Opinion: User acquisition is a waste of money, and will eventually kill the mobile games industry
Money for nothing
User acquisition has been the key trend underpining the mobile games business throughout 2011 and 2012.
And as we move into the holiday season, it's only becoming more dominant.
Yet for many companies who are engaged in the business of buying and selling downloads, the practise is nothing more than a short-term plaster hiding an infected wound.
When we could charge
Back in the days of the ' App Store's dash to 99c', setting your game free for a couple of days was enough for most titles to gain chart position, and perhaps even a reasonable return on investment when the price returned to 'normal' a couple of days later.
A simple trick, everyone used it and most companies quickly became addicted to the heady rush of free chart position and massive download numbers. Over time, they ended up more focused on this than the quality of their games.
Hence, these quick 'successes' became ever quicker as gamers were seduced away the following day when the new selection of games 'went free for a day'.
Never were so many games downloaded and so few played.
Grip in a frictionless world
The situation was untenable and it was finally killed off by the rise of free-to-play games. But user acquisition in the world of free games has developed much the same.
With an entry-level user acquisition campaign likely to set you back $100,000, few developers have the financial firepower to get involved in this battle. They've switched roles from creators to suppliers, selling their in-game inventory to the highest bidder.
Instead the industry's focus has shifted to venture capital-funded outfits; generally the larger social-mobile publishers.
They were early to the free-to-play mobile space and built up big audiences and solid organic revenues, often on the back of games which aped Facebook casual mechanics, albeit without the social glue.
But as the quality levels of these games has risen over the months, these publishers have found it harder to compete, especially with new entrants, who often have console development experience, raising the quality bar in terms of graphics, audio and gameplay.
Retooling your studio is expensive and time consuming. It's simpler - and in many cases cheaper - to spend money buying users, even though their in-game sessions become shorter and less lucrative over time.
All shock up
A quick look at the top grossing chart today demonstrates how quickly things have changed.
Sure, there are some well worn brands such as Beeline's Smurfs' Village and Backflip's DragonVale, which have built up a committed audience over time and are now almost impossible to shift out the top 20.
There are a lot of casino 'games' now stalking the charts. That's an opinion piece in-and-of-itself. Good luck competing with them, even if you have a casino game.
More interesting is the position of a new wave of games such as NaturalMotion's CSR Racing and Supercell's Clash of Clans, which demonstrate the power of high-end graphics.
In particular, when revealing it had grossed $12 million in a month, NaturalMotion loudly proclaimed it hadn't spent any money on user acquisition. Instead, it was the quality of the game that drove downloads, as well as blanket coverage from Apple in terms of App Store promotion.
However, my biggest concern about the current user acquisition war isn't that it doesn't work. It's that it works imperfectly only for a certain type of company, and it's this which is unbalancing the entire ecosystem.
As we've discussed many times before, building a global mobile social gaming network is an all-in gamble for world domination.
Hence for companies such as GREE and DeNA, user acquisition is a crucial part of their high risk business model. They have the cash to spend and they have the commitment to an end goal.
That's why GREE can agree to deals such as its recent Chartboost direct deal. In this, it's offering up to $3.50 per install with no revenue cap for developers who promote its games on iOS and Android.
It's not doing this because it will make money. It's doing this because it needs to control the user acquisition market and it wants to prove to other developers it's the only social mobile gaming platform they should sign up with.
Similarly, with DeNA. It's not been so open about its user acquisition plans but the position of obscure card-battler Rage of Bahamut at the top of the iOS and Android top grossing charts demonstrates how much cash it's hosing at the situation.
Keeping up with the Joneses
Such moves mean direct competitors such as Zynga and Glu Mobile are drawn into the user acquisition game; if nothing else, they need to protect their audiences from being acquired away.
Then we have a trickle down effect as companies that should be looking at other areas of promotion are drawn into spending money because that's what their competition is doing.
The irony of the situation is the user acquisition frenzy has impacted the entire industry from the smallest developer, who's now churning out titles to ensure it has inventory to sell, to the largest publishers, who are spending to ensure their quarterly financials don't highlight dropping user numbers.
But the bottomline is we're in the games industry.
Any company that's about buying users not about entertaining gamers should seriously rethink its business model.
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Robert Unsworth | 16:28 - 10 September 2012
Aren’t we all just an angry bunch in the mobile gaming world ?? Sorry to be a little late on this thread but it’s one that I have just had the chance to read and has riled sufficient anger (or perhaps I’m just in a mad mood….) to oblige me to add to it.
