Wednesday, March 8, 2017

Mobile Gaming Industry Breakdown Part 3: Monetization

This weeks post will cover the basics of monetization strategies in Mobile Gaming--with a strong focus on Free to Play monetization. Catch up on the basic industry jargon, learn about the psychology behind monetization design, and learn the high-level reporting and optimization strategies to maximize your game's revenue.

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Monetization Channel: How the game makes money. Usually in-app purchase, advertising network, or upfront purchase.

F2P: Free to Play(Pay) Players can download the game for free but are later monetized with in-app purchases.

IAP: In-App Purchase

ARPU: Average Revenue Per User. IE. Revenue / Players.

ARPPU: Average Revenue Per Paying User. Most users don’t make in-app purchases. This metric is useful for seeing the (mean) value of a game’s paying players. 

LTV: Life Time Value of a user, perhaps the most important metric. It is a combination of Retention, Monetization, and Virality (how many new users does one user bring to your game). 

Free to Play Monetization Strategy

F2P is the dominant monetization strategy for all top-selling games on all mobile platforms, and has been that way since 2011. F2P reduces the CPI to the lowest possible because players are more willing to try a free game than a paid one. Once a player is playing the game, there are many strategies that can be employed to convince them to spend money.

Monetization is designed into the games core compulsion loops. Game progress or content is gated behind paywalls. These paywalls come in 2 types. A soft paywall allows a player to achieve the same results by spending more time with the game (grinding, farming, or waiting). Hard paywalls give players access to content unavailable to non-payers. 

Layering & Abstraction - multiple levels of abstraction will help obscure the transactional element of the game from the player’s mind so they are more willing to spend money in the game. It also makes it more difficult for the player to calculate the real cost of in-game items. This is commonly achieved with Premium Currencies. 

Premium Currencies - a currency in a game (like gems or diamonds) that can be purchased for real money. When a player spends premium currency on in-game items, the abstraction from real currency helps the player forget they are spending real money on virtual items. 

Hard Boost vs Soft Boost - If an IAP item provides a temporary benefit to the player it is a soft boost Example - An extra life. The advantage of soft boosts is they can be sold repeatedly. If an item provides a permanent benefit to the player it is a hard boost: Example - Legendary Armor. 

Time-Wall - making players wait for something unless they make an IAP.

Variable Rewards - Studies in operant conditioning ("Skinner Box") have shown that mammals are more enticed to perform an action if it results in variable rewards as opposed to fixed rewards. If there is a random element to the rewards a player receives (with a small chance to win big rewards), this will keep the player more interested than if rewards are fixed and transparent.

Gacha System: Often games will build variable rewards into other systems (like receiving random prizes after a battle). Gacha systems offer a direct "slot machine" type variable rewards minigame, often in exchange for premium currency. By combining several monetization strategies together, Gacha systems can be highly profitable. They are a favorite among Asian developers. 

Gacha Example: Players purchase Gems (Premium Currency) and can spend them on “Summoning Tokens”. These “Summoning Tokens” allow the player to summon random heroes. The heroes provide a permanent benefit to the player (hard boost), but because they are summoned at random the player has no control over which heroes he receives. The same psychology that drives gambling addiction can also drive some players of Gacha games to spend large amounts of money for the chance to win rare, valuable, in-game items. 

Reward Removal - A powerful technique of presenting the player with a reward for their achievement and then threatening to take it away if the player does not make a purchase. 

Difficulty Spikes - Allow players to feel masterful at the beginning of the game by making it easy. After they have invested some time into the game, increase the difficulty so that IAP becomes necessary to continue forward. This technique is especially used in Single Player F2P games. 

Competition and Social Pressure - Many players of multiplayer games are naturally competitive. This can be monetized by offering the advantages over other players as IAP. If the game has a cooperative element (like alliances) then teammates may put social pressure on each other to spend money for an advantage in the game. 

Case Study - Clash Royal’s  monetization strategy is a combination of  Premium Currency, TimeWalls, Reward Removal, Gacha, and Competition. After winning a match against  another player you are presented with a reward—treasure chests. The contents  of a treasure chest are unknown (Gacha) and they cannot be opened until their timer runs out (Time Wall). The player only has a few slots to store their treasure chests while waiting for the time to run down. After that, any treasure chests the player receives will be discarded (Reward Removal). The only way around this is to spend Gems (Premium Currency) to remove the timers and open the chests early. 

When analyzing your monetization data, there are a few key ways to look at it. Cohort Revenue analyzes the spending habits of different groups of players in your game. Item Sales looks at where money is spent in your game. First Payer Conversion looks at the process of converting non-paying players into paying-players.

Cohort Revenue

Divide players into specific cohort groups rather than averaging them all together. Some useful Cohorts to look at are:

Install Date - players that installed the game on the same date. See below picture…

In the above graph you can see that Day 4 monetization flattens. Therefore  optimizing the monetization of Day 4 should be a priority for this game. 

Player Level - Note the player level at time of purchase. Sum up all revenue by player level. Divide out by installs to normalize and look for any dips in the chart. Those are the places to optimize. 

High Value Players (“Whales”) - 98% of a game’s revenue will come from 2% of its players. Some of these players have extremely high LTV, and may pay hundreds to thousands of dollars for IAP over time. Acquisition, retention, and monetization of these players is extremely important.

Item Sales

Monitor Performance - Summarize spending by categories. Look at trends over time. Does spending stay steady or decrease? Does the trend make sense with the mechanics of the game?

Analyze Distribution: look at the spending percentage breakdown by item category. Distribution across multiple areas will lead to a higher spending because players will have multiple things they can spend money on. Is the category capped? Limited areas should have less revenue than unlimited areas. 

First Payer Conversion

The majority of players will never make a purchase in a Free to Play game. Once they do, however, they are far more likely to make additional purchases in the future. First Payer Conversion focuses on converting free players to paying players. 

The earlier a player makes their first purchase the higher their LTV will be. Larger first purchases at heavy discounts lead to higher engagement with the game. It is important to convert players to payers before majority drop-off points in the game. For Example if 70% of players stop playing on Day 2, but your payer conversion efforts start on Day 3—that is a problem. 

Beginner’s Sales are a great way to drive early conversion. 

Game Difficulty must be properly balanced. If it’s too easy then players won’t make purchases. If it’s too difficult then players will quit the game.
High Spend Options should be made available early, as High Value Players (whales) are looking for ways to spend. And make sure capacity for spending is unlimited, so that if players like to spend money in a particular area there is no limit. 


LTV is difficult to calculate early on. In order to forecast a player’s LTV look at baselines for other similar games. Analyze spending ratios…

      • Day 1 to Day 7
      • Day 7 to Day 30
      • Day 30 to Day 90
      • Day 90 to LTV

Using these ratios you can predict LTV from day 1.

Marketing Channel is also important for forecasting. Some marketing channels will yield high quality users while others will provide you with much lower quality. If users are incentivized to download your game they will be much less likely to make purchases (and their retention will be lower as well).

Wrapping it up 

If you're going to charge an upfront price for your game, then monetization is as simple as choosing the right price. But if all the industry leaders example is to be followed, you should monetize your game using F2P strategies with in app purchases. In F2P, monetization needs to be built into the game's core loops, using strategies like those outlined in this article. Your monetization efforts should be divided into 2 parts: converting players into payers, and achieving maximum LTV from your paying players. 

Next week we will cover Part 4 of this series: Live Operations. Learn about how to build upon your game's core monetization strategy with special events. If you'd like to be notified about new blog posts, check the bar on teh right. You can subscribe for email updates or follow me on Twitter. Thanks for reading!