Mobile game revenue has overwhelmingly tilted toward free-to-play and in-app purchases in recent years, with advertising and premium downloads just a tiny fraction of the overall gross (Last year’s top ten mobile games alone -- all FTP and IAP -- earned over $5 billion; see chart via Superdata at right.) Despite this shift, many developers from the world of PC and console games are still applying older retail-oriented revenue models in the mobile space. Many mobile games, even ones from major players such as Square Enix, 2K Games, and Electronic Arts, are still in the paid section of the App Store, sometimes selling for as much as $19.95. Despite the breakout success of exceptions like Bethesda’s Fallout Shelter and Blizzard’s Hearthstone, many AAA studios seem hesitant to embrace IAP.
Why? There a lot of reasons. For starters, most IAP revenue models involve a virtual currency- based economy, which can clash with many traditional genres and game styles beyond MMOs and RPGs. And veteran AAA developers, who once did well across multiple platforms with retail-based, premium-priced games, often think of IAP as synonymous with “two currencies and an energy gate”, assuming it won't work in their games. Add to this is the fact that most AAA game developers are gamers themselves, and know first-hand the frustration when a mobile game they’re enjoying hits them with an unfair, intrusive, or unexpected IAP. And, of course, major publishers are also major companies, which are generally slow to change. (Though we are seeing tentative steps in the IAP direction.)
But unless you’re creating a mobile game port of an extremely well-known console or PC title (more on that below), the reality is that trying to succeed simply through paid downloads or intrusive in-game ads is an incredibly risky proposition. And even well-known brands see limited success when they transition to premium mobile apps.
Here’s three proven strategies which increase revenue without causing the kind of problems most gamers and developers hate, and without forcing dramatic changes in more traditional games. While these aren’t ideal revenue models for all mobile games, they’re especially worth considering for already-published games, and titles currently in development on the assumption that they’ll be premium-only.
Free Download/Try Before You Buy IAP Unlock
Mobile games’ revenue future can be found in gaming's past (image credit)
This is probably the IAP revenue model that most gamers and game developers are comfortable with, because it’s basically the classic shareware/demo strategy applied to the mobile space: Download and play some of the game for free, pay to play the rest. But where gamers once put hand-written checks to Carmack and Romero in the mail -- yes, youngsters, that really used to happen -- they can unlock the full game through an IAP. It’s surprising that few mobile games from AAA studios and publishers don’t experiment with this revenue model (have they forgotten their gamer heritage?) but you do occasionally see it cropping up in hardcore indie games.
It’s also important to view this revenue model as a marketing strategy to get your game discovered in the store - especially for quirky, creatively risky games from unknown indie studios with small budgets. Hoping to become a critics’ darling or earning a feature spot in Google Play/Apple App Store, and further hoping that will generate enough passionate word of mouth to succeed as a premium game is a tremendous gamble, especially against so much competition.
This strategy also applies to mobile games based on well-known brands. It’s highly unlikely that Bethesda’s Fallout Shelter (a brilliant but surprising extension of the brand) would have attracted as many downloads if it had been a premium app, no matter how strong the name recognition. Instead, a lot of gamers already preparing to spend $60 on Fallout 4 would have seen the mobile game as a greedy capitalization of the franchise. On a somewhat related note, I’m convinced Hitman Go and Laura Croft Go would have been massive blockbusters -- as opposed to being the well-reviewed but modest successes they are -- if they had been launched with this model.
Driving In-App Purchases With Opt-In Ads
You could almost call this the “Crossy Road” model, because Hipster Whale’s critically acclaimed blockbuster from last year did it so well (as in $10 million in just 90 days well): Gently introduce the ability to earn and spend virtual currency through gameplay -- collecting coins while hopping across the playing field, in the case of “Crossy” -- and then show players the game’s marketplace of special content, purchasable through game coins… or an in-app purchase. And only after the player understands the purpose of coins and has an urge to spend them, introduce an option to earn coins by opting to watch/view ads. (See image above.)
Sure, the vast majority of players will ignore the IAP option and just keep hitting the advertising button to amass more currency collection. That still brings in a small but decent stream of advertising revenue. And then another interesting thing happens: People who opt-in to watch ads also tend to buy more in-app purchases.
Why? Some of it is customer loyalty, hardcore fans trying to reward their favorite developer as much as possible. But even more key, earning virtual currency for watching ads introduces players to the game’s marketplace of buyable items, while also linking their gameplay with the game’s economy. Once players understand this dynamic, and enjoy the experience of buying items for ads/coins, they’re much more likely to transition into in-app purchases. Watching ads, in other words, are training wheels for IAP.
IAP Linked to Incremental DLC/Expansions
This monetization strategy works best with older games (say 6 months or more) which have a popular multiplayer component, and/or continue attracting a steady stream of new players. In either of these two scenarios, developers must update the game and service this new wave of players, so it’s only fair to ask them to help pay for this new content. As premium mobile games age, many developers will simply lower their download cost to 99 cents. Instead, I recommend making the basic game free -- and then charging IAPs to purchase the expansion pack(s). The creators of the acclaimed Monument Valley more or less followed this strategy with the release of the game’s new expansion levels -- they made the original game free and sold the expansion as an IAP within it.
When Not to Integrate IAP
Like I said at the beginning, IAP isn’t always a perfect solution for every game -- or even a desirable one. For instance, I’m a strong advocate of “feeder apps” -- light, fun games with no IAP or external advertising which essentially exist to cross-promote the developer’s main, monetized game. Games aimed at children also tend to do better as premium downloads -- probably because parents have heard enough horror stories of kids racking up IAPs by the hundreds of dollars. (That, or they follow Kanye on Twitter.) Given its popularity with young teens and pre-teens, this probably explains Minecraft’s huge success as a premium mobile game.
Mobile games that are basically direct ports of extremely popular AAA console and PC games also do relatively well as premium downloads. But even then, I contend that most of them would earn far more if they atleast experimented with the “try before you buy” model I outlined above. (I mean, $9.99 just to put a copy of XCOM: Enemy Unknown on my smartphone -- seriously, 2K?) Mobile games are played by far more people than PC and next gen console games combined, and putting a premium price on a console/PC game mobile port is throwing away a massive opportunity to gain millions of more players. (Not to mention payers.)
There’s another good reason developers should start thinking about IAP if they haven’t already: Your investors and shareholders and execs on the business side aren’t stupid, and they read how much money Clash of Clans and other IAP-powered games are making. Better to start thinking of strategies to add IAP to your own games in a way that still preserves the integrity and fun of the overall experience. Because if you don’t insert IAP, your bosses will probably soon demand that they do -- and you might not like the way they want them added.