I recall well the days of 2007 and 2008 when the notion of the « App Store » was still being nappy-trained and all the mobile gaming professionals of that time were continuing their tirade on Mobile Network Operators about how they should do much more to market games to the wider audience. Note the word « market » a verb which invariably means, “the act of promoting and planning the advertisement of a good or service. Marketing allows companies to make themselves known to the public.”
Surely User Acquisition is a critical and mandatory part of the mobile publishers skill set. There will always be the Angry Birds, utopian exceptions where a game hits the market just at the right time and captures a particular mood or sentiment and grows like wildfire through word of mouth, but for everybody else in the real world, we need to plan on a means of acquiring users that is reliable and sustainable.
Maybe I’m naïve but I think there is a growing awareness, even in VC and corporate acquisition land, that a gaming start-up needs to create a viable business (not one with the loss-making, big numbers of the ngmoco era) and therefore one where the average, total revenue achieved per user is less than the average cost to acquire that user. The infamous LTV>CPA equation (nothing like citing an equation to purvey a sense of knowledgeable self-importance…).
This condition in itself implicitly demands that there is either a strong quality element or a social element integrated into the gaming experience, otherwise the resulting revenue will never meet this acquisition cost, regardless of external influences. We’ve seen this already with the shake-out of Social Game publishers on Facebook – not wishing to cite any names but just look at the Top 5 list in 2009 and the Top 5 today...
I do of course take issue with certain players injecting non-sustainable marketing budgets into the eco-system which artificially raise the CPA bar but I’m convinced that this will shake out in the months ahead to more reasonable levels. It’s not the system which is at fault, just certain publishers who try to manipulate it. Furthermore, smart publishers will find other means of user acquisition that will offset these costs to bring the average, for them at least, down to a manageable level. I know of certain European based mobile publishers who have acquisition costs in the 65 to 95 eurocents zone which makes their publishing business more than sustainable.
It’s also clear that both Apple and Google are modifying their ranking algorithms to include key metrics such as 1-day return rates and average number of sessions played per day, into their ranking calculations which will certainly purge out publishers who are pushing low quality content.
The angry die-hards of the pre-Smartphone and Facebook era need to understand that the ubiquity of these new platforms has fundamentally changed the demographics that current, popular game publishers need to serve. As such, these new wave game publishers have to adapt their approach to engaging an equally new generation of casual, (and often very fickle) gamers that have a huge choice of content from which to choose and a means to access these which simply didn’t exist on such a scale less than 4 years ago – the model has fundamentally changed but of course the basic economic and business constraints have not.
Did we ever really criticize Activision for billboard campaigns in the high streets for the latest release of the Call of Duty franchise, claiming that they were squeezing out smaller developers who didn’t have the budgets to run similar campaigns? No, I think the majority of us were happy to see gaming entering the main stream media and increasing awareness to the wider public. It’s a tide that raises all boats.
So in today’s model, the primary means of reaching and engaging players in what is a dynamic and crowded market is to advertise your content on the same medium that the customer needs to play it on, in other words “in-game advertising”. To berate this mechanic and expect App Store owners to magically invent a system which provides social meritocracy is not just naïve but highly unrealistic. Did we ever really campaign or expect retail stores to stop working with a number of select corporate partners where they effectively buy shelf space in their stores to get their latest game offering in front of consumers? Did we ever demand that these retail owners allocate a minimum quota to indies? No, of course we don’t – it’s unrealistic.
The only non-sustainable element here is for those publishers who are paying more for their users than they can generate from them (even the very big players, who will inevitably need to answer to their shareholders in the short term reporting on bottom line numbers) and the very mechanic that they are exploiting will force them sooner or later to stop or to adapt their content for the better.
Surely, therefore, having a mechanism in place that pushes these publishers out of business or obliges them to find new models or content proposition is not a bad thing. High-quality, independent developers with smaller budgets (like the previously given examples of Natural Motion and Supercell, and even some of the semi-industrial publishers like PocketGems or Game Insight) will always find new and innovate ways to reach their target audience. And if they don’t, they should avoid moaning about it and try another career.
Nathaniel Barker | 18:10 - 29 August 2012
To dispel a myth: Apple's App Store Ranking is actually based on 5 factors:
1) # of Boots
2) Volume of Installs
3) Total # of Ratings
4) Quality of Ratings (Stars %)
If you have ever wondered what the additional mb's are that bulk up your app after submission, it is an analytics wrapper that Apple adds. Sure, there are some visibility issues that still leave much to be desired, but we are no longer in a world where rankings are based purely on downloads.
