Going back to the freemium model
Part 4 of 5 — New monetization trends to diversify your games revenue
It may seem strange to be talking about in-app purchases (IAP) in a series on new monetization trends for diversifying mobile games revenue: IAP has been a feature of the Google Play Store since 2011. However, although it’s not a new monetization strategy, we are seeing an increasing number of developers across the globe who have historically focused on ad-based monetization, looking to embrace IAP-based monetization for the first time.
Reasons behind the trend
Based on discussions we had with mobile game developers who have diversified their monetization strategy to include IAP, it is clear that this trend is driven by 3 key factors:
- In spite of popular belief, IAP based games can be developed by small teams and a simple operations infrastructure. In some cases, we’ve seen teams as small as 10 people who are responsible for multi-million dollar IAP titles.
- Generating revenue from IAP relies less on a massive number of installs. Instead, it emphasizes game operations and engagement over new game launches. In a context of ever increasing cost per install this offers developers a chance to shift their focus to more sustainable long-term business KPIs.
- Diversifying with IAP enables developers to take control of their revenue, making them less dependent on other companies (such as ad networks) for revenue. Therefore, with the right tools in place, developers have the flexibility to test and optimize their IAP.
IAP thus offers developers an opportunity for a steep growth trajectory with a relatively small core team, simpler operation infrastructure (as they don’t need to sustain ongoing new game launches), and less dependency on other companies to grow their revenue.
Hybrid business vs. hybrid game
Looking at how developers use IAP monetization strategy to expand their revenue streams, we see two different rising approaches: the first approach is developing a new IAP based game. The second approach is implementing IAP in existing titles, creating hybrid titles with both IAP and ads. In some cases, we see developers who are using the two approaches simultaneously.
To see how these 2 approaches work in practice, we recently spoke to Eren Yanik, Chief Product Officer of Gram Games and Felipe Hayashida, Chief Marketing Officer of Tapps Games. Here is what we found out.
Expanding monetization with IAP-based games — Gram Games
Gram Games is a Turkish based game developer known for Puzzle and Casual games such as 1010! And Bounzy!. Nine out of their ten casual games are ad-monetized. With the launch of Merge Dragons! (in July 2017), Gram Games introduced their first IAP based game. While continuing to grow their ad-based business, the company now generates ~90% of its revenue from IAP. Following the success of Merge Dragons!, Gram Games was acquired by Zynga a year ago with a deal in excess of $250M.
Question: Before jumping ahead to ask how Gram Games managed to launch and sustain a successful IAP based title, we want to understand the reasons behind the initial decision to double down on IAP.
Eren: Ad monetization works well if you are either an early-stage, smaller company, that would like to keep fixed costs low, or for developers who can maximize trial and error by publishing through other studios or rapid prototyping, in a factory-like fashion. However, once the smaller early staged company grows, becomes a mid-sized studio, and hires more senior people, the desire to create and invest in more production heavy games, shifts the focus to IAP. Moreover, we realized in late 2016 that our ad business reached a linear, albeit sustainable, growth trajectory. As a result, we thought we needed to try an IAP game to jump to a different growth curve, as IAP games can yield a more stable and steeper revenue source.
Question: What were the next steps following the decision in late 2016 to develop an IAP based title for the first time? How do you actually start this process?
Eren: Our first action was to decide on the type of genre and mechanics we wanted to try. We reviewed our catalog and concluded that a game based on our second title, Merged!, which uses a merging mechanic as its main gameplay, could work well as the basis for an IAP title. Then the next step was the hire the right team with the fitting experience to work on this. At that point we realized we need to be present in a very attractive location in order to acquire the right talent, and decided to open up an office in London. With the opening of the London office, we managed to hire a core team for our new IAP title that focuses on production (designers, artists and developers) and experience in user acquisition.
One of the most important aspects of building a successful team that can develop and publish a hit IAP title is the team culture and decision making process setups that support an open discussion on more technical topics. We have formed a core team, which took the decisions collectively, rather than the typical hierarchical fashion. For example, in deciding “where” to take the product, we had our core team of designers, developers and product people deciding together, taking the pressure off of one person and make it a more democratized approach.
Question: Having developed successful ads and also IAP based titles such as Merge Dragons!, can you share what are the main differences between the two approaches?
Eren: There are a few significant differences between Ads and IAP based games. First of all making and launching a successful IAP game is more like making a movie, or an actual AAA video game, where certain elements of luck play less part compared to an ad-based hyper casual game that could go viral. But, I’d argue that going viral happens much less today, compared to even a couple years ago. IAP games are more about individual core loops, mechanics you add to the game and how they collectively work together. So all in all, you create a “mini economy” within the game, and the dynamics that individual parameters affect each other influence the actual outcome of the game.
When it came to setting KPIs for Merge Dragons!, the focus was not exclusively on retention metrics but more on the tail data. Whereas in an ad-based game, overall numbers, averages and medians play a role, on an IAP game, “the tail” matters, as they are the majority of your paying player base. You prioritize your most committed, most engaged user base. KPIs such as ARPPU, event engagement metrics, and even purchases at the SKU level are important because minute details that matter to the very core segment of your player base has substantial impact. Therefore it’s harder to effect change, and you need to spend much more time on it.
Diversifying to IAP games also means a more loyal user base, which we can engage with more often. The offers that can be made, CRM campaigns that can be run, and the diversity of segments to work with, means there is more content and features that can be optimized when working on IAP games. As a result, the additional depth we need to create in Merge Dragons! means that the player community plays a bigger part, and involving the players makes the experience more interesting and fun.
Question: What key advice can you give game developers who are looking to diversify revenue with IAP?
