The Rise of the Subscription Model in the App Economy

10.05.2017_blog_00.JPG

If you have looked at the Top Grossing charts on the App Store (though that’s harder to do in iOS 11 than it used to be), you might have noticed an important change taking shape in the last few months. On October 1st, for the first time, the Top 5 grossing on the US App Store didn’t include any of the usual free-to-play games that have dominated for so long: Clash of Clans, Clash Royale, Candy Crush, Mobile Strike, Game of War or Pokemon Go.

Credit: Priori Data

Credit: Priori Data

The big winners in the free-to-play game market do not need to panic: they are still doing well (with 5 of them remaining in the top 10 on that date), but we can detect some interesting market trends from this new chart.

The first is that mobile consumer spend is diversifying from games into other popular content categories like dating, music streaming, and mobile video. Mobile video, in particular, is very hot, with a multi-billion dollar battle to turn the smartphone into a television as well as skyrocketing trends in mobile data traffic driven by video.

The other common denominator among the Top 5 grossing apps from the chart above is that they monetize their content with a subscription business model. It comes as no surprise that the subscription model can be very profitable for content providers and very convenient for regular consumers of a particular content portfolio. What is relatively new is the expansion of this business model inside the app stores, and consequently, the growth of its importance in the app ecosystem.

In fact, in June 2016, both app stores changed some of the rules around the subscription model for apps, mainly extending it to all categories of apps and reducing the fee from 30% to 15% (on Apple this applies only to subscribers using the services for more than 1 year). This certainly contributed to the growth occurring on both stores: Apple announced that 2016’s app subscription billings were up 74% year-over-year to $2.7 billion. Google announced that over the past three years, subscription spend has grown over 10 times on Google Play, while subscribers doubled in the last year.

So, if it makes sense for your app, you should definitely look into implementing a subscription model and taking advantage of the recent changes in the app stores. Although the fees are still higher than alternative web payment methods, the low friction in the purchase flow shows conversion rates that are 100%-400% better than usual account and credit card flows.

However, not all apps work well with this business model: you need a great product with a clear value proposition that continues over time. Examples are:

-          Premium features (e.g., “Likes you” in Tinder Gold)

-          Great and updated content (e.g., HBO NOW)

-          Exclusive and personalized service (e.g., health and fitness apps like Runtastic)

-          Utility apps (e.g., Dropbox etc.)

Recent research by Google Play outlines the details of what users are willing to pay for, how much they are willing to pay (by category of content), as well as useful insights on how to price your product and keep your users engaged. The Google Play dashboard has also recently added some useful reports to keep track of retention and churn for subscription services.

What about mobile games? Can games benefit from this rise in subscription business model in the app ecosystem? While subscription is definitely not a new model in the PC game space with many MMO (Massively Multiplayer Online) games like World of Warcraft, Elder Scrolls Online, etc., traditionally offering premium subscribers “unlimited access”. This model definitely presents challenges on mobile, with the predominance of casual gaming and its free-to-play model.

The coveted “Netflix for Games” approach that is pursued on the console market by Xbox Game Pass and Playstation Pass requires the bundling of a large number of popular premium games into a catalog. During the subscription, the catalog can be accessed (without limits) with  ongoing additions and updates to the content. This is pretty hard to achieve in the mobile free-to-play space, although there has been some success in emerging markets with initiatives like Bemobi (now part of Opera) which bundles a number of premium titles along with full access to free-to-play games using a subscription model. And now, Bandai Namco Entertainment, in partnership with our parent company Docomo Digital, is launching a subscription-based paid portal with a portfolio of classic arcade titles like PAC-MAN, Galaxian, Galaga, and more.

Another interesting approach exists for free-to-play games with very long player lifetimes and high user spending: offering subscription services either for exclusive features, an advantage in the game, or simply a discount on repeated purchases.

10.05.2017_blog_02.png

A great example of this is Supercell’s Boom Beach that recently started offering two different subscriptions: “Endless Reserves” which removes the time constraints related to training troops for $9.99/mo and “Extra Builder” which allows a player to build two buildings at the same time for $2.99/mo.

This model has yet to be replicated on Supercell’s most popular and lucrative titles (Clash of Clan and Clash Royale), so we can assume that they are currently testing the appeal of this model in the free-to-play realm to see its effect on the game economy. So far, judging from the community's reaction, it seems to resonate well with heavy users of the game. This approach could also be applied to their other titles: wouldn’t you consider paying a monthly subscription for the ability to open Chests instantly on Clash Royale?

It is too early to know if the subscription model will make headway in the free-to-play mobile games market, but it is certain that potential candidates need to meet the same criteria we listed above for other types of apps: high engagement and clear continued value proposition.

If you have a title with the above characteristics and you would like help in exploring the possibility of venturing into a subscription business model, contact us!