We’re at the San Francisco Design center, blogging Inside Network’s third annual Inside Social Apps conference.
Kim-Mai Cutler leads a discussion on “Monetizing Mobile Games on iOS and Android,” joined by TinyCo’s co-founder Suleman Ali, Storm8′s CEO and co-founder Perry Tam, Pocket Gems chief operating officer Ben Liu and Game Insight’s VP of Business Development Darya Trushkina.
The following is a paraphrased transcript of the discussion.
Kim-Mai: When we first put this panel together, the charts were more predictable. You guys had the top grossing game or a number of titles on iOS and Android. Over the last couple of months, it’s become more volatile. How is that affecting business?
Ben: It’s a different time now. There’s more competition. That’s a challenge and something that’s good for consumers. Lots more choice. It’s an opportunity and a challenge in a sense that developers have to innovate and make new titles.
Perry: We observe and monitor the top grossing chart closely. We don’t make predictions. We’re more in reaction mode. We look at the charts and improve on ourselves. If we see that our app is up top, we double down on marketing and in-house effort, adding new content or features. On the other hand, if we see the app not doing as well, we’re going to scale back.
Kim-Mai: What kind of spending do you need to do to keep it there?
Suleman: I think the volatility of the charts is natural based on where we are and where the market is. There’s tons of fragmentation and people are launching new games all the time. I think what will happen over time is there will be a bunch of people who can generate a large quality of users and generate better games. Companies that can do that will be able to keep their hold on the top grossing charts.
Kim-Mai: We had people say the rankings game doesn’t make sense anymore. What do you think of that? Can you have a lower ranked game and still have a viable business?
Suleman: What I’ve seen from the top grossing charts is that there’s significant revenue growth. An app in the top 25 grossing now is generating 50% more revenue than it was generating 6 months ago. I think what will happen is that fragmentation will increase over the next 2 to 3 months and then consolidation. The folks who will drive the consolidation will be the big winners.
Kim-Mai: Are we going to see a Zynga of mobile?
Suleman: It’s a really difficult feat. There are few markets dominated by a single player like Zynga. I think it’s more likely that there will be a handful of players — companies like Coke and Pepsi that each hold 25% of the market. It’s much more likely that mobile won’t be a winner takes all market.
Kim-Mai: What about on Android? How important are the charts?
Darya: For us, on Android, we want to be on the top of the charts. For us, it’s not about marketing. It’s about quality of content. For example, we launched Paradise Island as our very first game [on Android]. Without any input into the marketing Paradise Island became the top grossing app and was No. 1 for 26 weeks. When we launched our next title we cross promoted with our own games. Quality of content and loyalty of users was the prime focus of attracting the audience. Unlike iOS, work of mouth is important on Android. Word of mouth on Android is actually generated by our user base. A lot of younger audience members will say “hey I have this game you need to get” and you cannot buy that with marketing money. Top charts generate higher revenue, but we don’t need to put any significant marketing money behind it because once the content is good, once you have a reputation on the platform and as a developer, your user base will follow you and will grow. We look at it from a long term perspective – we don’t want to be Zynga and grab a huge market share – but we’d like to be more like World of Warcraft.
Kim-Mai: On Android, for a given ranking, how much more are those games seeing in revenue now compared to three months ago?
Perry: We’re seeing more growth on Android. We actually launched our first game on Android in 2010 and there weren’t that many games there. In-app purchases didn’t exist back then. Over time as the platform has developed, we’ve seen a huge uptick on the revenue for Android. As they keep growing — they’re at 700k activations every day — we’re seeing faster growth on downloads and faster growth from the revenue side.
Kim-Mai: Is Checkout helping? Bionic Panda said they’ve seen a 25% increase in user payments over the last six months. Are you seeing that?
Perry: Obviously we started on iOS so we have more users there, so we’re still making more money on iOS in absolute terms. On a per user basis, the two platforms are very comparable in ARPU.
Suleman: We see something different. We launched our first Android game in January called Tiny Village and it’s in the top grossing charts today. We’re seeing ARPU on Android is about 25-30% of iOS.
Perry: So either we’re under-performing on iOS or over-performing on Android.
Kim-Mai: What about tablets? Do they monetize better?
Suleman: We see that ARPU on for iPad users is 2x to3x higher than iPhone users.
Darya: Our content has very different genres in it. Tablets generate a little bit over 30% more.
