Home In-Depth Feature Secrets of the Mobile Games Industry

Secrets of the Mobile Games Industry


By Amy Summers | April 6th, 2017

Amy Summers interviews two senior executives in the mobile games industry who led the development and launch of titles that raked in revenues in the hundreds of millions. The executives have requested to remain anonymous, and will be referred to as Executive X and Executive Y.

Amy Summers: Thank you two for your time, going to jump right in and start the knowledge extraction from you two…

EXECUTIVE X: A lot of useless information you have to sift through then…

Let’s get the good ones then. To start off, how would you describe the general state of the mobile games industry?

EXECUTIVE X: I think something that would be both informative and enlightening to the average person is just how saturated and crowded the landscape is. I talk with many indie developer teams who work passionately in the garage carrying the dream of hitting it big with their game and becoming the next Candy Crush or Clash Royale, or at least the next Flappy Bird. They reach that big day where they launch the game on the App Store and Google Play, and are stunned a month later when they have a daily active user base of only a hundred or so and barely any revenue to survive on. At the moment there really is only two main platforms, the iOS App Store and Google Play. A game that is launched there is immediately lost in the noise and won’t be discovered. The games that make it need big bucks to market-blitz the landscape, and this is not a one-time thing. Unless you want the game to die out, you need constant and continuous marketing from an array of different channels.

Or you would need to be featured by Apple or Google

EXECUTIVE Y: The Apple or Google feature is actually only useful to an extent. But it’s another thing that would be unavailable to the vast majority of game developers. In theory these two platforms will occasionally showcase greatly-designed indie games that were discovered by their editors, but in practicality they usually showcase games from major developers that they have a relationship with. It is true though that a mid-sized game developer with some industry recognition would probably be able to get a feature upon launch.

But what happens is that you get the big spike upon launch and a week later the game has dramatically fizzled with daily installs maybe even below a hundred every day. A hundred installs might sound okay if weren’t for the fact that most games can’t even hit 30% Day 1 retention. What this means is that if you have a 100 new players today, tomorrow only 30 of them will come back, you’ve lost 70% already. The first week is particularly brutal, of a 100 new players, having less than 10 still remain a week later is the norm for many games. Even games that hit 40% or 50% for Day 1 retention often struggle to stay in the double digits a week later.

EXECUTIVE X: So to come around again to your question, the state of the mobile industry is that it is an incredibly saturated place where the sobering reality is that you need money to begin with to make it big. It’s hardly the wild west dream that many people still have.

Doesn’t this mean that the landscape is mostly dominated by the major game developers?

EXECUTIVE X: It is indeed. It’s gone full circle and is back in the hands of the major bigwigs just like the game console industry. If you think about the development of console games, it is nearly impossible for an indie studio to both develop and publish games. They can develop the game but need the assistance of the major studios to publish and distribute the game. The major studios bring the power of marketing but importantly they dominate distribution. You can have the greatest game on earth but if no one knows about it and if it can’t efficiently reach the hands of consumers then you will never recoup the development expenses.

The iOS App Store and Google Play Store started out as a level-playing field where developers could now bypass the domination of marketing and distribution by the major studios and take their game directly to the consumer. They became both the marketing discovery platform and the distribution conduit for any game creator. What happened over the years is that the concept of discovery became fully monetized. Users looking for new games will likely download the top games displayed in the store or download games presented to them in a compelling Facebook ad. Both options, the latter is obvious, but the former as well, are achieved with a robust marketing budget.

EXECUTIVE Y: Another thing that happened is the technological advances of mobile devices over the years allowed for astonishing graphics and console-like depth and gameplay. While it’s still possible for more simplistic productions like Flappy Birds to achieve success, the average development cost of a mobile game is already around the one million US dollars mark for major studios. That’s where the quality is at right now. One million dollars in development. And a one million dollars game released onto the App Store and Google Play without marketing still has a high chance of flopping big-time.

Tell me about the relationship between cost and potential revenue then. With the rise in costs as you mentioned, how does that realistically correlate to what the revenue would look like?