Eren: I’d definitely say hire the right talent. IAP game development is not achieved solely by drive and effort; experience and the right talent play a big part. For example, think about the correlation between the in-game currency balance and monetization: this is more likely to be an inverse relationship. The approach to this challenge cannot simply be to create gem sinks, because that risks frustrating players if there is constant gem scarcity. On the other hand, if you have an inflation, the perceived value of gems is reduced. Finding the right balance through data analysis and design expertise is crucial.
Embracing IAP-monetization with hybrid games — Tapps Games
Tapps Games is a Brazilian based game developer. There are over 170 people in the company and they’ve published more than 400 games on Google Play. Founded in 2012, up until 2016 their games were almost completely monetizing with ads. Since the beginning of 2017, Tapps has been transitioning to a more diverse monetization model focusing on increasing IAP revenue, especially with their Bid Wars titles (Bid Wars — Storage Auctions and Pawn Shop Tycoon and Bid Wars: Pawn Empire). As a result, in less than two years Tapps Games saw an increase of more than 200% in IAP revenue.
Question: What were the reasons that pushed you in early 2017 to start and think about IAP revenue in a more strategic way?
Felipe: The move to embrace IAP came from a realization that by being more proactive towards monetization, it would give us more control over our games’ economy, and would enable higher Lifetime Value (LTV) in our games, reinforcing other strategies, such as major paid user acquisition and re-engagement strategies. However, IAP wasn’t an entirely new monetization option for us, we already had IAP in some of our titles, but we hadn’t put effort into the game economies so, IAP was a minor revenue stream. We didn’t want to move 100% away from our tried and true ads strategy, but we did want to expand onto other revenue streams. As a result, we doubled down on IAP in our Bid Wars titles, and decided to include side by side both Ad and IAP monetization.
Question: How did you actually make IAP a larger part of your games? What did you change in order to act upon your decision to focus on IAP in your Hybrid games?
Felipe: The main principal change we made in embracing IAP in our games was to consider the LTV of the user across all phases of their experience in the game. In particular: creating a detailed mapping between sources and sinks, better onboarding for assets (such as power-ups) and game features, and tracking of user interaction and consumption of ads and IAP, and how these matched with the expected user progression.
Tracking the full lifecycle required an increased effort in Analytics and Product capabilities in the company; a key technical enabler here was moving from an uneven analytics solution to using Google Firebase, which gave us more flexibility and sped up our processes. We also created a much stronger Data Engineering team, to guarantee that all data was properly processed both from our analytics and external partners.
While the technical change was straight forward, the hardest part of the change was altering the product and game design mindset: going from an erratic approach to tracking data that meant something. A core part of this mindset change was creating proper data visualization for each stakeholder, as not everyone wants to see the data in the same way. We ended up creating specific views all the way from executives, who see high-level growth data, through product, who see detailed product growth and deep dives into retention metrics and distribution, to game design, who look at deep gameplay behavior.
We also enhanced Data education of the team with in-house lectures on the topic, and by making sure that the BI and Product teams were working better and more closely together. Although all of these are useful, regardless of monetization model, they were mandatory to do the proper transition into deeper products.
Question: What key advice can you give game developers who are looking to diversify revenue by including IAP alongside Ads in their games?
Felipe: You need to think of IAP as more than just adding paywalls, which will just increase player frustration. Rather, think of the IAP offerings as part of the core game loop, not a side effect. The experiences of differently engaged users will vary more than with ads only monetization, and your product will have to be interesting for both sides of the spectrum. It is important to build games in which IAP are rewarding to the user so that purchases feel like a desirable option rather than something they must do. This means creating products that enhance gameplay; some classic examples that Tapps uses are expert modes in Puzzle games for the deeply in-franchised players; hurry ups, to reduce grind without killing gameplay; and regular cosmetic endorsements, which can improve social and commitment factors without requiring major gameplay changes.
I believe that the power of promotion and timely offers shouldn’t be disregarded: there is no point having the best IAP if you don’t showcase them to players. For us, promotion and placements have some of the larger impacts on results. Offering bundles at timely points, such as at the beginning of the game, and as a retention tool for, has proved to be a very simple yet fruitful. Because of this, we’re moving into more advanced offerings, using smart segmentations and CRM solutions.
As a result of moving to games monetized by IAP, Tapps Games has more deeply engaged users who are more committed to the game, which has enabled them to increase its marketing efforts. They also have a more controllable revenue stream (compared to ads, which are influenced significantly by external factors) and, in particular, more resilience against market shifts and seasonality.
Is IAP right for you?
If you are developing games that primarily relies on ad monetization, then a move to diversify your revenue streams with IAP monetization may be worth considering. This is especially relevant if you have found revenue growth plateauing, or have become frustrated by fluctuations and limited control on your ad revenue.
Whether you look to expand your portfolio by launching new IAP based games for the first time, or by implementing IAP in your ads based titles and creating a hybrid monetization strategy, the decision depends on the investment you wish to make. As Eren and Felipe mentioned, there are different things you may consider, such as hiring experienced employees, investing in analytics capabilities and building the right cultural mindset for IAP.
At Google Play, we came up with a simple framework that can help guide you when approaching IAP for the first time:
- Think about the game design and economy early, because it is part of the core gameplay loop and will have significant influence on the success of the game.
- Consider how to convert users to payers. Look for ways to offer something valuable to your users and emphasize the value for money perception of your offerings.
- Lastly, treat the game as a service, and not as a one-time launch event. Use LiveOps to retain your users and encourage repeat purchase events.
What do you think?
Do you have thoughts on the freemium model for monetization? Let us know in the comments below or tweet using #AskPlayDev and we’ll reply from @GooglePlayDev, where we regularly share news and tips on how to be successful on Google Play.