Additionally, Developers like TinyCo and Pocket Gems aren't buying users based on simple ARPUs like $1-$2 per user. They are are doing analysis to determine the ultimate LTV of these users -this includes cohort analysis (i.e. how much do your friends that you invite end up paying out), analysis on organic lift from maintaining rank position, etc.
Luckily there are still TONS of options for indie developers. Ad trades, free social networks, etc. Developers need to abandon the notion that marketing is rank dependent. Just as the GREEs, DeNAs etc. have learned to optimize their UA sources, so too can an indie. Here is a great article by Mark Johnson on how he launched Hit Tennis 3 for $0: http://www.markj.net/launching-hit-tennis-3-into-the-charts/
One thing I agree wholeheartedly with those is this statement: "But the bottomline is we're in the games industry.
Any company that's about buying users not about entertaining gamers should seriously rethink its business model."
Yes yes YES. Everything get's easier when you focus 100% on making a great game. Do that, make a concerted effort to market, and you will have no problem acquiring and retaining users. :-)
Mitch (Dave Mitchell) | 11:50 - 29 August 2012
Let the Nail meet the Head.
I do hope at some point that Apple will modify how apps are ranked, discovered, searched and recommended. But I think we may be waiting some time.
Phil Maxey | 11:21 - 29 August 2012
Changing how apps are ranked from number of downloads to engagement/retention would be a huge change for the app store, and could only have a beneficial effect for all concerned.
Jon Jordan | 00:52 - 29 August 2012
Angry mood, not bad mood ; )
Keith Andrew | 23:37 - 28 August 2012
Jon needs to be in a bad mood more often.
Jerome Lanquetot | 22:09 - 28 August 2012
Definitely agree with what you are saying about GREE and DeNA. You still have companies such as Tiny Co, Pocket Gems, etc bidding more than 2$ per CPI.
None of their game make more than 1$ per user, that's probably what you could hope for games such as DragonVale or Rage Of Bahamut. So are they losing money?
All these companies are backed by VC capital, their main goal is to increase the value of their company to get more VC or sell it. To increase the company value, they don't do that by increasing their revenue which they probably invest it all in marketing and advertising, but by acquiring users. A user is worth 3-4$ for a company valuation so at 2$ per install, they are still making money.
We saw it recently how hard it was to get in the top #25 compared to a year ago. Even with iBlast Moki 2, a 5$ title which was named best iphone game 2011 by apple and which went free, got the best featuring from Apple, App Of The Week, it barely went in the top #25. It would have been earlier, i can assure you it would be in the top 10.
The sad part is those companies are not making games anymore, they are making tools to acquire users, hopefully those tools make enough money so they can buy even more users, etc...
Not a great future ahread.
Volker Hirsch | 18:40 - 28 August 2012
I commend you, dear Sir! :)
The odd bit is - and I have preached this for many a year - that the model focussing on low single-digit conversion rates has nothing (!) to do with "social", quite the opposite. Social games (as they should be to live up to their name) would by their very nature have to focus on retention: social is about communication and interaction between people, it is not about adding ever larger numbers of users who then barely connect. I appreciate it is (or can be) a business model for some but it is not what drives to value for users. And who would think that you can put on a long-term business when you build a market ultimately no one cares about?
Magnus SÃ¶derberg | 18:06 - 28 August 2012
Great article Jon, and while i agree with most of it i do still believe that user acquisition can work if done the right way. What is wrong right now is that it's the actual install that is being incentivized but that doesn't mean you get a loyal customer. Instead watching a video of the game or watching screenshots is what should be incentivized and if a user become interested they also get the link to download the game.
Fraser Ross MacInnes | 17:50 - 28 August 2012
YES YES YES! Endless acquisition is a total dead end. This industry HAS to move towards a retention focussed model, otherwise we're just running around in circles, making games, acquiring large numbers of users, watching them churn and dwindle before repeating the process.
The reason we are in this situation is because, so long as you have cash, acquisition is easy, whereas retention is hard. So rather than do the hard thing and make better, more compelling games, those so inclined just go for the 'throw as much shit at the wall as possible approach". I can't believe that companies are happy to pursue this approach, happy so long as they convert enough users to generate more cash than they spend on acquisition and development.
It's so wasteful - how can any right minded developer, goliath or otherwise, not feel ashamed about converting only 1% of the total audience that installs its game into a paying user - even if that 1% spends like its going out of fashion?
I do think that acquisition services are useful, or even necessary, to hit a certain critical mass, but after that, the focus should shift to organic growth and retention through re-investing in the game experience itself.
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