Mobile game monetization: what’s in store for in 2014?

The past several years have seen explosive growth, more and more developers entering the market, and more games for consumers to choose from than ever before. 2014 will even more interesting as competition for a player’s attention and interest is at a peak – and it seems that the year ahead will bring even more content, leaving individual developers searching for ways to stand out and stay ahead of the game.

User acquisition costs are at an all time high

The numbers point to mobile gaming’s biggest challenge, and one that could put a lot of game makers out of business. According to SuperData in 2012, the cost per install on iOS increased 22 percent, and tripled in some categories. Halfway through 2013, we hit a tipping point: for the first time, user acquisition costs overtook user revenue. SuperData put the cost per install around $2.73, heading between $4 and $7 during the holiday season, and average revenue per user at $1.96. And developers aren’t actually making money until those gamers have been playing and spending for 60+ days (and until they can market games or other items to those same gamers). That won’t be easy. Mixpanel says games are on the higher end of mobile apps with a 30% retention rate and Playhaven is seeing retention rates of 33% Day 1, 17% Day 7, and 9% Day 30.

Freemium is the dominant model

In 2013, freemium became the dominant business model for mobile games. By the end of 2013 the percentage of freemium apps grew from 77% to 92% in the iTunes App Store and from 89 percent to 98 percent in the Google Play Store (Distimo). It makes sense. Freemium has been around since the days of Doom so it’s nothing new for gamers. The market has become so competitive that even the most successful publishers like Disney are moving from paid to free to play with mixed results. (Superdata has the industry average conversion rate at 4.68%.) 2014 could be even more challenging. With so many games available, will gamers become more discerning about how freemium is executed – and walk away from the games they think get it wrong? And if they stay, will they stay for 60+ days?

The lion’s share of the profits is still going to the top developers, but will that change?

It’s important to consider the continuing difficulty of monetization of game apps in general. The lion’s share of the huge numbers we all read about still go to a small percentage of developers. At the end of 2012, half of all app revenues were going to just 25 developers (24 of those were game developers). This year, outside of some viral hits, the majority of developers were still left out of the big dollars. In 2014, top developers still have the advantage: momentum, lower user acquisition costs, and a known brand. Interestingly, Flurry is seeing the signs of a healthy mid-tail developing, with the number of mobile developers with an audience over 1 million monthly active users more than doubling from 400 to 875. There is a huge opportunity in 2014 for more developers become part of this middle class and to add more game and monetization mechanics that will drive revenue, time in game, and overall retention; and even put their IP in front of new audiences.