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Make no mistake about it. Mobile games are making a lot of money. Even unlikely players like Kim Kardashian are making a reported $200+ million from video games. There is a real opportunity for brands to build an entirely new and potentially lucrative brand experience with video games. As you might have guessed, we are big fans and advocates of this approach. At the same time, you should plan for the difficult realities for developing a successful mobile game.

The money is there, but it’s hard to make. In a freemium world, revenue can come from ad views or from in-app purchases. We’ll talk about flat rate pricing another time.

If you plan to monetize your game via ad revenue, here are some of the figures you should keep in mind, courtesy of theHouston Chronicle and a Stanford Venture Lab presentation:

  • Out of 100,000 users who install your app, 90 percent will delete it in five minutes or less.
  • Of the 10,000 people that keep your app, 80 percent of them will have an internet connection, leaving 8000 active users that can actually receive ad.
  • For the record, a retained user will use your app on average for 10 minutes a day over 21 days.
  • Between the number of ad impressions you generate from the users you retain as well as from the users you lose, you can expect to average about 41 ad impressions per download. This means you will make 12 cents per user.
  • So, out of 100,000 downloads, you can expect to generate $12,240.

Ouch.

Admittedly, there are dozens of methods for estimating the potential ad revenue from an app, so depending on the formula and references you use, the final number might vary. At the end of the day though, the profit you generate from 100,000 downloads is likely much smaller than you’d expect. After all, 100,000 downloads is pretty good in a space as competitive as mobile gaming. Even if you doubled the estimate above, the return is still unimpressive considering the immensity of effort it takes to actually launch a game.

If you plan to monetize your game via in-app purchases, you’re not alone. Forbes estimates that in-app purchases have the highest potential for profit, representing 76 percent of Apple App Store revenue.

Research on this revenue channel is a bit harder to come by, especially since app developers can handle in-app purchases in many different ways and offer them at many different price points, unlike ads which tend to be delivered in similar ways. We do have some data though. Here’s how it breaks down:

  • A survey from App Annie found that if 5 percent of active users will make an in-app purchase.
  • As a reminder, 8,000 out of 100,000 users will become active users.
  • Founderspace estimates that the average in-app purchase is under $10. If we’re talking about video games, that in-app purchase is probably $0.99.
  • Now here we make a bit of a leap for the sake of conversion: let’s assume that these users are so engaged that they make 3 in-app purchases over the lifetime of the app.
  • At $2.97 per user, you can expect to generate (at best) $23,760 for every 100,000 downloads your game receives.

That’s better than the ads, yes, but not by much. Even if we fudge the data upwards by 300 percent, the potential revenue is still not that impressive.

All of this might sound like reasons for you to abandon app or mobile game development completely, but that is not what you should take away from this analysis at all. Since we’re dealing with averages here, these numbers are significantly influenced by the vast majority of products that were poorly planned, poorly marketed, and poorly executed. If you dip your toe into mobile waters, make sure that you:

  • Double-down on engagement rather than on chasing huge user numbers. The freemium model hinges upon an experience that grips users immediately and holds their attention for the long term. If end-to-end engagement isn’t part of the strategy discussion, you are heading for trouble.
  • Know your audience inside and out. If you want the experience of your game to stick, you should intimately understand what makes your target user tick so that you can develop a product that resonates. Unless you have a Clash of Clans ad budget, this is the safest route to take.
  • Plan your marketing in multiple phases that play out of a longer period. If you want your engagement to last, your communications strategy should account for multiple layers of promotion that not only makes a big splash but keeps your game top-of-mind for prospects and active players.

Your game can make money, but you should know what you’re getting into and plan accordingly.

This article originally written for Synersteel Studio.