Freemium Model Has taken the Mobile Gaming Industry by Storm, But Why?

Over the past few years, Freemium model has taken the mobile game industry by a pretty rapid and game-changing storm.

As its name, freemium refers to the model initially offering a game for free while charging a premium for advanced features and functionality. Today, the free-to-play gaming model is global in scope and has been identified as the dominant way of making money from games in the future.

  • Freemium = Greatest Potential for Profit.

In the past, the mobile gaming market has been hard to turn a profit, but these freemium games are proved to be extremely profitable.

The mobile gaming generated $25 billion revenue in 2014, and it’s expected to eclipse console game revenues for the first time in 2015, thanks to the booming game app market, according to Newzoo, a video game research firm.

We estimate that Apple and Google will earn close to $4 billion and $3 billion respectively in games revenues in calendar year 2014.

—- Peter Warman, Newzoo’s chief executive

$ 1,728,552, that’s  revenue Clash Clans estimated to generalize per day, with its 5,600,937 daily active users.  Freemium games, Clash Clans, Game of War– Fire Age and Candy Crush Saga,  take the top three places, on the Top Grossing iPhone Games ranking list by Thinking Gaming. You’ll not be surprised to see freemium games take 9 places among the top ten.

Freemium is now a business model that not only accepted by mobile game developers, but also expend to video games and functional apps. In 2014, a fairly strong majority — 92% of the top thousand apps on each of the Apple app store — monetize via so-called “freemium” apps, which only account for 11% of the apps on the App Store. They played even more important roles in Google Play apps/games platform and drive 98% of the revenue, demonstrating that nearly all profit is coming from freemium.

By the end of 2013, some people predicted, “2013 was the year of freemium games, but 2014 may not be.” Now they are proved to be wrong. Freemium continues to grow strong and move far beyond a fleeting trend: not only 2014 was the year of Freeium, 2015 will still love Frermium.

  • Free = Large User Base.

Free is the most attractive word.

Think about that: you will never hesitate to pay $70 for a pair of Nike, nor ponder before a $4 price tag of a cup of Starbucks. But what if you are charged for apps? Even at $0.99, you might think long and hard about making such a purchase decision. Ten dollars? Are these developers crazy? No chance for you to download the app and start playing, because there is enough competition that users invariably have other cheaper or free options.

What about starting playing for free? Free features are always a strong marketing tool. For gamers, the biggest benefit of the freemium model is it allows them to try before they buy. You won’t refuse a free chocolates sample offered in the supermarket right? Many players will join the game “just to try it without any cost” and the developers can thus build up a user base without expending resources on costly ad campaigns.

  • Free Users = Word-of-Mouth Marketing.

The non-paying players can support developers’ promotion and acquisition efforts through the power of word of mouth. When the mobile game is combined with social media, the large amount of users can quickly create network effects. What will you do when find an interesting game app? You may invite your friends to play, or sharing updates on your social network profiles. Yes, we are humans, who always want to share good things with others.

I’m now playing Walkr, a free galaxy building game app by Fourdesire. I got to know this game from my friend, who highly recommended it to me. After I downloaded the game, it was automatically shared to the social platforms. In addition, the developer encourages the current players to invite their friends to join the game. I’m now sharing the same space ship with my friends, thus we could unlock more functions and explore deeper into the space.

The word-of-mouth effect of free games has vastly driven user acquisition and it is now possible to have free games experiences with millions of active users.

  • Free Users = In-game Advertisements.

Free-to-play game developers also generate revenue through in game ads. Players could download the full game without paying a buck, but there would be constantly bombarded with full-screen ads between every level, and banner ads across the top or bottom of the screen while playing. Angry Birds is a good example for such model.

Some companies move further: they are rewarding in-app spenders with fewer ads. Take Walkr as example again. Since it’s an absolutely free game, I sometimes need to watch 30 seconds advertisements before continue my gaming, or I can get an Energy Cube as reward for watching the in-game ads. Well… it was fine at beginning. However, now I’m so hooked. Sometimes when I’m devoted gaming and the ad jumped into my eyes suddenly, it’s unbearable. I’m now a Level 11 player with 44 planets. If Fourdesire charge me 99 cents to get rid of these annoying ads, I’ll be more than happy to do so.

Successful developers never ignore the value of non-paying players, who can prove their value in the above two ways. It is the non-paying users who make freemium such a tantalizing business model to game developers.

  • From Players to Payers.

I can still remember the Christmas vocation in Cancun a year ago. Eight out of ten of us were playing Candy Crush. I got no response for my “going kayaking together” suggestion. It seems the only thing they wanted to do on this island was Candy Crushing. The goal-oriented play of Candy Crush encourages their retention. Four of them paid to get more functions, contributing to Candy Crush’s $1,031,366 estimated daily revenue. One even registered a new Facebook account with Candy as his first name.

Yes, the Freemium is not truly free. It will become a dominant money-making business when players get addicted to these games. Our desire to play these free downloading games will push us to purchase for those premium functions or features. This desire will go on becoming tad more every day, after we spend so much time and money. We just cannot or do not want to leave the game – the sunk cost is too high.

When mobile gamers asked why they purchase, 65% chose to extend gameplay and 38% answered progress quicker.

— Mobile Game Market Insight by Super Data Research.

The revenue in free-to-play games is linked to player retention: the longer people play a game, the more likely they are to invest on it. Those additive players are called “whales,” who spend the most money on games annually. Among the huge player population, whales only make up 9% of mobile gamers, or about 8 million people in North America. Not sounds like a large number. Only a small percentage of players will become payers or core users, but they can drive as much as 100 to 1000 times more revenue than the other users.

Prepare your hooks to get more whales, and attract them paying ever more money to feed obsessive/compulsive needs

 

  • A Win-Win Model: Freemium Makes Better Mobile Games

Freemium as a business model will evolve and get better for developers and consumers.

Freemium allows developers to capture more market value than one-size-fits-all pricing, making them more profitable, thus allowing continue investment and ever-more awesome games to be built.

To be successful, companies must acquire a mass of players and retain them. This pushes developers to make games quality and fun to play in an effort to hook gamers who try them. For the paying users, developers will also get smarter about providing refreshes and upgrades to a game to gain a higher retention rates and longer lifetime cycle, which will bring more sustainable long-term profitability. It’s a win-win game, for the customers, they can get better games, experiencing more fun and getting more pleasure.

The wave of free-to-play mobile games is surging, as a developer, will you along for the ride?

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