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February 28 2012 Posted by: Mark Fidelman in: Mobile

Why 99.9% of All Mobile Games are Not Profitable: The 6 Things Mobile Game Developers Must Do to Survive

Our minds are strongly biased towards causal explanations and they do not deal well with statistics.

How else can you explain why mobile game developers continue to create games for an App Store market with 100,000 games already flooding it? Incredibly, there are 104 games per day that are being released into Apple’s App Store with no signs of slow down.

The cause seems to be the digital bait sold in digital App Stores temptingly promoted by Apple, Google and Amazon. Judging by the headlines, one could easily conclude that vast vistas of new commerce for hundreds of thousands (eventually millions) of independent game and application developers have opened up with un-ending wealth creation opportunities for all the players in this new commercial eco-system.

But are mobile game developers making any money off of their games? The dirty little secret is, in fact, they are not. “Profitability is elusive for the vast majority of developers. Unless you are part of the anointed few that Apple selects to push heavily in the App Store, revenue is hard to come by,” Jason Seldon of Eye Interactive and P4RC (pronounced ‘Park’) points out.

venn diagram mobile game developer profits

(Click to enlarge the Venn Diagram on Google, Amazon and Apple)

A few like Rovio are of course making money. But as Don Dodge explains, even fewer people know that Rovio had to fail 51 times before their “overnight success” in Angry Birds. That’s a lot of money lost before finally finding a profitable winner.

So why are mobile game developers continuing to make mobile games?

Because the irrational tail is wagging the emotional dog. In other words, developers are ignoring the statistics while being caught up in the emotional frenzy and madness of the game developer crowd.

The ability of our minds to deal with the immense amount of positive information around mobile game revenue is hard to ignore. But game developers are imagining the numerator – the untold riches and fame, and not thinking about the denominator – the large number of games they are competing against.

And this is only part of the problem.

Jas Dhillon of Pivotal Ventures and an investor in P4RC put it to me this way, “The paid download model is on its way to oblivion. Apps sold for anything more than $0.99 are often deemed over-priced and the consumer willingness to pay even $0.99 is becoming questionable. Other than those select few games pushed heavily by Apple, paid games receive very few downloads relative to free games with most paid games receiving well below 100 downloads per day.”

This has led to the growth of freemium games with in-app purchases, which allows developers to generate a much larger number of free downloads with an expectation that some relatively small percentage of these downloads will result in a purchase. While some developers have been very successful with the in-app purchase model, such success stories seem to be the exception to the norm. Getting the game balance just right to maximize in-app purchases is no easy feat for any developer.

But even for the successful developers, the backlash against in-app purchases is growing. As one reads the user reviews for freemium games with in-app purchases, there is a consistent theme of user dissatisfaction when confronted with in-app purchases.

Confirming this trend, Mark Beccue, ABI Research senior analyst predicts: “As a revenue model, in-app purchase is very limited today. The vast majority of current in-app revenue is being generated by a tiny percentage of people who are highly-committed mobile game players. We don’t believe the percentage of mobile game players making in-app purchases will grow significantly.”

So the consumer mindset has moved to one of entitlement and anger with the belief that games and anything in them should be free.

The Six Things Mobile Game Developers (MGDs) Must Do to Survive

There’s a reason why consumers feel both entitled and upset. Imagine watching a TV show where you had to buy credits for better voice quality, use a credit card to unlock supporting actors or change the channel to see the ending. Would this imaginary situation be tenable in anyone’s living room today? Never, because people have been trained to accept passive commercial interruptions but not accept obtrusive requests.

For developers, the situation is increasingly dire because the amount of games vying for consumer attention is escalating at an alarming rate. But there are some options left. Options that people have accepted for several decades.

Here are six specific actions that mobile game developers must do to stay viable:

1. Deliver Relevant Advertising: While in-app purchases and paying for games is on the decline, advertising is a tried and true model. MGDs need to deliver relevant and targeted advertising to the consumer playing their games in order to maximize the return to the Brand Advertiser.

2. Increase the Ad-Impressions Delivered: MGDs need to maximize the number of display impressions without adversely impacting the quality of the game experience. This requires both analytics and A/B testing, but if done correctly will significantly increase the MGD’s revenue yield.

3. Maximizing Time Spent Viewing Advertisements: Since the mobile game revenue business model is going to move more towards advertising, MGDs need to develop strategies to maximize the time spent by consumers in viewing displayed advertisements while maintaining a positive game experience. I cover this specific strategy below.

4. Improve Consumer Time Spent In-Game: MGDs must maximize the time consumers spend playing a game and do it on a consistent basis. When designing the mobile game of the future, the primary goal for MGDs must be to increase the time consumers spend in-game.

5. Increasing Repeat Play: The buy-it-once, play-it-once model is dead. MGDs must develop games that get consumers to return to play over and over again. Again this is about maximizing the time spent in-game, but do it by creating reasons to return the game over time.

6. Ensuring a Positive Game Experience while Minimizing Disruptions: MGDs must invent new, non-intrusive methods for inserting in-game advertising in such a way that it does not interrupt the gaming experience. Not finding the right balance will trigger consumers to quickly leave the game and to warn their social network of their negative experience.

As advertising becomes the dominant model, the way games are made will need to evolve. Currently, the average iPhone user spends 14.7 hours per month playing games. So there is a lot of time available to serve ads. The key is keeping the gamers in your game for longer instead of letting them move on to someone else’s game.

How do MGDs increase the time consumers spend in-game?

One option is from a company called P4RC.

P4RC is a social engagement platform that rewards players with real world prizes for playing mobile games. This is done with a point system that awards points to players based on their gaming skill, and then they can spend these points in an in-app marketplace. Think of it as adding a skee-ball ticket system into mobile games.

According to Seldon, “Since winning a prize generally takes about 90 minutes of gameplay, P4RC can create a 3x increase in gaming duration vs. the 30 minute daily average time spent gaming by the average iPhone owner. So in a world in which mobile advertising is the key to success, P4RC could essentially triple a developer’s revenue.”

And since points can be earned across any games in the P4RC rewards network, developers that include P4RC in their games may benefit from incremental downloads as consumers seek to discover new games with the P4RC system inside. Best of all according to Seldon, “Listing your game in P4RC’s game discovery module is free for developers that put P4RC in their games.”

Another option is a soon to be released solution from Session MCEO Lars Albright won’t elaborate, but the company appears to building a solution that simultaneously creates more customer loyalty while keeping consumers engaged in-app for longer. Session M is founded by a team of ex-apple employees.

To Summarize

Until the mobile game frenzy returns to a more rational situation, it won’t provide what the MGDs need to be profitable. So it’s really an adapt or die situation for MGDs and the smart ones will learn how to thrive by innovating around the trends in consumer behavior.

Another alternative is for the App-Store platform providers to become more responsible for MGD profitability by sharing in the risk. Yet to them, MGDs are just sources of unwanted babble, noise, and grievances, with the occasional Rovio cowbell in the background. But while the App Stores are demanding more cowbell, they are ignoring the rest of the group.

That’s not a sustainable plan for anyone.

 

As always, please read through my disclosures

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