Niccolo de Masi is Chairman & CEO of Glu Mobile Inc.
For nearly a decade I've believed that the free-to-play business model is the most efficient in the world for mobile gaming.
Glu's turnaround and growth over the past five years has been predicated on precisely this efficiency.
Regardless of platform, culture or genre - free-to-play is the winning business model.
As early as Q1 2010 Glu focused on where we knew the hockey puck was going - free-to-play gaming on smartphones and tablets.
We built the first free-to-play mobile shooters with high-fidelity graphics. Today we have expanded to operate in six genres with eight franchises.
Players in control
At its core, the dominance of free-to-play is attributed to the simple fact that it allows each player to decide his or her own trade-off between time and money. In effect, we each create our own bespoke demand curve.
Most remarkably though, it is not a single demand curve - fixed for our entire lifetime interaction with a product.
Rather, we can decide each time we play a single session how we value our skill, time, and money. We are able to alter this curve based on simply the mood we are in or in fact within the same playing session of a few minutes.
Free-to-play games are arguably the best value for money entertainment experiences in the world.
The supermajority of players in a free-to-play game never actually spend a dime and enjoy many hours of completely free gaming.
The dominance of F2P is attributed to the simple fact it allows each player to decide their own trade-off between time and money.Niccolo de Masi
Depending on title, Glu sees up to 5% of global daily players spend $0.99 or more on an in-app purchase.
This purchasing contributed 82% of our non-GAAP revenue in Q2 2015.
The other 18% of non-GAAP revenue last quarter came from in-game advertising, which all our non-spenders see.
Within this small minority of gamers who buy virtual goods, a power law operates where the magnitude of lifetime expenditure varies inversely with its frequency.
There are approximately half as many people who spend $100 over the lifetime of their interaction with any given game, than there are players who spend $50.
At the very top of this power law are the top 1% of spenders - players typically referred to in our industry as "whales."
I am pleased to be releasing detailed information on what 'whale behavior' looks like in some of Glu's biggest titles.
As one might expect, our biggest spenders are typically highly engaged with their game of choice.
Typically a whale's game becomes a part of their 'entertainment routine' during the week. Thursday sees the fewest number of sessions from our top 1% of spenders, and Sunday the most.
A whale in one of Glu's top games typically spends $500 - $1,500 in their first six months.
Interestingly enough, whilst we find a higher average lifetime whale spend for Deer Hunter 2014 on iOS ($683) than Android ($569).
For Kim Kardashian: Hollywood, the Android figure is greater ($1,446 versus $1,252).
Looking at the time our whales spend playing is revealing:
- Kim Kardashian: Hollywood whales play over 100 unique days and spend over $13 per hour on average. The average session is approximately eight minutes or more with a whale playing 5-6 times per day.
- Deer Hunter 2014 whales by comparison spend over $5 per hour on Android, but over $10 per hour on iOS. Three sessions of 18-30 minutes per day are typical over around 70 unique playing days. Slightly more than half of Deer Hunter 2014 whales are in the United States.
Whales typically indicate themselves early, on average spending $25 on their first in-app purchase. They are also early adopters - with over 60% of iPhone users using an iPhone 5 or newer.
Kim Kardashian: Hollywood whales play over 100 unique days and spend over $13 per hour on average.Niccolo de Masi
Our Racing Rivals franchise caters to a highly engaged gamer who wants to race his or her fellow competitors for pink slips.
As we allow a seamless cross-platform experience, the average Racing Rivals whale in-fact plays on two different devices. He or she also typically adds 279 friends during his or her lifetime engagement with the title.
In aggregate we can see that free-to-play gaming provides the cheapest digital entertainment per hour.
Most people spend nothing.
The top 1% of spenders in Glu games (whales) do so at a rate comparable to a movie ticket: roughly $5-$10 per hour.
The bottom quartile of spenders do so at a rate of only $0.30-$0.40 per hour.
The average revenue of a player over his or her lifetime is a function of:
- 1. How many total hours they play;
- 2. What percentage become paying users; and
- 3. How much payers spend over their lifetime interaction.
At Glu, we tackle these three items in precisely this order - first retention, then conversion, and then average revenue per paying user (ARPU.)
We use highly granular real-time analytics in order to understand user behavior every step of the way.
Beta testing is focused on optimizing the difficulty, tutorial, merchandising systems and pricing of virtual items. Live events post launch cater to the more competitive gamers and might also put various items on sale - directly or indirectly. Content updates provide reasons for players to return and keep engaging.
At the moment, the vast majority of game companies tailor their economies and merchandising to the 'average player'. Over time however, companies such as Glu will begin tailoring our game experiences to different cohorts of users.
Whales do not behave the same way as other segments of paying users. Spenders behave differently than non-spenders. By 2020, I anticipate dynamic difficulty and economy adjustments to be very much the norm amongst the biggest mobile gaming firms.
E-Commerce giants such as Amazon have shown us how far today's big data and machine-learning techniques can optimize merchandising.
I look forward to the day when every gamer plays a Glu title and experiences something which is just as personalized.
About the Author
Niccolo de Masi joined Glu as its President and Chief Executive Officer in January 2010. Prior to joining Glu, Niccolo had been CEO of Hands-On Mobile, and CEO of London-listed Monstermob Group PLC. Niccolo holds an M.A. degree in Physics and an MSci. degree in Electronic Engineering-both from Cambridge University.
This article represents the views of Niccolo de Masi and not necessarily the views of Glu Mobile Inc. or its other directors, officers and employees.
This article contains forward-looking statements that are often identified by the words "may," "will," "believe," "anticipate," "expect," "could," and similar expressions or variations, including statements implying trends in spending patterns by players of mobile games and the ability of Glu and other gaming companies to (i) tailor game experiences to different cohorts of users, (ii) produce dynamic difficulty and economy adjustments that become the norm amongst the biggest mobile gaming firms by 2020 and (iii) otherwise personalize the gaming experience in a manner similar to how e-commerce giants such as Amazon personalize merchandising. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, including: the risk that consumer demand for smartphones, tablets and next-generation platforms does not grow as significantly as anticipated; the risk that the mobile games market is smaller than anticipated; and other risks detailed under the caption "Risk Factors" in Glu Mobile Inc.'s Form 10-Q filed with the SEC on August 7, 2015.