Home > Je Alipio, mobile gaming, report > App Monetisation Secrets (Part III) : 2007 – 2011

App Monetisation Secrets (Part III) : 2007 – 2011

By Romulo “Je” Alipio, Executive Producer, Games

Apple’s introduction of the App Store in 2007 revolutionised the mobile industry. Games and application developers were freed from the shackles of phone manufacturers and carrier portals. They could sell directly to consumers and in multiple markets. Development cycles shortened, go-to-market strategies were refined. But the iPhone platform only represents three percent of the global market and all the hype led even more developers to try their luck, making it harder and harder for a single app to stand out (and be profitable).

Faced with yet another crossroads, developers innovated and found a new business model: freemium, a mix of free content and premium paid services.

There are at least half-a-dozen freemium models. Each offers a potential solution to the issue of distribution and profitability. The techniques can be used anywhere – websites, wapsites, OEMs, on-deck portals, indie store fronts like Djuzz and even via email. But of course there are also pitfalls. Today, join me, as I try to make sense out of Try & Buy, Mobile Ads, Virtual Goods and more.


Try and Buy

A Hong Kong startup with strong ties to Nokia – mBounce – first introduced this approach in 2006. mBounce managed Nokia’s “Try for Free” business and embedded a free version of the popular mBounce 3D Bowling game on Nokia phones in 2007 and 2008. With a simple click, users could buy the premium version.

One of the first freemium models, this is still among the most popular. The concept is straight-forward. Consumers test an app for free – either for a limited time or with limited functionalities – then if they like it, they can purchase it outright.

Users of Mobile Hotdog are presented with a menu to purchase a game or play a demo version.  Payments are by SMS.

From a consumer perspective, the payment process for Try & Buy is much smoother than the previous pay-per-download models, which relied on annoying SMSes to confirm and reconfirm a purchase.

Developers meanwhile have complete control of the price point and territories to support. They also earn on every purchase. To implement the model, developers generally work with Try and Buy SDK providers like mBounce to embed the approach in their codes.

Virtual Goods
The instant gratification and bragging rights brought by a bigger shield, a colourful vest or a mean-looking pet have spun a whole new industry. Gamers can buy virtual accessories, maps, weapons and even new characters with a single click. The user flow is seamless; payments schemes are normally via SMS, wap or credit card. These micro-transactions enable whole virtual worlds and real-world companies to exist. Developers work closely with companies like Fortumo which provides API’s that can be easily integrated into an app.

In this example from GunBros, gamers spend “War Bucks” to purchase items, armor, weapons and artillery. But first consumers must purchase the War Bucks, at an exchange rate of 5 War Bucks to one real-world US dollar. Payments are made via credit card.

Mobile Ads
We’ve written a lot about mobile advertising here on the BuzzCity blog. Graphical banners can be displayed before, after or even during a game. Developers work with distribution networks like BuzzCity that provide automated solutions or SDK codes which can be embedded in an application. There are no upfront costs, developers control the types of ads shown (blocking ads they don’t want) and they earn a percentage of the ad revenues with every click.

Service Subscription
Just like old-school newspapers and magazines, mobile applications with regularly updated content can charge consumers for subscriptions. Not surprisingly, media outlets have been the first to adopt this model. In 2010, The Washington Post launched an iPhone app for just US$1.99 for 12 months of mobile access to the paper’s content.

The Daily,” a daily digital news publication with original content created exclusively for the iPad, offers weekly and annual subscriptions. Payments are made by credit card.

Developers need to build subscription systems internally as they require a server to push the content and settle payments, which can be made by SMS, WAP or credit card. Upon startup, the application connects to the server to check the consumer’s status (paid, unpaid, etc.) as well as the type of content available for that geographic locale. Users meanwhile are normally prompted during payment cycles, unless they have signed up for auto-renew.

Subscriptions won’t work for most games as the content has a limited lifespan — the normal lifespan of a racing game or puzzle is 3 – 4 months — but it could work for multi-player games, though I haven’t seen this done yet.

Mobile Rewards
Imagine you’re playing a game and would like to buy a virtual shield to protect yourself from demons. The shield costs 10,000 virtual dinars. But you don’t have that much virtual currency and don’t want to pay the real world equivalent. What to do?

Well, if your time is flexible, a number of companies now offer a solution. Instead of spending cash, take a survey or click on an ad instead. Afterwards, users are rewarded with virtual credits, prizes like unlocked characters, special maps and limited-edition weapons or even free game downloads.

Mobile rewards are usually pubicised at the beginning of a game to entice users to participate. It’s most popular in developing markets where consumers use prepaid SIM cards.

Developers meanwhile work with companies like Tap Me to implement this model, which is financed by advertisers and marketing companies.

Upgrades/Updates

Another way to monetise applications is to offer upgrades and updates for a fee. Rolling out new characters, features and levels after the initial launch of a game keeps users interested, prolongs an application’s shelf life and generates an additional revenue stream, without much additional cost. New skins – often tied to a holiday like Christmas or Halloween – are also popular.

Upon startup, apps normally check for updates and if any are available, users are prompted to upgrade.

Bolt Creative offers Pocket God users several choices to outfit characters or play new levels.

Developers normally build this system internally as it requires a server to push the update. Payments are provided via normal channels (SMS, WAP or credit card).

Cross Selling
This is a good way to move back inventory or promote new apps, by using one game to sell another. Cross-sell pages normally appear at the end of a game before a user exits. For example, if a consumer has downloaded an old game for free, she may see a cross-sell page linking to a premium site selling the latest apps. Or if he is playing a new game, the cross-sell page might promote a developers’ back catalogue.

Mix & Match
Developers have also begun to offer consumers choices on how to pay. In this golf game, for example, Flexion offers pay-per-download as well as two different subscription options. Payment is made by SMS or wap charging.

Other developers combine elements of various freemium models, such as enabling consumers to turn off ads by paying an upgrade fee.

Overview
So many choices, so many possibilities, it can be confusing.  Each of these models has its pros and cons; some work better in one type of market than another.  In the next installment of this series, I’ll provide an overview of how these freemium models are performing as well as share some thoughts about where we go from here.

Related Stories
Part I – Early Business Models
Part II – Revenue Issues
Part IV – Monetisation Strategies: What Works, What Doesn’t

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