EXECUTIVE Y: Sure, let’s break it down one step at a time then. Upon finishing production, the game starts out in the red for development costs. So let’s say a game, Title X, is now one million dollars underwater. The producers work in tangent with Apple and Google to be featured which in a strong scenario might bring in a combined 200,000 downloads. Around 90% of the games I’ve done business with or analyzed from industry reports have a Lifetime Value per User of below $3. A game done by a small studio team is likely to have a very low LTV due to the high expertise in game design, polished artwork, and monetization speciality required to produce a game that can garner high LTV these days.

So if we used $3 LTV, that translates it into $600,000 dollars from these 200,000 users. After Apple and Google’s 30% cut of the revenue, that leaves $420,000 in earnings, not too bad at all it seems, almost halfway towards recouping the development cost. The thing to remember though is that the 200,000 downloads was essentially a freebie from the store featuring. Without any more marketing the game would be lucky to get 20,000 installs a month. Also a game that cost one million dollars to develop isn’t able to just sit on its own, but rather requires continuous resources in engineering, QA, art, monetization, and game design to maintain and push new features to keep players interested. This expense could range anywhere from $35,000 to $100,000 per month.

So as you can see the game essentially would never recoup and be profitable in this scenario. The average lifespan of a mobile game is also only about two years, discounting the obvious exceptions like Clash of the Clans. In any financial forecast the mandatory scenario is to therefore be profitable within two years. The only way to hit profitability then is to raise LTV as much as possible and be smart about marketing. The amount we have to pay to acquire a user from marketing channels, what we call cost-per-install (CPI), is already well over $3 and in some cases even as high as $8 for certain genres. In the $3 LTV scenario, if we manage to hit an average cost of $3.50 per user, this could potentially then be profitable as organic users are often proportional to acquired users. There is usually an organic inflow of around 35% to 50% relative to acquired users. Therefore if we acquired 100 users, and had a 40% organic rate, that means we would get 67 organic and thus free users as a result of acquiring these 100 users. I would have spent $350 to acquire these 100 users, but as they brought in 67 users, which means my real CPI would only be $2.10. If the LTV for each user holds at $3, that means I’ve now netted $0.90 from each user. After Apple or Google’s 30% cut that leaves me with $0.63 per player. Playing all this strategically then slowly gets me on the road towards profitability, but it is a long road and as you can see it takes a lot of money to make a lot of money in mobile games.

There have been the exceptions right? Flappy Bird or Temple Run are very successful games that seemingly achieved popularity with a relatively low development and marketing budget.

EXECUTIVE X: That’s true, but I honestly see that as a past reality that is still trying to be meshed into changed conditions today. There are thousands upon thousands of great games out there, yet only a handful gain this kind of fame in those conditions, and most were from several years ago. You can also add Subway Surfers to the mix, which I would estimate costed in the low six figures to develop yet made millions. But those games existed at a time when it was still possible to put in just enough marketing after launch to hopefully have it hit viral status. As indicated before the landscape is now considerably more saturated so you see such cases less.

I suppose Pokemon Go would be one of the more recent viral successes I can think of.

EXECUTIVE X: That was a phenomenon indeed. But the game itself I would estimate still costed around $1 million to develop, and for marketing they are leveraging one of the most successful IPs of all time, so all that factors into the equation.

So being able to build a game off a successful brand would be a smart strategy?

EXECUTIVE Y: Well, if you can obtain the rights to build a game off well-known IPs from brands like Marvel and Disney then certainly your organic installs without any marketing at all would already be much higher than a game with original characters. But the issues mentioned earlier still apply to some degree, and to reach profitability as a developer you would have to now factor in the various revenue splits you may have to pay out to the IP holders.

Nonetheless it seems like there are still many original and current hit games that people look up to, like Clash Royale.

EXECUTIVE X: Indeed, one of my favorite games as well. And that’s what we’re all chasing after. The dream of hitting the jackpot is alive and very possible, but as you can see in addition to having a great game it also takes a smart financial strategy.

Questions, Comments, or Suggestions? Email me at amy.summers@thenewsreflection.com

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