How Catching More Fish Leads To Bigger Mobile-App Revenues

The main theme of the recent Open Mobile Summit in San Francisco was how to make money from the growing market for mobile applications. The big trend is a shift away from both premium content and advertising, and moving toward smaller incremental micropayments. Game operators are finding this shift makes it easier to foster social loops between players to attract them and keep them engaged.

One of the biggest challenges facing game developers lies in attracting new customers. According to Jeff Smith, co-founder and CEO of Smule, although it is possible to buy some mind share with a strong advertising campaign, it’s much more cost-effective to think about weaving together the different pillars of social networking — Facebook, Twitter, text messaging, word of mouth and the press.

For example, when Smule launched a new app for rap star T-Pain, it encouraged fans to upload their own music videos based on his music to YouTube. This led to the creation of 50,000 YouTube videos and 100 million total videos on YouTube from a free marketing campaign. The key is to think about how to weave levers of social engagement into the application ecosystem. “You can have the best Facebook recommendation system in the world, and it will sink or swim based on whether there is a hook that allows a user to recommend it,” Smith explained.

On a different note, there are many important distinctions between Android and iPhone app stores. Riz Virk, CEO and co-founder of Gameview Studios, said his “Tap Fish” virtual aquarium application has been a top seller on both platforms, giving the company perspective on the monetary value of relative rankings.

According to Virk, the main source of revenue has been in-app purchases. Gameview Studios started off using AltPay, in which users pay cash for virtual currency that allows them to buy new fish and special foods. However, during the summer, Apple banned outside in-app payment mechanisms and required game operators to pay 30 percent to Apple for all in-game purchases. The same game was introduced for the Android market with no marketing and, by October, it was the top-grossing app on Android.

Noted  Virk, “On the iOS market, our guess is that it takes about 50,000 installs to get to the top 25 apps within 2 days. In the Android market, it took longer to see the app move up in the rankings. Our guess is that it takes about a week.” Rankings are important because, as they get lower, new users are less likely to download the app. On iOS, an app currently makes between $2 million and $3 million per month if it can keep the Number One spot for a month.

There also are differences in what users on the different platforms are willing to spend. Gameview found Android users spend about half as much as do iPhone users.

Suli Ali, CEO at TinyCo, said the main trend on monetizing mobile entertainment is moving toward advertising, premium content and the sale of virtual goods. “We are doing very little advertising today,” he admitted. “We believe the market is going ‘freemium’ and, by the end of next year, the top 25 grossing games will all be free.”

In January of this year, 39 percent of the Top 40 games on the iPhone app store were free; by June, that changed to 60 percent.

Ali also pointed out that free games with virtual goods have between 7 times and 10 times as many players as do paid games. Of these, some 3 percent to 5 percent convert to paying for virtual goods and upgrades, generating about $40 over the course of the game. One customer alone generated $16,068.30 in revenue.

This leads to the three most important elements to profitable games: data analytics and testing, treating games as a service and game design. “When it comes to data analysis and testing, we can drive up average revenues per user (ARPU) up over time,” Ali said. “Games as a service describes a process of creating monthly updates with new features and content. This keeps players coming back looking for new things to do.”

Eiji Araki, senior vice president/Social Games at Gree International, talked about how Gree has developed the most successful mobile social games platform in Japan, with an ARPU of $4.76, which translates to 12 times that of Zynga, the most popular American social-game operator. The company now has 150 million users worldwide, with 7,500 games on its platform, after operating social games for only five years.

In the gaming world, there are two types of users – light users and core gamers – and 95 percent of the revenues come from the core gamers. The lighter users tend to invite friends and to play together to achieve objectives. Araki said the three main strategies to make social games a success include user acquisition, engagement and monetization. Gree’s game design focuses on in-game mechanisms to acquire new customers. For example, if you invite a friend to play a particular game, you get $10 in game currency. There also are many in-game events in which you can invite friends to get stronger or to collectively achieve goals faster. Activating communication is the lead mechanism for retention; this means figuring out how to have fewer notifications from the game operator and more from friends.

“In this context, it is important to think about cycles of attention. Players are rewarded for commenting on and responding to comments on each other’s game play and achievements,” Araki concluded. “Engagement is about getting people to continue to play the game for incremental, and then larger, rewards. It includes short-term cycles like catching multiple fish to get a reward and then giving bigger rewards for completing five collections.”

-George Lawton