Home > Je Alipio, mobile gaming, report > App Monetisation Secrets (Part 1)

App Monetisation Secrets (Part 1)

By Romulo “Je” Alipio, Executive Producer, Games

“Freemium”. Is it the golden grail for application developers? It’s certainly the key buzzword in the industry right now. But not that long ago pay-per-download and embedding were on top.

Developing cool and useful mobile applications isn’t easy. Making money off them can be even harder. Even if you believe in freemium, there are so many different models – Try & Buy, Upgrades, Mobile Rewards . . . what to do?

Well, let’s start with a sense of history. Today’s piece is the first of a multi-part series in which I’m going to take a closer look at the evolution of mobile monetisation, explore why some business models work and others don’t, then share reflections about what’s to come in the near future.

The First Mobile Game

In the mid 1990s, mobile phones were analogue and couldn’t do much other than transmit voice. Nokia soon started making hipper devices, adding SMS, data and finally content.

Then in 1997, an engineer named Taneli Armanto took a popular 1970s video game – SNAKE – and embedded it onto the Nokia 6110. The move was a hit. SNAKE has since been distributed on some 350 million devices and was a turning point for Nokia as well as a source of inspiration for developers across the industry.

Early Business Models

Game development houses cropped up, but the question was always how to monetise new content. At first, there were basically three business models:

1. Embedding

Nokia was bullish about getting content and would pay developers either a one-off bulk fee or a per-phone installation for the rights to embed games and apps on its mobile devices. Sony and Ericcson followed suit. Everyone wanted to be part of it. The going rate for per-phone installation was about US$1 per device or US$2-3 for better-known branded games and well-known IPs. Top partners could make US$250 – 500k per deal per game. And they were often commissioned in advance. Smaller and newer developers might make as much as US$100,000 or as little as US$10k.

2. Outsourced Development

The bigger and more established game makers — like EA, Digital Chocolate, Hero Craft and PHQ – began to strike deals with the smaller players to purchase content and distribute it to phone manufacturers. EA and the others already had good relations with Nokia and the like; they would often bundle content into packages before offering it to the Top Five. Sometimes garage developers received a straight fee. Other contracts were based on revenue sharing, with the smaller company generally receiving a 30-35% cut.

3. Pay Per Download (PPD)

Before the days of App Stores, WAP sites were the best place for consumers to check out mobile content. If you saw a game you liked, you would SMS in a code, then receive a download link. A mobile carrier or billing service would charge the consumer’s credit card.

Revenue Issues
Embedding and outsourced development fell out of favor first. As the number of development houses mushroomed, margins became smaller and smaller and it just became too difficult to turn a profit. PPD seemed the way to go . . . but the grail was still far away.  

In Part II of this series on App Monetisation Secrets, we take a look at some of these revenue hurdles. In Part III, we examine the rise of “freemium” and the diversity of its models. And in Part IV, we look at the factors to consider when choosing a monetisation strategy.

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