Packed with information and analysis on key trends, games and industry players in the mobile, smartphone and iPhone markets, the PocketGamer.biz Mobile Games Trend Report 2010 is available to order now.

---

Making money from mobile games is hard. It has always been hard, and that hasn't changed. But the smartphone market is revealing new ways to tap into the gaming audience's ability to fund their play.

It's also subject to rapid change. Of the revenue models we discuss below, it is too early to be certain which will dominate. They are not mutually exclusive either, with savvy developers able to use different methods to monetise different segments of their audience.

1. Just sell the game

For many developers, selling the game seems like the easiest way to make money.

However there are some major downsides. Unless it has an absolutely magical game that will generate significant word of mouth, an established brand, or you're spending significant amounts on marketing, the chances are the game will appear briefly in the charts and then fall straight back off.

Pricing is also a thorny issue. The top-grossing iPhone games of 2009 sold for more than $4.99, with the exception of Flight Control, which generated unprecedented word of mouth. For the majority of unbranded games, it is hard to sustain any price over $0.99, which means that the breakeven point is very high number.

2. Microtransactions

There are many advantages of microtransactions. The player can experience the game for free, which is a great marketing tool. The price point is not set by the developer - it's set by the consumer who can choose to spend significantly more than $0.99 on in-game items. And the developer builds a long-term relationship with their customers, adding new content in response to gamer feedback and demands.

But it is not all easy. Building a game designed for virtual goods is a very different proposition to developing a successful single sale game. It means a long-term commitment, as games stop being products and start becoming services, with all of the customer relationship headaches that entails.

Ironically, as ngmoco has been finding out, even success comes with its own problems as the ongoing issues with We Rule's servers due to high load demonstrates.

3. Offers and lead generation

Offers are either a sensible way to monetise users who have more time than money, or else they're a dangerous scourge that risks alienating users in the same way that the Crazy Frog controversy hurt the ringtone business.

The basic principle behind offers is simple: Developers offer users the chance to acquire virtual goods in their game, in return for their taking part in a survey or signing up for a trial with an advertiser such as NetFlix.

The iPhone game gpsAssassin has used the offer model successfully. Working with Offerpal, which is integrated into the Tapjoy SDK, the developer, Jackson Miller, took the decision to make gpsAssassin's core game totally free. Revenue comes from players paying to purchase additional in-game currency.

However, controversy has arisen over offers that allegedly sign users up to expensive mobile content subscription services without their knowledge.

Offers are a valid way to generate revenue from users who are unlikely to be high spenders. But any developer using offers should pick its offer partner carefully, and be quick to react if there are any consumer complaints.

4. Advertising

Advertising in mobile applications looks set to be the next major battleground. The challenge for advertising funded games (as with those that rely on microtransactions) is that users have to keep coming back to the game in order to generate new advertising impressions, which means that only the stickiest games can generate more revenue than a paid-for app.

For a developer pursuing an advertising-funded model, it is critical, as in all media, to ensure that your game meets the needs of the gamer as well as those of the advertiser. Developers who simply slap ads on as an afterthought are unlikely to be successful.

5. Sponsorship

Advertising agencies love smartphones - particularly the iPhone with its trendy form factor and ubiquity amongst admen and their clients. So it's no surprise that they are paying software developers to make iPhone apps for their clients.

It's not the most glamorous business and nor will it make an independent developer seriously rich, since projects are undertaken on an entirely work-for-hire basis. But it does offer sizeable revenues and interesting projects that step around the need to wring money from consumers.

Barclaycard's Waterslide Extreme is a good example. Developed by Fishlabs, it takes the Barclaycard waterslide television ad and turns it into a game. The game was downloaded two million times in the first two weeks of launch and achieved 10 million downloads by January 2010. It was the #1 free app in 57 countries, which made the client very happy indeed.

6. Subscriptions

Subscriptions are an attractive proposition. They generate recurring revenue, which means that once you've acquired a customer, they just keep paying, at least for a while. Subscriptions are better than a $0.99 price point in that sense.

Compared to microtransactions, they do have a disadvantage, which is that revenue per user is capped at the subscription rate, whereas for microtransactions, consumers can spend as much each month as they choose.

Subscriptions are not a common business model on mobile yet in Western Europe or the US, though Russian developer Qplaze claims it has 111,000 subscribers for its mobile online role-playing game Age of Heroes Online.

Alternatively however, Infinite Lives' CastleCraft launched with an subscription and an in-app purchase model, but recently dropped subscriptions, with co-creator Tim Omernick saying it provided a really awful user experience. "We definitely heard about it from the users," he said.

Conclusions

Of course, most developers will attempt a mix-and-match strategy, and choices will also depend on the game in question. A pure advertising-funded game will be very different to a high value paid game.

There are some standard models emerging however. As recently proved by Snappy Touch's Flower Garden, in-app purchases in both paid and free apps works synergetically, while Freeverse's Flick Baseball comes in both paid and a free advertising-lead version.

---

For the full analysis of mobile gaming business models, plus examples and 100 pages of addition data about the industry, get your copy of the PocketGamer.biz Mobile Games Trends Report 2010 now.