Suleman: All of our metrics are higher on iPad than on iPhone – ARPU, APPU, retention…
Kim-Mai: When you think about those numbers, are you changing your strategy and thinking about designing games for iPads?
Suleman: I do believe developers will emerge that will be iPad first, iPhone second.
Darya: We launch on iPad first on iOS. On Android it’s completely different. Android smartphones have much higher global penetration so we launch Android smartphones first.
Kim-Mai: We talked to Zynga earlier today about their entry into the market. Are you feeling pressure from that?
Suleman: Zynga is a great company and they made a bunch of great games like Dream Zoo. I think there’s a lot that they need to learn in mobile. I think the reason they’re out there cloning games made by folks like us is because they just don’t know that stuff yet and they’re really aggressive about learning. It’ll be interesting to see how long it takes them to learn how different mobile gaming is from Facebook gaming. I said mobile wouldn’t be a winner take all market. Zynga will not be the Zynga of mobile.
Kim-Mai: NimbleBit has been very vocal about being cloned. You guys haven’t said anything – why?
Ben: Our strategy is pretty clear — its to continue to innovate and continue to evolve our titles and keep them fresh and new for as long as possible. The key to competing with any company – Zynga is no different – is to continue to innovate and bring first of its kind experiences to mobile. We’ve seen great results from that. With respect to developers that have made very similar games, as developers that pride ourselves on innovating, it does honestly bother us. We feel the market will judge what is fresh and new and we feel like what’s best for that is to continue to create new ideas and be first on mobile. Individual products can be copied, but the thing that’s hard to copy is creativity. We’re proud of our team and we showed it by bringing the first zoo game to iOS. And there’s more genres like that that we’re working on. I think the facts are obvious. We built Tap Zoo in 2010. There have been four zoo games since then. It’s clear that we’re the innovators. We understand people wanting to share in that success, but we’re going to be ahead of them. By the time the similar game comes out, we’ve gone on to something new.
Suleman: True innovation in mobile will happen in 2012. I’m optimistic that us four will drive that. I disagree with Ben that Zynga is a company like any other. It’s unlike any other. I don’t worry too much about startup competitors, I worry about Zynga.
Kim-Mai: Will fast-follow be an effective strategy on mobile compared to Facebook?
Suleman: It’s effective for a short period of time but I think true innovation will soon be driving things. We’ll be launching a bunch of new games over the next few months.
Ben: We disagree because our strategies are different. We have a different competitive set than fast-follows.
Perry: The mobile space is growing like crazy. We have over 1 million devices being activated every day. All of us are benefiting from this and we can all win together. After growth has gone away, the true determining factor will be the quality of the game. And we’ll have to see what users choose at the end of the day. But there’s room to grow right now. It’s not the case that if so and so wins, we lose.
Ben: Focusing on what competitors are doing is not helpful building the best product. Being focused on building the best product is the winning strategy.
Suleman: In order to build a long term sustainable business, you have to look at where the market is going and drive toward that. We’ll continue to push the envelope in 2012.
Kim-Mai: So your next game will be something we’ve never seen before?
Suleman: I wouldn’t go that far. [laughs]
Kim-Mai: Let’s talk about the bot purge. How will that change rankings?
Suleman: Bots are generally very bad for the industry in the long term. If you focus on great games and user acquisition, you are more likely to build a long term sustainable business than if you’re doing things that are eventually going to be shut down by the platform operator. We use something like 40 or 50 sources to go acquire users, we spend millions every month acquiring users. We’ve reached out to all of them and stopped doing user acquisition with any company that we didn’t know what the source of their traffic was. We are now focusing on networks like iAD, Admob and chartboost where there’s real visibility to where the traffic comes from. In 2011 we had a real problem with ad networks providing visibility and getting data out of ad networks. They just don’t provide visibility or data we can use to optimize. We’re expanding the networks where we can see the LTV from this source versus that source and then we double down and spend more money there.
Kim-Mai: Have any of you tried any of these services?
Darya: This is why I like Android – there is no such thing as bots. It’s more fair for the user experience and in terms of judging how good your game content is. No, we never used these services and we’ll never use them.
Perry: As a developer, I’m glad Apple issued a warning. It shows that they’re dedicated to maintaing the integrity of the App Store. The ultimate goal is to get the best content to users. All these changes they’re making to the market are going to be positive. We talked to many many companies, but [we don't know for sure if we did use them].
