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Top 10 Factors That Impact Game Revenue

By Yulia V Smirnova
January 9 2017
apps, mobile apps, users

Credit: Kate Serbin

Whether you’re offering players the opportunity to build a tower, outwit their friends, race the clock or explore a new world, there is a lot of competition for mobile game players’ attention and their wallets.

It’s a world of minimal switching costs and thousands of alternative offerings. And if your game isn’t delivering what they’re looking for, you’ll find yourself gathering virtual dust instead of raking in game revenue when gamers move onto something newer, cheaper or different.

What makes one game a smash hit on the Top Grossing charts while another struggles to exceed the “app poverty line”? Here are the ten factors that determine an app’s path to growth.

 

1. Monetization Models

There are six fundamental models for monetizing a mobile game. Which one(s) you choose will have a massive impact on your revenue potential:

  • Freemium with gated content – Using the “try-before-you-buy” mindset, freemium games let users get a great feel for the game before having to make a financial commitment. Freemium games should be prepared for massive abandonment once users hit the paywall barrier, however.

This model requires a delicate balance determining how much to give away to get users hooked without giving away so much they don’t feel any need to pay for those extra levels or extended gameplay.

  • Paid apps (at download) – Although paid apps are expected to generate nearly two billion dollars in revenue in 2017, asking customers for money before they get to play the game at all comes with a lot of risks.

If you don’t have a brand recognition, a ton of social buzz or excellent ratings and reviews in the app stores, you might be turning off potential gamers who agonize over parting with even 99 cents on a game.

Additionally, once you’ve charged your users up-front, there’s often not a great way to extract any more revenue from them, as they’re likely not expecting to see ads in a paid gaming experience.

The only way to grow revenue at that point is to get additional customers or build a new game to create other avenues for re-engagement.

  • Sponsorship – Unlike disruptive and unassociated advertising, a sponsorship keeps a game free while reinforcing a single (or a few) brands for either the entire lifetime of the game or for a limited period.

While this is occasionally just glorified display advertising, some games are even created simply to promote a brand, and the sponsorship and gameplay are completely intertwined. For example, Rovio’s Angry Birds 2 added a purchasable spell where those unpopular green pigs could be defeated with Honey Nut Cheerios.

  • Free with ads – Being able to download a game and know you’ll never be charged for anything is a great deal for many casual gamers. However, ads can get annoying and turn off less patient gamers, particularly when they’re interstitials.
  • In-app purchases – Usually a moneymaker for free apps, in-app purchases give players the option to purchase additional items, unlocking playing time, content, characters, levels and the like. But in-app purchases also don’t equal instant revenue. It takes the average customer more than 16 days to make their first in-app purchase, and of those who spend the top 10% of customers generate 70% of an app’s revenue.
  • Subscriptions – Like many SaaS offerings today such as Netflix of Spotify, there’s now nothing stopping game publishers from charging players a monthly or yearly membership fee to keep playing since Apple relaxed their restrictions in 2016.

Of course, none of these models are mutually exclusive. Plenty of games feature in-app purchases and generate revenue from sponsorships and advertising or requiring the user to buy the game.

Other publishers take a two-step approach by offering a free version with ads and giving the player the option to pay a one-time fee to play ad-free forever, such as Zynga’s Words With Friends. It all comes down to providing gamers with enough value that they’re willing to put up with ads and pay for more.

 

2. Tracking LTV

Every game has a ceiling on how many people will ever play it. Since players are a finite resource, game publishers need to track how much revenue they can generate from each player (their Lifetime Value).

There are numerous factors affecting LTV, but it boils down to the total revenue a user drives. Sales occur either via direct purchases or lift factors that an additional user generates during the user’s engagement with an app.

For recurring or ongoing revenue models, you need to do some math. This means tracking user stats such as how often people play, how long they play for and how many ads they see per play or time period, as well as average in-app purchase behavior.

With this data analyzed, you can assess just how much each customer is worth, and therefore how much you should feel comfortable to spend on acquisition.

If a certain channel or tactic is costing you $10 per acquisition but your average LTV is only $8, you need to find a better way to market or figure out how to increase your LTV via additional advertising, sponsorships or in-app purchase offerings.

If you increase LTV, you can buy quality users continuously and at scale since your CPI will also increase, but also offer more volume and increased ROAS.

 

3. User Experience

App discovery and the decision to download and buy a game is driven in large part by user reviews, and if gamers aren’t having a good time they won’t leave a good review.

And if a user isn’t playing your game, no one will look over their shoulder on the subway or in the schoolyard and think they might want to give it a try, too.

The average mobile gamer spends 24 minutes per day playing—how many of those minutes is your game claiming?

Just as important as creating an amazing ongoing experience is starting players off with incredible initial experiences, which sometimes means sacrificing short-term revenue for long-term gain.

“The primary challenge is to find a balance between showing profitable ads and not annoying your users to the point of leaving your app forever,” says Pavel Golubev of Appodeal. “One strategy to achieve that is to identify the level of user engagement that move casual or first-time users to daily active users.”

 

4. Tying Revenue to Player Experience

If users don’t often play and for extended sessions, then you’re not showing them as many ads, and they’re not going to feel the need to make in-app purchases, which is why downloads are only the first step for nearly every mobile game monetization model.

For example, Arcade games the most popular type of game in terms of downloads and monthly active users, but they trail the Puzzle category by 44% when looking at time spent playing. And while Arcade games are downloaded the most and used most often and while Puzzle games are played for the longest amounts of time, Strategy, Role-Playing, Adventure and Action games all generate more revenue.

This observation shows the connection between game type and revenue; while in-app purchases are certainly possible in Arcade and Puzzle games, that genre relies more on paid downloads and advertising for their revenue, while Strategy, Role Playing, Adventure and Action games provide a far more attractive environment for in-app purchases.

