Mobile Games, Whales, and The Future

Mobile games have become very popular recently. From Draw Something to Words With Friends to Angry Birds, more and more users are adopting mobile game entertainment. Most people play the game and never think about how the gaming companies make money. There are a few common options:

-The company can make the user pay for the downloaded app

-The company doesn’t monetize the game at all (think Instagram for games)

-The company allows users to make in-app purchases (most common form of monetization)

Most apps are free so there is no barrier to adoption and allows users to flock to popular games. The smart companies realize that they have to create revenue so they seek to monetize the game in some form. That leaves us with in-app purchases (or upgrades) as the main source of revenue for gaming companies. Do enough people really make these purchases to keep the gaming company afloat though?

ABI just released a report that shows most people are unwilling to pay. According to TechCrunch approximately 70% of consumers pay “either nothing or very little.” They love free games but don’t love the applications enough to spend their hard earned money. So where does the revenue come from?

Gaming companies have become increasingly reliant on “whales.” These are individual users that spend large amounts of money on in-app purchases. “The highest-spending three percent of all app users account for nearly 20 percent of the total spend in the market” according to ABI and reported by Colleen Taylor. There have been reports of people spending over $100,000 on a single game. Yes….six figures to improve their performance in a mobile game. Simply amazing.

All these statistics tell us one thing: The gaming company is in trouble if it can not figure out how to get more users to spend money! Every business owner knows that it takes revenue and profit to run a business. Some companies are content with continually seeking venture funding but the good ones will create organic revenue streams. The obvious approach is to limit the free content of games or place more ads on the already cluttered mobile platform. Whether these attempts will be effective or not remains to be seen.

I am a huge child at heart so I admit I play different mobile games. I love the free content but have personally never spent a dime on this form of entertainment. Keep an eye on this industry over the next 6-12 months as I expect to see major innovations. What would you be willing to pay for? Have you ever spent money on any form of mobile game? Share your thoughts and insights below!

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