The mobile gaming industry is massive and growing. It's estimated that 85% of all app revenue in 2015 went to mobile gaming apps. In the US, 180.4 million consumers are expected to play games on their phones in 2016, and this segment will grow to 213 million by 2020.
While mobile gaming represents a huge market opportunity, the quantity of apps has forced a shift in how developers monetize. The vast majority of revenue now comes from in-app purchases and ads as gaming shifts to a free-to-play (F2P) model.
There's a problem with F2P games, though. Only a very small segment of mobile gamers, 3%, actually spend money within a game. And 0.23% of mobile gamers generate 60% of in-app revenue, according to estimates.
Marketing costs are already hovering at all-time highs as competition intensifies to drive downloads of F2P games. The marketing costs associated with prompting an app download were $1.78 per install on iOS in February 2016, the second-highest cost-per-install (CPI) for iOS ever.
Many apps, starved for revenue, focus entirely on monetizing only the ~3% of consumers who actually make in-app purchases, a segment the industry has divided into three categories: minnows (small spenders), dolphins (medium spenders), and whales (the largest spenders).
But keeping all players is critical for mobile game makers for a number of reasons.
Whales don’t come into games as whales, and they take the longest time to convert, according to a study. This means that a developer must engage a wide swath of users early on, since it takes some time for a player to become a major purchaser.
Nonpaying users, even those who remain nonpaying, still offer value in a myriad of ways. For example, these players count toward a game's user count and help a game launch into Top Games lists in app stores.
Replacing users is expensive. A game should try not to alienate nonpaying users to keep churn low and minimize having to spend on additional app-install costs to make up for lost users.
New marketing tools could help solve some of the issues in the gaming market. Newer and better segmenting tools, in-app install video ads, and game trials could give developers an opportunity to reach the right users in a more effective way.
Better monetization strategies should help reduce churn and keep nonpaying users from giving [...]