From premium to freemium to hyper-casual and beyond
The launch of the App Store in 2008 was as revolutionary for the gaming world as iTunes was for the music industry. With the click of a button, consumers could suddenly download a new game in seconds.
At its start, there were only 500 apps total on the App Store, generating more than $1M in revenue every day from paid apps in the store’s first month. Fast forward 10 years to 2018, over 1.1M new games launched on iOS and the global app store consumer spend reached $101B, with games accounting for 74% of that spend.
So how have mobile games become such a lucrative industry? As games have shifted from premium apps to free-to-play (F2P), alternative revenue routes have developed such as in-app purchases and advertising.
The premium beginnings
If you were one of the first App Store users, you may remember the famous Tap Tap Revenge, a free game in which players keep up with popular songs by tapping the right spots on the phone screen. After gaining over 3M downloads, Apple named it the 2008 most popular free iPhone game of the year. It was rather difficult, however, to raise substantial revenue as in-app purchases weren’t available yet on the App Store. The game’s success led Tapulous to create premium versions for $4.99 each, targeting fans of specific artists or music genres. By 2009, there were 100,000 customers who had paid for premium versions of the game.
In 2008, Sega’s Super Monkey Ball was also one of the most popular games on the App Store. The game sold 300,000 downloads in its first 20 days on sale, priced at $9.99. While that price may seem high in today’s freemium-dominated world, paid apps at that price point were common at the birth of the App Store. Within a year, however, the game’s price had lowered to $3.99 in order to stay competitive with the mobile market’s sinking prices. The race to the bottom had already begun. By 2012, the game cost $0.99.
Premium becomes freemium
Mobile game developers quickly realized consumers’ unwillingness to pay for apps. Even a $0.99 price significantly impacted an app’s demand. In 2009, Apple enabled in-app purchases for free apps, adding a new monetization route for F2P games.
F2P allowed for a wider audience as casual gamers could download a game to try without any risk. This mass appeal concept meant sacrificing price for more downloads. Even the most popular premium games quickly felt pressure to turn to freemium. According to TechCrunch, 80-84% of iOS apps were free between 2010 and 2012, but by 2013, 90% of apps were free.
Despite the instant success of the well-known Angry Birds’ release in December 2009 as a premium app priced at $0.99, the game had changed to freemium by 2011. In 2010, it reached the #1 spot on the paid apps chart in the US App Store, holding the coveted spot for 275 days. Although revenue estimates reached $10M that year, Rovio made Angry Birds free in August 2011.
Even the infamous Temple Run of 2011 began as a premium app, selling at $0.99, but quickly turned to F2P. Temple Run lasted only one month on the market as a paid app before becoming free. App revenue immediately went up 10x upon switching to a freemium model. Less than 6 months later, by January 2012, Temple Run was the #1 top grossing app, generating significant revenue through a focus on IAPs.
IAPs: Freemium hunts whales for survival
Unlike Temple Run and Angry Birds which started as premium and turned freemium, Candy Crush crashed the App Store party in 2012 as a F2P game with IAPs from the start. In just one year, Candy Crush became the highest grossing mobile app, making about $1M per day worldwide from consumers. The game generates high revenue by offering committed players the chance to buy boosters that help to pass difficult levels.
While IAPs proved successful, this monetization method was completely dependent on whales, the minority of players willing to purchase these in-game microtransactions. In 2014, a report from Swrve found that only 2.2% of F2P users ever spend money. Many successful mobile games were relying on a very small and shaky fan group for the majority of their revenue.
In 2016, Apple began to encourage developers to explore the subscription model by allowing all categories to sell subscriptions in the App Store (before only certain categories could offer subscriptions such as news and streaming apps.) In this monetization method, games were often technically F2P but players could only fully participate if they paid the monthly (or sometimes yearly) cost.
Ad monetization: Freemium starts fishing
Hungry for more stable monetization methods, publishers starting shifting their focus to ads. Rather than hunting for whales, the new goal was to cast a large net in the mobile sea: target everyone rather than the few willing to spend. The net, better known as in-app advertising, allowed publishers to monetize the majority rather than the minority of its user base.
Originally, publishers were nervous to lean on in-app advertising, worrying that they would need to choose between monetizing with ads or prioritizing user experience. They also feared ads would negatively impact IAPs.
