Rethinking your game monetization strategy

New monetization trends to diversify your games revenue — Post 1 of 5

As a Games Business Development Manager at Google Play, I work closely with developers in Israel & Turkey, and speak to many developers at events, workshops and partners I work directly with to try to help their games businesses on our platform. Almost every game developer I talk to wants to know how to make more money, because the more money they make, the more they can invest in their passion for developing mobile games.

Over a series of several Medium posts, in which I’m going to be joined by my colleagues, Moonlit Bashimov, Serena Shih and Daniel Trocoli, we are going to look into a rising strategy for growing a mobile gaming business — revenue diversification.

In this first post, I’m going to introduce you to the idea of revenue diversification and provide an overview of three key monetization approaches that are emerging as part of diversification strategies adopted by games developers around the world such as Gram Games, Kongregate, Tapps Games, N3TWORK and more.

The game genre approach

The game genre model of monetization

The mobile gaming industry has historically been driven by a model where game genre has been the primary determiner of a game’s monetization strategy. Where engagement and play skill levels are usually low, like in the hyper-casual genre, monetization is focused on ads. As the level of engagement and skill grows, such as in the simulation and casual genres, often a hybrid monetization strategy of ads and in-app purchases (IAP) implemented together is used. When higher levels of engagement and skills are involved, such as in role-playing and strategy games, the focus is mainly on monetization through IAP.

But, is this approach built on sound assumptions or should we rethink it? Does it make sense to focus on one monetization strategy?

Why diversification?

Diversification in business and investment isn’t a new idea. More than 400 years ago, in Shakespeare’s “The Merchant of Venice” the character Antonio, talking about his fortune, says: “I thank my fortune for it — my ventures are not in one bottom trusted, nor to one place, nor is my whole estate upon the fortune of this present year.”

Centuries later, Nobel Prize winning economist Harry Markowitz said he “would never be 100% in stocks or 100% in bonds or cash.” His work on Modern Portfolio Theory (MPT) offers a contemporary view on diversification — the main idea of MPT is that owning diverse financial assets is less risky than owning only one financial asset type.

Based on this idea, revenue diversification in mobile games can reduce the exposure to one monetization type. It can help limit, for example, the negative effect of a regulatory or unexpected change related to one monetization type on the whole business. Moreover, using different monetization strategies in order to diversify revenue streams can unlock new ways to monetize a larger portion of your user base. This ultimately offers users a wider range of ‘ways to pay’ in a game.

The importance of monetizing a larger portion of the audience is also very clear from our own data at Google Play. The team at Google Play is constantly exploring the metrics to see what insights they offer into the business of apps and games.

Just recently, our team discovered something interesting when they were looking at buyer reactivation rates (the rate at which churned buyers could be enticed to return) compared to the percentage of revenue a game made from its top 5% buyers.

What our data shows is a clear correlation between the two things. At the bottom right corner, there are games that generate a higher proportion of their revenue from their top spenders but these games are less likely to get their churned buyers back; while at the top left corner (star sign) — games that are reactivating more churned buyers are less dependent on their top spenders.

This correlation shows that $1 each out of 100 players is more sustainable than trying to earn $100 from one high-value user. Thus, unlocking new ways to monetize more users is crucial for the sustainability of a game.

New ways of playing the (monetization) game

So, what are the tools available to diversify revenue in your game? I am going to introduce three monetization trends to drive diversification, each of which will be discussed in more detail over the course of the next three posts.

1. Subscriptions

In the games world subscriptions have traditionally been the domain of PC and console games, while on mobile they have been used primarily for content and tools based apps. But in the past two years we see an increasing number of game developers who are experimenting with subscriptions and are using this strategy on top of their in-app purchases, to offer a premium experience for users. With more than 70% year-on-year growth of subscribers in games on Google Play, players are reacting positively to subscriptions.

Developers who are already using subscriptions have reported different benefits. XFLAG (Mixi) reports that subscribed users in their game, Monster Strike, play 20% more on a daily basis, compared to before they subscribed. Scopely reports that due to the retention associated with monthly subscriptions, subscribers have much steeper Average Revenue Per User (ARPU) curves than non-subscribers, which leads to a much higher overall LTVs for these players.

While this approach can lead to an uplift in engagement and monetization metrics, it also guides the users for a more sustainable consumption pattern and healthier long-term behaviors. With subscriptions game developers can help players control impulses that may cause buyer’s remorse (sense of regret after having made a purchase), which can lead to churn. Through this process of smoothing consumption, it is possible to keep buyers engaged and continue to derive value from the game over a longer period of time.

We will dig deeper into subscriptions in gaming in the second post of the series with a case study from N3TWORK.

2. Rewarded ads

While rewarded ads have been around for several years, internal research by the Google AdMob team discovered that developers who have previously relied heavily on in-app purchases, with little or no reliance on ads, are starting to rethink their monetization strategy and are implementing rewarded ads. The result is that more hybrid games, with both in-app purchases and rewarded ads, have been emerging in the industry in the past year.

There are several reasons for using rewarded ads:

• It can help monetize non-paying users by giving users the option to choose the currency they would like to pay with: either their time (watching a rewarded ad) or their money (by paying for an in-app purchase).
• They can also help boost user retention and playtime of payers and non-payers by encouraging users to come back to the game more frequently and play longer sessions.
• They are a strong predictor of in-app purchase conversion.

This last point may seem somewhat surprising, however, this is something that Kongregate discovered recently in their games and shared with us. New users, who watch a rewarded ad in their first ever session in the game, are more likely to make an in-app purchase. In fact, Kongregate reported an impressive increase of between 250%-500% for in-app purchase conversion from these players.

“Rewarded video engagement is a clear signal that a player understands the value of virtual goods. Ad views, then, are a correlate with IAP conversion”. Tammy Levy, VP of Insights and Analytics Kongregate

3. In-app purchases

As with rewarded ads, in-app purchases is not a new monetization strategy per se. However, in the past two years we’ve seen an increasing number of developers across regions who are shifting their focus from an ads only monetization strategy to include also in-app purchases (IAP). These developers are experimenting with in-app purchases in their titles or developing new IAP based games for the first time.

For example, Tapps Games, a Brazilian company who is known for hyper-casual games, decided to focus on IAP in their title Bid Wars, an auction strategy game. In less than 2 years they reported an increase of more than 200% in in-app purchase revenue.

“Working with the Google Play team on IAP has been extremely beneficial for our business. IAP is now an integral part of our monetization strategy.” Felipe Hayashida, CMO, Tapps Games

As with the previous two trends, developers are looking to diversify revenue streams by focusing on in-app purchases for several reasons:

• IAP based games can be developed by small teams and require a simple operations infrastructure. I’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, and emphasizes game operations and engagement over new game launches. This offers a focus on 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.

Definitely not the final word!

The monetization landscape for games is changing. It’s no longer the case that the type of game dictates the type of monetization; the game is now about diversification. By exploring other options for revenue generation, developers can have steeper revenue curves while also achieving greater stability in their revenue streams. I challenge you to have a deep discussion with your team and ask this simple question: is the current status quo you have in your company the best strategy?

What do you think?

Do you have thoughts on revenue diversification? 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.