An annuity, as thoroughly explained in a blog by Scientific Revenue's resident economist Isaac Knowles, is a monetisation system whereby virtual currency/items are offered at a vastly discounted rate, but distributed in daily instalments over a fixed period rather than all at once.
It's a technique that's often been praised in our IAP Inspector column, and one that's growing in popularity - particularly in Asian games.
For Grosso, it's a great way of monetising a subset of players who aren't necessarily prone to impulsive purchases, and are therefore less susceptible to techniques like starter packs or flash sales.
“It appeals to a very different psychological group than the impulse purchases or the gotta-have-its,” he tells PocketGamer.biz.
Indeed, the people to whom annuities particularly appeal are what he calls “planners” - the same kind of people who have the patience and foresight to save up coupons from a newspaper for the long-term reward of a discount, rather than leaping in at full-price.
“The cumulative value is enormous - the discount you're getting off regular currency prices is huge - but you get it incrementally,” says Grosso.
The cumulative value of an annuity is enormous.William Grosso
“[Annuities are] a very nice idea from a monetisation perspective and a retention perspective, and the players like the game more when they commit to it.”
Annuities are usually run over the period of approximately one month, offering an incentive more powerful than the regular daily login rewards to wed players to the game and keep them coming back.
But there are of course complications.
Pick your targets
For starters, Grosso points out, nobody wants to cannibalise players who would have spent money anyway. To get around this, he encourages what he calls “intermittent availability”.
“Generally speaking, we recommend the annuities show up maybe day three, maybe day five,” he says. “You now have a better idea of who spends and who doesn't, and you can target the offer selectively.”
But what happens when the annuity period is over? The idea, according to Grosso, is then to transition these players to spending on IAPs at the regular price points.
As such, allowing users to immediately renew the offer for another month may not be the most effective approach.
“We're going to back off and wait for you to experience the game without the annuity for a little bit, and maybe drain your currency or that sort of thing,” he explains.
“At the same time, if you then go back to not purchasing, we're going to make it available again.”
This goes back to something Grosso has discussed in detail before: the importance of tracking the right metrics.
Most developers tend to track engagement and retention because those are the proxies for 'did I build a good game?'William Grosso
“Most people, when they get into gaming, they get into it to make games. That's the motivation,” he considers.
“[So] when they build analytics solutions or when they look at reports and track numbers, they tend to track the engagement numbers and the retention numbers because those are the proxies for 'did I build a good game?'”
However, Grosso believes that studying metrics through a different lens can be very revealing. For instance, he notes that average repeat purchase rates tend to range between 20% and 60%.
Furthermore, the percentage of players who even look at the hard currency store in a free-to-play game averages between 30% and 70%.
The road less travelled
These are both metrics that most studios have access to, but would lack the initial thought to even do so.
“How many games actually track 'visited the coin store in the first two days'?” Grosso questions. “I don't think any do.”
But if developers did track it and noted that the percentage was particularly low among their players, there is obviously something to be addressed.
Then, Grosso explains, it becomes more granular. For instance, if someone spends all their free currency and visited the store only once, maybe the prices are too high for that particular player.
But if they never visited the store at all, it's more likely to be a tutorial issue - perhaps more explicit prompting is required.
Questions and answers
By the same token, a below-average second purchase rate also raises direct design questions.
How many games actually track 'visited the coin store in the first two days'? I don't think any do.William Grosso
“Players didn't get value? There's no further use to coins? There's a question there that really does impact monetisation,” says Grosso.
But in his experience, it's something very few studios take the time to track.
As a result, he says, many developers are missing out on key, actionable insights that would allow them to better tailor their monetisation to different groups of users - including effective use of annuities.
This, in essence, is Grosso and Scientific Revenue's message. Theirs is a campaign for greater sophistication in the mobile games industry's approach to metrics, and a promise that greater profits can be the result
But to hear the case put forward in much more detail, you'll have to attend William Grosso's talk at Pocket Gamer Connects London on January 16th - tickets for which are still available.