Podcast
Breaking down the Growth Loop Part 2: Monetizing F2P Games

In the third episode of LevelUp’s Growth Loop mini-series, ironSource’s VP Growth Yevgeny Peres walks us through Stage 2 of the Growth Loop: Monetization. Yevgeny explains to us that the Growth Loop is just as valuable for IAP-based games as ad-based games, outlines best practices for setting up rewarded video and interstitials, and discusses key metrics all monetization managers should keep track of. 

Make sure you listen to episodes one and two before diving into this one. Read the edited highlights below.

The end goal of monetization

“The main goal for both stages 2 and 3 of the Growth Loop is maximizing LTV, or something more feasible, D30 ARPU - or how much revenue a single user generates in their first 30 days. But it can’t be a week over week comparison, because the users who come in are different. You have to A/B test according to who your users are. 

Additional metrics to look at are retention, number of sessions, session length, and ARPDAU. If ARPDAU going up or down, it doesn’t necessarily mean LTV is going up or down. For example, ARPDAU going down can also create a situation where LTV goes up - fewer ads may mean higher retention and so higher LTV but lower revenue.”

The Growth Loop and IAP games

“It’s definitely easier to apply the Growth Loop to ad-based games, but it's just as impactful for IAP-based games. At the end of the day, the stages dealing with the product itself (2 and 3), are the stages where you improve and optimize the game. The decisions you make still rely on the users that came in yesterday or 30 days ago. This is where, assuming you’ve put the right framework in place to test and measure, you’ll ultimately be looking at the same metrics, although your insights and ability to impact them would be different. 

For example, ad-based games have lower long-term retention - by D30, 90% of your users are not playing your game. This means that the decisions and product optimizations you’re making are focused on the first 30 days of the user. For IAP-based products, you’ll have a much higher long-term retention. A lot of the product changes are optimizing the behavior of users who will play your game for a few months - how do you provide them with the right content with the right timing and to get them to a point where they see enough value to spend money. Here, you’re testing things much deeper into the life of that game. But at the end of the day, you’re optimizing for the same metrics. 

Another key point is the number of users coming in, or the amount of data you have at your disposal. IAP-based games, even the successful ones, have fewer users that are coming in on a daily basis in comparison to successful ad-based games. That’s because they have a much lower IPM, as we discussed in step 1. Even so, let’s say that you’ve succeeded in acquiring 100k users for both products. Only 5% of users in IAP-based games monetize and go on to make IAPs. That’s a huge drop from ad-based games where 70% of users monetize. You can see now why for IAP games, it’s harder to have enough data, and it takes longer until you do have enough data to make a decision regarding monetization. But it doesn't mean it can't be done.”

How to succeed in building a F2P game

“The first key for success is balancing soft and hard currency as the game progresses, especially for PVP games where the value changes over time. Introducing currency, whether it’s soft or hard, into the onboarding experience is critical - so users can understand the value from the start. This needs to be part of the initial design. 

The second part is looking at how ad products can help. The offerwall, which is tied completely to the hard currency, is a great example. Instead of buying 100 gems for $0.99, users can engage with a certain offerwall ad and then get those 100 gems. Now these users know the value of the gems, and perhaps down the line they’ll keep monetizing either with the offerwall or IAPs. There’s also rewarded video, which helps users engage with soft currency and virtual items, essentially educating users on the worth of those items.”

The strength of interstitials

“It’s true that user-initiated ads improve retention and engagement, but it doesn’t mean interstitials shouldn’t be implemented as well. That said, they should be implemented at a later stage. They can be implemented from day zero but they should scale up over time and after you have enough behavioral information on your users. If you turn on interstitials too soon, you’ll harm the data you have because it’ll impact retention in a negative way. Having said that, once you have metrics in place and stabilized, you know what your D30 ARPU is, and have a baseline to test them with."

The best rewarded ad placements

“The idle game genre is a great example of a category with well-placed rewarded video ads, where placements are part of the core loop and users have the option to keep playing and keep evolving. In addition to placements that increase your reward, time-based placements work great - where you have the option to use a certain booster but only every few hours.”

Do rewarded ads cannibalize IAPs?

“It’s a fair concern until you test it. If you follow best practices, you’ll see that rewarded ads actually increase IAP spend. But whether that happens is based on how you treat users who are highly engaged and whether you give them another option to provide them with virtual items. But for users who aren’t that engaged, it’s about educating them on what those virtual items are about and giving them the option to play for longer. Down the line, once they want to progress faster or need access to something, they will spend on IAPs.”

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