Two years ago, I stepped into the mobile games market when I joined Planeto in Malmö, Sweden. With more than 5 million downloads, Planeto is a leader in knowledge-based mobile gaming. The experience at Planeto has changed me as a product creator and marketer.

Like many of my Scandinavian tech colleagues, I come from the planet where they build mobile phones. One step up the software stack to apps did not seem like a huge leap, especially as Planeto develops games for smartphones. As it turns out, one of the most talented game designers in Southern Scandinavia took me to a planet that was significantly different.

This is the third and final blog of a three part series on battle insights by a mobile game CEO.

Mobile Gaming as a Business

[tweetable]Even today, game designers prefer the traditional model of being paid up-front for games[/tweetable]. This business model allows them to devote most time on what is important to them, namely the game and it’s magical game play loop. Our world of algorithms has, however, made Free-to-Play (F2P) the dominant business model for successful games. Free is very powerful as a digital marketing tool for skillful individuals who are able to combine great gameplay with algorithm-winning distribution and marketing.

Ad revenue and In-App Purchases (IAPs) are the two traditional revenue sources in F2P games. Developers mix the two in different quantities depending on the game genre and design. Let’s explore one by one, before we look at the next possible frontiers in the mobile games business.

Getting the User to Buy Everyday

In our first game, we had one item for sale, namely a premium upgrade. This is not a good business model when your game has strong retention. We still have customers today who played our games nearly three years ago… incredible! These users love our games and, in our original game, their maximum spend was $2.99. That was it for three years of entertainment. 🙂

By implementing lifelines, offering new question packs, and decoupling game boards from the premium upgrade, we have in subsequent games removed the limit on how much money you can spend. Our best customers now spend more and in return we offer more features and content. A much better relationship than the original fire and forget model.

Because of this ongoing relationship, we also have become much more generous. We provide the users with some in-game currency for free, so they can try the different lifelines and game boards. That drives up our conversion, as the users get familiar with our in-game currency early on. Contact to support also triggers free stuff!

Third, we actively work with conversion of users through campaigns where we make seasonable items available either free or at heavily discounted rates. We have had great success with our X-mas tree game board. 🙂

Finally, our lifelines are micro purchases offered at a time where the user is most willing to spend – very similar to the extra turns in Candy Crush Saga.

Good IAP design is hard, and it needs to be closely integrated with the core game play loop.

Advertising as an Ongoing Adjustment Process

As mentioned in “The Science of Mobile Game Marketing“, F2P games need an ad mediation layer to be successful in the advertising space.

First, you need a mix of different types of ads from incentivized video, over normal video, to static interstitials, and banner ads. The mix allows you to adjust the ad types over the lifecycle of the user. Advertising is not something users love, so you want to avoid intrusive ad formats, like forced video ads, early in the lifecycle of a user. Later they might make sense depending on your game.

It is also important to ensure you drive up your fill rate. You will not have sufficient video ad inventory from one network available at all times, and hence you should backfill with interstitials from other networks.

Finally, you need to be able to play the different ad networks against each other to ensure the best possible CPM. The ad intermediation layer allows the developer to switch between many different ad networks and adjust advertising volume by network. On top of the automated CPM-based adjustments made by the mediation layer, we adjust our volume by network each week to make sure we get the best CPM per country.

Each advertising network has its own logic when it comes to buying advertising space in games, but generally speaking we’ve also seen that ad networks take advantage of developers who are stale, i.e. developers who do not tweak the number of impressions per ad network. So if you leave your ad network distribution untouched for more than two weeks, expect your revenue to start declining.

Tweak and learn!

The Real World as a Revenue Opportunity

Game developers often use other brands for marketing. Whether it is Kim Kardashian, CR7, or FIFA, it is obvious that real world brands sell games. Integrating the real world into games does not necessarily need to be a royalty expense. In fact, this can be a great opportunity for business model innovation in the mobile games market.

Brands, people, and organizations are finding it increasingly difficult to engage with their stakeholders in a positive, meaningful way. Designed correctly, games can be one such path.

At Planeto, we have worked with brands to create question packs about a specific topic for TV stations. One TV station worked with us on a question pack on the Premier League – they wanted to engage their viewers on knowledge about the Premier League. Another TV station wanted 250 questions on fashion for the Copenhagen Fashion Week. Great fun for our users and excellent exposure for the brands.

Think about your game – how can the real world increase your revenue or extend the lifecycle of your game by bringing in brands, information, or other stuff that your users care about? Be creative – people care about more than just celebrities and TV shows – what about the city you live in? Nature? Politics?

Big Data as a Revenue Opportunity

As we live in a world of algorithms, game developers have more information about their users and their users’ behavior than any other industry out there. Where traditional industries are looking to build up data about their customers, it often feels like we have excessive amounts of data in the mobile games industry.

Taking advantage of user data requires a thorough understanding of privacy – both from a legal perspective, but also from a product perspective, i.e. what value do you bring to your users and when you decide to generate revenue from data? Privacy must have priority over any revenue considerations. There are, however, cases where the two can go hand in hand.

In the past, we have successfully offered our users a free upgrade in return of receiving an offer for a popular science magazine subscription. This is a reasonable trade-off for the user. They know an upgrade costs $2.99. They know they will be offered a magazine that aligns nicely with knowledge-oriented games that they are playing. For that, they are willing to provide an email or a phone number.

Aggregated knowledge about the users might also be valuable. If you have personal statistics, high score lists, or achievements, could other stakeholders get any value from them, if they were presented in a slightly different way?

I would love to throw a game designer and a big data entrepreneur in a room for a few days to build a truly innovative game where data is the core monetization source.

…and We Are Only Just Beginning

These are only two examples of frontier-type business models. There are many more.

Education: I am not a big fan of the 1st generation of brain training apps. They are generally not fun to use and need such a huge commitment that they are unlikely to have any effect for 99% of their users. In the end, I do believe we will become better at using games for education. We are just not there yet.

Media: The traditional media industry is going through a tough spell at the moment. Great games where entertainment is integrated at the core of the game could be the future for some magazines, newspapers, and TV stations. SMS voting is one step in the right direction, but there must be more revolutionary designs waiting to be discovered.

Social: Games are good at bringing people together around a common interest. “Play first, date later!” could be an interesting business proposition to pursue.

I believe the next generation of big mobile game innovators will find business models that integrated a magical gameplay loop in weird and wonderful ways with the world of algorithms. What other innovative gaming business models have you seen or would you love to see?