The Cost of Freemium Games: an Economy All Its Own

Even though it is highly debatable as a monetization system, the economics of “freemium” are taking over the landscape of mobile gaming.  A mash-up of “free” and “premium,” this model suggests the best of both worlds. But nothing’s really free. The anchor of the freemium business stems from converting free users to premium in-app purchases.  The built-in engagement you’ll find in most mobile games of today encourages higher usage and even higher returns.  In fact, a recent report notes that free-to-play games earn more than $60 per user per month. A deeper look into the economics of  the ever-popular freemium model are illustrated in this infographic (below).

How to monetize mobile gaming products and services is arguably the first question that comes to mind when talking about free-to-play game development. Looking at the numbers, nearly 65% of the top 100 grossing apps in App Store were generated by the freemium business model.  More or less 72% of all income from the App Store came from freemium mobile games. The study also found that the main profit drivers come from game perks like extra lives, extra features, virtual goods and personalization services.

Gaming powers-up freemium business

Gaming has taken the mobility and social spaces by storm. Out of the 25 revenue-generating apps noted in the infographic, 22 are gaming applications. All of the top 5 revenue-generating games in the App Store are free-to-play.  The numbers are greatly influenced by avid gamers who play multiple times per day.  In 2011, 8% of this group spent more than $50 for gaming apps, while 12% and 14% cashed out $26-$50 and $11-$25 respectively. Nearly 30% paid $1-$10.

In-App purchases

Avid gamers have shown their power to monetize through in-app purchases. The same study revealed that 51% of avid gamers have made at least one in-app purchase for the following reasons: access new features or levels, improve performance or speed up progress and personalize or decorate characters. The numbers will continue to rise and consequently, in-app purchases are could outpace pay-per-download revenues this year, according to ABI Research.

Mark Beccue, senior analyst for mobile services, shares his insights on this trend, noting how Google and developers can make or break the positive prediction on gaming in-app purchases, saying,

“As a revenue model, in-app purchase is very limited today. The vast majority of current in-app revenue is being generated by a tiny percentage of people who are highly-committed mobile game players. We don’t believe the percentage of mobile game players making in-app purchases will grow significantly, so for in-app purchase revenues to grow, mobile developers other than game developers must adopt it.”

Helping developers to further monetize cross-platform apps through direct carrier billing, PaymentOne introduced PayOne HTML5 API.  This tool will manage a more effective payment course for developers and monetize their offerings athwart all platforms and devices by way of a secured and fast “charge it to my mobile phone bill” payment method.

Social Mobile Gaming

With Zynga facing global rivals and diversifying its services beyond Facebook, social mobile gaming is on a roll. Its $1 billion IPO valuation says a lot how the industry’s luck favored a barely 5-year old company.  Late last year Electronic Arts acquired KlickNation to keep up with the industry’s quickening pace.  Zynga posted a strong fourth quarter in 2011, amidst massive net loss estimated to be at $435 million. Social gaming is also fuelling Peak Games interest as they acquire a Saudian company, Kammelma, dominate two largest emerging markets in the world at present: Turkey and MENA (Middle East North Africa).