 

5. Game Appeal & Type

There are five reasons someone plays a game: Accomplishment, Imagination, Socialization, Recreation and Subversion. Each game should be appealing to at least one of these goals, if not more than one, and build every aspect of the game to satisfy the itch the gamer is trying to scratch. And the type of game you build corresponds directly to the appeals you’re attempting to satisfy.

For example, when someone plays a sports simulation, they are primarily seeking Accomplishment; they want to beat their opponent, win a championship, master a particular combination of moves to nail a bicycle kick or a reverse slam dunk.

So the in-game rewards need to align with these goals. Whether it’s tokens, virtual currency or unlocking levels, these should be achieved via the user accomplishing things. Te above reinforces the understanding that game marketers know what users want to achieve and reward them for doing so.

And while some gamers might also find recreation or socialization from a sports sim, they’re unlikely to satisfy any need for subversion, so they’re likely to look for a different type of game.

There’s also nothing more appealing to a gamer than unlocking something new, whether it’s finding a hidden treasure, reaching a new level or getting their virtual hands on a new weapon. The rarer and more elusive the discovery, the greater the delight for the user.

 

6. Game Platform

Success in business is all about scale, and the gaming industry is no exception. The most successful gaming companies over the long term don’t just catch lightning in a bottle with a single title that rockets to the top of the charts. They build a stable of different games that leverage the same platform to appeal to multiple audiences.

For example, Square Enix built a turn-based platform for Hitman GO, which was a huge success in 2014. They then took the same concept and platform to introduce Lara Croft GO in 2015 and Deus Ex GO in 2016. These games feature very similar mechanics but appeal to different markets based on their respective brand’s gaming legacies.

Game makers must be looking for opportunities to extend their platforms to other markets and create new experiences, as the average love affair with a particular game (and it’s in-app purchases) can be fleeting, as user retention for mobile games tends to crash after two months.

 

7. Managing Development Costs for Frequent Updates

Mobile gamers have short attention spans, so your app must stay fresh and engaging. Regular and frequent updates are an antidote for a gamer burnout.

Plus, iOS and Android are frequently refreshing their operating systems, and new devices come onto the market all the time with different screen sizes and ratios that all require ongoing maintenance.

If you don’t keep up, you could find yourself on the wrong side of an app store purge or see your reviews swinging to the negatives as users get frustrated that your game doesn’t work well on a new device or OS. Therefore, profitable developers must also account for the costs associated with frequent updates.

 

8. Marketing at Scale

The average mobile gamer only plays 1.3 different games per day and 3.6 per month, which means it’s really hard to find new users and get them hooked on your game when your business model is based on heavy usage. That means you need to attract a lot of potential gamers to build up a core base of users that keep coming back for more.

Since marketing at scale means you’re never “done” promoting your game, you can end up running thousands of ads at a time, leveraging hundreds of different ad placements, targeting tactics and ad formats.

The only realistic strategy for keeping up this pace without adding dozens of staff is utilizing a SaaS ad automation platform. Such platforms do lots of the heavy lifting for you when it comes to determining which ads are converting and diverting more budget to the most successful campaigns, finding similar audiences that are likely to be more receptive to your promotions and managing campaign goals to get more bang for your marketing dollar.

Bidalgo platform, with its workflow automation, mass upload, bidding and optimization algorithms makes it easy for mobile marketers run massive campaigns no matter what stage their business is in – an emerging app, a growing business or a top grossing contender.

The ease of using a platform built for running these campaigns is amplified by having access to full-service teams of mobile and social advertising experts that can augment your internal teams as needed. Headcount is no longer a limitation as you can ramp resources up and down without hiring and firing.

 

9. Evolving with the Game Business

Leaderboards are dominated by established players with various flavors of Clash of Clans and Candy Crush. A newcomer like Pokémon GO can take the world by storm, but that’s largely because of IP with a built-in following. So how can smaller developers compete against these huge brand names?

For smaller players, alternative marketing and virality are the keys to success. Ad inventory is getting more expensive because the demand is outpacing new supply, which means marketers must be savvy in their spending or risk blowing through their budget without accomplishing their goals.

With this in mind, advertising on social media platforms is a win-win for game makers, as they can micro-target to stretch their limited ad dollars further. Additionally, the built-in sharing and liking nature of these platforms mean that the people these ads connect with are further promoting your brand to their followers.

 

10. Team Execution

At the end of the day, any company is only as good as its employees. A great team means excellent execution and beating deadlines, while a dysfunctional unit chews up resources without adding value to the games or overall business.

The best teams are filled with intelligent, proactive and versatile people, not just experts in a particular coding language, game engine or ad marketplace. Technology is constantly changing, and having to change horses just because you’re moving to a new platform can be a momentum killer for any business.

Specific to the user acquisition, look for the experts with strong track records demonstrating industry expertise. Test a few of them to see who works best for your app.

They should be competent with ad optimization tools to maximize the return on your ad spends and deliver solid results even during the test. That is what Bidalgo team practices when we onboard new clients. If we deliver results, you give us your business.

 

The Battle Continues

Although much of a game’s fate is sealed by its genre and chosen revenue model, successful and sustained efforts by its user acquisition team can extend its user growth cycle and delay its eventual drop off by using the tools, technologies, and data available.

Games with staying power combine an attractive initial appeal, updated gameplay experiences and revenue generation that doesn’t turn off users in combination with the effective use of social marketing channels such as Facebook and Instagram.

The most successful teams build in opportunities for games to go viral right into the game—”challenge your friends” or “post your highlights”—and spend their money wisely on the tactics that drive conversions.

It’s a constant battle as thousands of games compete for players’ attention, but the winners find and exploit their individual sweet spots in the market.

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