*This post has been edited to include more recent information regarding lootboxes.
When you hear the word whale, what is the first thing that pops into your mind? For most people, it’s probably actual whales, as in the animals. If you speak to ad monetization and user acquisition networks though, the term whale means something else entirely. Recently, I attended a panel that had representatives from Tapinator, PCH, Playhaven and Puzzle Social discuss this very topic of freemium games and the best ways to monetize a mobile game. They made reference to “whales” and ways to attract, retain and basically generate revenue from these people. So what does this term mean? Essentially, these are a very small percentage of players that will end up spending hundreds if not thousands of dollars making in app purchases (IAP) in your game. In fact, 0.15% of mobile gamers make up 50% of all in-game revenue. In essence, if you can lure these big spenders to your game, you have already secured a fairly steady income stream for your company.
South Park covers the topic of freemium games and micro-transaction perfectly in the episode “Freemium Isn’t Free.” If you haven’t seen it you can watch the clip below:
Of course since only 3 percent of mobile gamers will ever make in-app purchases, you need to find other ways to generate revenue, mainly via ads. There are a plethora of options such as banner (AKA french fry) ads, interstitials and videos. The trick, of course, is to include ads without taking away from the gameplay. One of the best examples of this is Bitcoin Billionaire that would reward players with double currency or additional rewards for watching videos or allowing banners in the game for a minute.
During the panel, the discussion revolved around cost of user acquisition (UA), which is apparently ridiculously high and often not worth it in the long run. These IAPs and ads can help offset these costs but often it doesn’t, especially for smaller developers. It seems that the only hope for smaller developers in terms of distribution is to somehow get featured in the various app stores, spend money on social media and basically “pray to the kitten god for luck.”
And for those with premium apps, they pretty much say forget it. At the end of the day, all of the panelists firmly believed that F2P was the only viable option in the mobile world and premium apps would ultimately go the way of the Dodo. After all, as the panelist from Puzzle Social pointed out, why would anyone pay for a game if they don’t know how good it will be (you know except for all those PC and console gamers). As much as I want to disagree, the truth is freemium games are making the most money. Even well received games like Monument Valley “only” made $8 million total on a game that cost them $800,000 to produce. Compare that to King.com that makes around $970,000 per day on Candy Crush alone and it seems like a cut and dry case.
Added as of 11/30/2017
This isn’t limited to mobile or freemium games. Even paid games are including IAPs. As of 2017, many large developers are buying into the microtransaction sector with the introduction of lootboxes. Some companies use lootboxes for purely cosmetic items like Blizzard with their popular Overwatch game. Others lock weapons and other upgrades behind lootboxes. The issue that has come up recently is the very random nature of these boxes equates to a form of gambling. While players can earn these boxes through playing the game, often it takes several hours to earn enough currency for one box. And, because you cannot see what is in the box, you aren’t guaranteed the skin or weapon you want. Naturally, you can also spend real money to purchase lootboxes, but again, you are not guaranteed the specific item you want. EA’s lootbox system with BattleFront II has brought this system to the forefront to the point where Belgium has denounced lootboxes as gambling.
While I don’t begrudge developers hard-earned money, the combination of developers racing to the bottom and forced paywalls/micro-transaction loop is getting to a point where it seems to really be turning a lot of people away from mobile games. Many consumers have dropped games immediately after the paywall and even many tech journalists are offering poor reviews to otherwise good apps due to the sneaky use of IAPs.
Sadly, the issue doesn’t lie only with developers. Consumers are also to blame as free apps account for a whopping 90% of all app downloads. Since no one is paying for apps anymore, developers have no choice but to follow the freemium route in order to pay for their staff, bills and other business expenses. Still, despite hearing from the experts that freemium is the only way to go nowadays, I can’t help but wonder how sustainable that model is. How long before mobile users get tired of being stuck behind a paywall to progress in the game or having to watch ads in order to earn in-game currency? How long before the well of these whales dry up? Do you have thoughts on this matter? Write them in the comments below.