoca who, in January 2012, saw all their apps removed by Apple under the allegation that they were using bot farms to generate fake downloads.

Technology-wise, the growing popularity of performance marketing encouraged the rise of efficient attribution tracking solutions, in order for advertisers to trace downloads down to their respective sources. Among the tracking technologies which then emerged, the most popular are fingerprinting as well as single, platform-specific device identifiers (Google’s Advertiser ID and Apple’s Identifier For Advertisers – IDFA). As of today, [tweetable]fingerprinting remains the only legitimate solution enabling mobile web tracking[/tweetable].

Publishers also started becoming more data driven by integrating in-app analytics solutions such as Localytics to analyze usage, retention, engagement, virality and monetization metrics. Similarly, a focus grew on measuring the quality of the users through the estimation of customer lifetime value (LTV). However, this was at this time mostly performed to understand the user journey and improve the user experience, not yet (so much) to optimize user acquisition campaigns. In other words, [tweetable]performance stopped at the install, as in-app and attribution tracking remained distinct from each other[/tweetable].

In terms of market dynamics, the wave of new entrants stalled as existing advertising players consolidated their positions and stronger regulations prevented the use of shadier advertising tactics. The second wave was pioneered by ad networks (inmobi, AdMob, Leadbolt), affiliate and cross-promotion networks (AppFlood, Chartboost, AppLift), mobile agencies (Fiksu, Somo Global).

The third wave: focus on lifetime value and ROI

The third wave of app marketing started in 2013, is currently unfolding and will probably define the mobile landscape for at least the next two years. This third wave is distinguished by a massive shift towards quality, with, in particular, the growing realization by mobile advertisers that acquiring users, even at a low price, makes no sense if these users are not retained, engaged and finally monetized.

This global shift to quality has generally been embraced by advertising companies, app publishers and platforms alike, all with various consequences.

First, platforms themselves are taking on and driving the trend, and introducing heightened regulation. In 2013, Apple modified its ranking algorithm to take into account more in-app, post-install qualitative factors such as retention and engagement metrics. Google, too, started enforcing harder restrictions on its developer policies when it banned spammy user acquisition techniques such as push notifications or icon drops on the Play Store.

Naturally, it is app publishers and advertisers that are driving the largest part of the shift. Indeed, increased competition as well as rising CPI prices has made it an impediment to track and optimize user acquisition campaigns more accurately, and to allocate marketing budgets towards the best-performing channels. Technically, this means tracking post-install events, connecting them to the acquisition source, and finally linking attribution tracking to in-app metrics.

Early assessment of the LTV of acquired users now enables advertisers to quickly assess the quality of the various acquisition channels used. This in turn allows them to optimize and fine-tune the campaigns by allocating budgets to the traffic channels offering the highest user quality (users whose LTV is higher than their cost of acquisition – CPI).

On the whole, if the first wave focused on volume only and the second on price-weighted volume, the third wave is characterized by quality-filtered volume.

In the wake of this quality shift, new pricing schemes appeared: for instance, [tweetable]Cost Per Engagement (CPE) now allows advertisers to pay for actions taking place after the install[/tweetable], such as game tutorial completions, or first purchase.

More quality and more regulation also go along more trust and transparency. In the specific context of the relationship between advertisers and user acquisition networks and other partners, this means that networks have been more willing to share information about their traffic sources, while advertisers have been less reluctant to share more in-app data about the users generated.

In terms of market dynamics, the third wave is characterized by increased M&A acquisitions as older, established digital and online companies start acquiring pure mobile players. This way, in 2013 we saw, among others, retargeting company Criteo buy out mobile tracking company AD-X, Twitter snap up mobile ad exchange MoPub and, in gaming, Japanese telecoms firm Softbank together with GungHo acquire Finnish mobile game publisher Supercell. There were also a couple of mobile-only deals, such as the acquisition of Jumptap by Millennial Media or the merger of mobile gaming services company Playhaven with mobile analytics provider Kontagent.

As the third wave of app marketing is still forming, other data-driven approaches are emerging, such as real time bidding, retargeting and cross-device targeting. Reactivation and re-engagement campaign techniques are already taking into account quality factors and focusing on post-install events.

For developers, it can be of great help to keep this history of paid mobile user acquisition in the rear-view mirror as they strive to understand and adapt to its new challenges.

– Thomas

[Thomas heads up content marketing at AppLift, loves scrutinizing the developments of the mobile industry and collects photo apps on his iPhone the rest of the time. He can be contacted at]