Maximizing Monetization: What is Freemium?

We’re going to go back to basics with this post.  Bear with us though.  It will be worth it!

First, some numbers.  The global mobile gaming market has reached $36.9 billion in revenue in 2016, dominating the global gaming industry with a 37% market share, surpassing console gaming (29%) and PC gaming (27%).  And at 21% annual growth mobile gaming is projected to gross over $50 billion in 2019.  As our president might say, this is huge.  And this can all be explained by the global prevalence of smartphones and the rise of the “freemium” business model.

Freemium is the most popular business model for mobile games, and, if executed well, allows developers to capture all the value available in the market. Non-paying users can be monetized through in-game advertising and of course paying players through in-app purchases (IAP).

What is Freemium?

A Freemium game is free to download and play, offering optional in-app purchases for a variety of items. Some examples of in-app purchases might be for virtual goods, in-game currency, the ability to unlock levels or items, and more. Players who do not make purchases can still play the game and advertising revenue enables monetization of this group of players too, thus capturing the market value of both paying and non-paying players.

How prevalent is Freemium?

Looking only at the Apple App Store, games are currently leading the way at 25% of all downloads. Anecdotally, when browsing the Games section of the App Store or Google Play, you can see that freemium games dominate the various “Featured Games” sections. The Business of Apps has looked at the growth of the in-app purchase model since its introduction in 2011. As you can see from the chart below, in-app purchases lead the way at approximately 48% of revenue compared to revenue generated by advertising or purchases of paid games.

Who is playing and paying on Freemium Games?

According to an earlier survey by Swrve, only 1.5% of players made any purchases at all.  And as much as half of those in-app purchases were made by just 0.15% of all players.  Yes, these big spenders are those elusive “whales” you may have heard about. Have no fear, we’ll dig deeper those elusive aquatic gaming mammals in a future post.

Analyzing the demographic by age group can offer vital information to help identify the best monetization strategies. For example, despite younger gamers spending more time playing games, it’s older players who actually make the IAPs. There are lots of theories and explanations for this disparity, but either way, both demographics have their advantages (younger players will see more ads for example) and should be considered when evaluating your game’s monetization model.  With a game with younger appeal, an ad-driven model may be more profitable whereas an IAP-centric approach will likely work better with games that are more attractive to older players.

What is the best monetization strategy for my game?

Of course, there’s no easy answer to that…  For sure, you should start by getting as deep an understanding as you can of your game’s genre & demographic.  That should then allow you to target specific behaviors and apply the most relevant monetization strategies. Some users will spend a lot of money on IAPs to support their gameplay, so it’s not always advisable to show those players interstitial video ads. On the other hand, some players love rewarded video. There’s no one-size-fits-all solution as every game is different. One of the benefits of working with a publisher like Thumbspire is that we can apply our cumulative experience to find the right strategy for your game and its target demographic. If you’re ready to analyze, optimize and monetize your game then get in touch and submit your game!