Chart of the Week

Chart of the Week: Why the 288% rise in US CPI costs is good news

Unsustainable model finally breaks?

Chart of the Week: Why the 288% rise in US CPI costs is good news

Taken at face value, this graph highlights a very serious problem for the mobile free-to-play industry.

Produced by market intelligence outfit Superdata, it suggests that over the past 12 months the cost of getting a mobile game installed by advertising in the US has increased 288 percent.

This rise is then compared with the rise of average revenue generated by mobile gamer per month. During the same period, this has risen a mere 38 percent.

The result is a massive gap between the cost of marketing a game and the returns you can expect.

Or is it?

Real numbers

The first thing to notice about this graph is because it's a relative graph - based on January 2013 as 100 units - we have no idea what the absolute values involved are.

For example, if the January 2013 cost of an install was $1, by December 2013, it would be $2.88.

So if ARPU in January 2013 was $1, then by December 2013, it would be $1.38, and everyone would be losing $1.50 per install. Clearly that's unsustainable.

If, however, ARPU in January 2013 was $10, by December 2013, it would have been $10.38, and everyone would (still be) massively profitable.

Obviously, that's not the case either, but it does demonstrate such relative graphs can not be taken at face value.

December highs

Okay, so let consider the graph more deeply.

One aspect is that the gap between CPI and ARPU lines is small until November and December 2013. This sort of seasonality is something we'd expect given the continuing importance of the Holiday season in terms of device sales.

We'd need to see January 2014's figure to see whether December's CPI peak was maintained and the industry had a problem.

Simple business

Finally, more generally, we can say that businesses can only operate on the basis that they generate more cash than they spend.

So, if this graph was reality for the majority of companies, the amount of money spent on CPI would quickly collapse. As it became a loss-making activity, they would look for other - more effective - ways to get users.

Certainly, this trend has occurred during 2013, with the rise of tools such as video gameplay sharing, video ads and other more sophisticated install marketing channels replacing the first generation of incentivised download platforms.

So, in that respect then, perhaps we can all be thankful that the rise in the cost of CPI - whether it's actually as much as 288 percent or not - is effectively killing off the model by which those with the deepest pockets win.

Contributing Editor

A Pocket Gamer co-founder, Jon is Contributing Editor at PG.biz which means he acts like a slightly confused uncle who's forgotten where he's left his glasses. As well as letters and cameras, he likes imaginary numbers and legumes.

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Marek Rabas Co-Founder at Madfinger Games
Jon its not about one game.. If Zynga can move users to another games, they are still in profit..
promoteindiegames hello@promoteindiegames.com
@Jon

I never said it was a good strategy :)
jon jordan
If CPI prices are much higher than the money you can generate from a user, it doesn't matter how deep your pockets are.

No one can operate for long if their return on investment is negative.
promoteindiegames hello@promoteindiegames.com
It seems to me all that's going to happen is everyone apart from the richest developers are going to price everyone else out of the market. You mentioned the chart is relative, but of course so are the absolute values as well in regards to who can afford them or not, so the deepest pockets can afford the high rates no problem, everyone else, no so much.

Having said that, that probably does mean there will be marketing innovation, what's that saying "Necessity is the mother of invention". And there's a hell of a lot of necessity out there.