Last year, mobile accounted for a staggering $41b of the total $91b generated by the entire games industry. Taking this huge hike in revenues into account, you’d assume that mobile game developers had game monetization well and truly locked down, yet for the majority effective monetization remains as complex and elusive as ever.
When it comes to monetization, developers’ obsession with retention typically leads them to attempt to overly protect the player experience, often at the detriment of strong monetization.
Evidence that developers were failing to optimise monetization was apparent in our In-game Advertising Study 2016, which found most (52%) developers were unsure how best to integrate ads within their highest grossing F2P games.
As a result, many take a low ad frequency approach thinking players will appreciate it, but in truth, ad frequency and retention aren’t linked. As a result, developers are just leaving a ton of potential ad cash on the table.
We also know that developers are being overly cautious with in-app purchases (IAP), pricing them too low to keep players engaged. So in 2017, the monetization challenges facing developers all centre around making IAPs and ads work more effectively. Here’s how:
Making IAP work
The key challenge to achieving a successfully monetized game from an IAP perspective is to reach an ARPDAU (average revenue per daily active user) of 10c, which conveniently equates to about $1 LTV (lifetime value). Fewer than 30% of games actually manage to achieve this.
Looking at the successful games within the deltaDNA platform, we can see several approaches that are taken by them, that aren’t being replicated by those performing less well.
Within a game, there is a very inelastic relationship between price and demand. It’s obvious when you think about, each game is a monopoly, there’s no competition, so games that charge twice as much, tend to make roughly twice as much money. The minimum price point used by games that are successful, with 10c+ ARPDAU is $2.
Games can be too generous. You need a D7 retention rate of at least 10%, with 10% of these players being payers. If you are failing to meet these metrics, then it could be that you are giving too much away.
Unsuccessful games don’t have enough repeat spending. When fewer than 2% of all players spend any money, it can become the all-consuming focus to get them to spend something, anything, but successful games develop a spending cycle within the game loop. Games that achieve 10c+ ARPDAU have an average of at least three spends per paying player, and preferably more.
You also need to have a minimum of 5% of spenders being Whales. Whales are defined as players who pay more than $100/month. Only 16% of games achieve all these measures.
Making in-game ads work
With fewer than 2% of players spending money on in-app purchases (IAP), ads represent the logical choice for developers looking to monetize the remaining player base. However, ad monetization isn’t working for most games as the majority of developers don’t have the technology to enable them to integrate performance data from the ad networks with player behaviour analytics, so they have no idea how ads impact player enjoyment.
Therefore, in a bid to protect retention, most developers take an ultra-cautious approach to setting ad frequency. However, recent research from the University of San Francisco shows that ad frequency actually has no effect on retention. While ads don’t affect retention, showing some ads can still be worse than showing no ads at all, because advertising can cannibalize hard won IAP revenues:
So, the situation is that unless they’ve taken steps to manage IAP cannibalization, many developers are losing money, some up to 75% or more of their IAP revenue by running ads, compared to not running them.
The prevailing approach to advertising as a bolt-on isn’t working, but to unlock its potential, developers need to take back control of their entire in-game data, and treat it just like any other game mechanic.
Ad set-up isn’t the only problem, developers also lose money by not optimizing their ad network mediation. The challenge here is in cascading, so that the highest eCPM (effective cost per mille) ad is served to each player. Sophistication employed in the industry ranges from a single network, to a static cascade of networks to optimize fill-rate. Further sophistication involves actively managing the cascade, so that the best performing ad networks are regularly placed at the top of the stack, but as there is such a wide diversity between ad network performance in different situations, the ideal scenario is allocating a cascade to each player based on their territory and device.
The big monetization problem most developers still face is their inability to analyse how different elements of monetization impact the player experience. The natural tendency is to be cautious and overly generous. But the harsh reality is that caution and generosity doesn’t pay the bills. You can have sub-standard monetization in a good game, but you can’t have successful monetization in a sub-standard game, so you might as well go for it!
If you liked this you may be interested in ‘Top mobile games industry trends for 2017’.