In 2014, as in-app advertising grew, so did the number of creative ad formats. Much to publishers’ surprise, ads carefully customized to the game interface proved to be immensely successful - improving both user experience and IAPs in many cases. For example, interactive formats such as opt-in offerwalls, playable ads, and rewarded videos were advantageous for everyone involved.
Gamers who engage with rewarded ads are up to 6x more likely to make an IAP - positive news for publishers. For marketers, it’s also a great option as players who see rewarded videos are 23% more likely to buy the products advertised. And what about the gamers themselves? 73% of gamers indicated that they are happy with the ad monetization model of mobile games. It’s a win-win-win.
Mobile game publishers who realized the potential of in-app advertising, such as Ketchapp Games, were quick to become big shot fishermen. Ketchapp Games, founded in 2014, was the 5th largest iPhone apps publisher in the US by downloads by the end of 2015.
The company’s strategy? Their income depended almost entirely on advertising. The goal was to create games that appeal to a casual audience, acquire as many users as possible, and promote new games through ads within the company’s already successful games. In other words, the hyper-casual genre had begun.
Hyper-casual: ‘Snackable’ games fed to the fish
As the growth of F2P games encouraged more casual players to join the mobile gaming scene, hyper-casual games have become an almost overnight success. With a 3.5x growth rate in the share of gaming app installs this past year, hyper-casual games are quickly succeeding.
Hyper-casual games are known as simple, “snackable” games - perfect for today’s typical mobile gamer as users reported the most common time to play is while multitasking at home. This image of the 2019 gamer has lead to a need for low-commitment entertainment that users can enjoy in short intervals.
The birth of this genre has led to a new kind of focus on in-app ad monetization. Within the hyper-casual market, there’s a near 100 split favoring ad monetization versus IAPs. In fact, hyper-casual users watch 2x more video ads on average than players in other gaming categories, according to an ironSource study reported by VentureBeat.
In 2018, 3-4 of the top 5 games downloads in the US, UK, Germany, France, and Canada were hyper-casual. Helix Jump earned the number one spot across multiple countries; the famous hyper-casual game was released in February 2018 and had 25.6M daily players by Q4.
Multiplayer cross-platform: the extra bait
So what else made it to the top 5 games downloads last year? Multiplayer cross-platform games such as PUBG Mobile and Fortnite.
Cross-platform games float somewhere on the opposite side of the mobile gaming sea from hyper-casual. These games tend to attract mid-core to hard-core gamers who become loyal fans. The genre allows mobile players to connect with the gaming community at-large as they can engage with users who are loyal to certain devices such as PS4 or Xbox One.
Unlike hyper-casual, the multiplayer cross-platform category focuses on monetizing through IAPs as there are few appropriate intermission points for ads in a live game. The ‘Battle Pass’ monetization model, consisting of seasonal offerings that unlock rewards and items such as new cosmetics, has proven particularly successful. These games, therefore, hope to attract committed followers rather than multitasking gamers. Is this a return to the whale hunting method? Perhaps.
The live multiplayer feature of cross-platform, however, attracts a large crowd as it provides a unique social component to mobile gaming. Considering social and communications apps account for 50% of the time users spent globally in apps in 2018, cross-platform games have the extra bait to reel in those fish: social messaging.
In fact, PUBG Mobile was recently announced as the highest-grossing mobile game, with more than $146M in revenue in May 2019. But it’s free, with IAPs of course. The live multiplayer feature helps to knock down cross-platform obstacles, adding to the game’s allure.
The future of fishing for gamers
App Annie predicts mobile gaming to reach 60% market share in consumer spend in 2019, largely thanks to the growth in both hyper-casual and cross-platform gaming. It seems potential alternative revenue models are already on the way though with the up-and-coming subscription-based monetization platforms.
In March, Apple announced the ambitious Apple Arcade, a game subscription service for mobile, desktop, and more. As an all-you-can-play platform with no ads or additional purchases, Apple Arcade may be the new Netflix of the mobile gaming world.
Until the platform launches in fall 2019, however, it seems hyper-casual and cross-platform games will continue to lead the way as developers race to catch as many fish as possible in the ever-expanding mobile gaming sea.