Suleman: I think what’s great about apple is that they’re trying to create a level playing field. We want to compete in a market like this.
Kim-Mai: Suleman, I know that TinyCo signed with Mobage, what are they bringing to the table?
Suleman: DeNA and GREE are coming to the market with a different business model than companies like us. I have mixed opinions. If they can achieve significant scale like what they do in Japan… I’m not sure what their plans are or when they could achieve that scale. We took two of our games to Android via DeNA and it’s too early to tell what the results are.
Kim-Mai: They’re profitable in Japan. Are they at least teaching you how to better monetize?
Suleman: We’re huge fans of what they do in Japan. We hired somebody who speaks Japanese to play those games and help us understand how they monetize in Japan with their games.
Darya: We’re working with Mobage right now, we launched Paradise Island with them a while ago. The experience was good, and I’d recommend them for entering the Japanese market. On the other hand, they’re trying to penetrate the market here with their philosophy, but it will depend on their ability to scale. I don’t see how any Western company can integrate within their culture without their help because it’s so different. We launched our games on Yahoo with Mixi in Japan before. You don’t just change the monetization, you need to redesign everything in the game — a lot to take out and a lot to add. So somebody local is extremely helpful.
Ben: I think one big factor will be how people connect and play with their friends. The ability to play with friends and what their playing will help – DeNA and GREE have great businesses. But they’re one of many competing businesses that want to be that network. In the future, you’ll see more people playing with friends. I think we’re really excited about is Zombie Takeover’s upcoming update is a mode where you can find and play with your friends. We see that as something that’s coming this year as well. The future gaming will be portable worldwide.
Darya: I would like to add — to the younger developers in the audience — trust me, you want to get to Asia as fast as you can. ARPU in Korea and Japan is huge. Korea is number one in the world. We launched My Country there and it was the number one free game after three days. Asia’s market is different – a lot of specifics to get down. Once you’ve got it, you can monetize an audience in Asian on a higher level than you can in the West. The audience is also more loyal than it is here. Retention rates in Asian markets are higher after 3, 6 months and a year than here. Maybe because of the content, maybe because smartphone growth is ridiculously high over there. But if you want to make money, go to Korea, go to Japan.
Kim-Mai: What are the most attractive markets outside of the US?
Suleman: Our biggest markets on iOS are generally English speaking countries. We’re bullish on Korea, Japan and China this year as well. Korea is the number two market after the US.
Perry: Japan has been a top grossing country for us even without localization or changes. We do expect those countries are going to do well.
Ben: I think one interesting thing for us is that the global territories are becoming a larger and larger percentage of our users and that’s really interesting.
Kim-Mai: Is it important to use a partner when you launch in an international market?
Darya: We use a partner. The insurance that a partner gives you in making sure your game is a success is huge.
Kim-Mai: So let’s talk platforms. Facebook has a huge presence here. How can HTML5 be more attractive for mobile developers?
Ben: We’re watching HTML5 closely, but our games are built on an engine optimized to run graphics and animation. That isn’t available in html5 yet. We’re really excited about more advertising opportunities. We’re excited about Facebook coming to the space.
Kim-Mai: What have you seen with HTML5?
Perry: Last year we launched some HTML5 games by partnering with Facebook — after the launches we saw some good numbers of organic new users. I don’t have the specifics but we do see a good number of new users coming to our games in HTML5, even if we offer a native app. The biggest opportunities here is social interaction.
Suleman: One of the reason I bought an iPad after they came out was a game called Galcon. My friends and I would sit around with iPads and just beat the crap out of each other in that game. I think that shows how much better games that you play with friends are better than games you play yourself. Our games have been mostly single player, but we want to do more social. I’m really bullish on Facebook. They’ve been talking to companies like us and they’re receptive to our feedback.
Kim-Mai: What kind of feedback did you give them? What have they done?
Suleman: They’ve added feed stories and more visibility in the Facebook app and that will allow us to get more users to play with their friends.
Kim-Mai: What about Google — it has all the pieces. What do you want them to improve about the Android market?
Suleman: I’m bullish on Android — we built a cross platform engine called Griffin just so we could have users play on both iOS and Android. I think they’re working on improvements and I’m optimistic they’ll approach the market in a fundamentally different way than Apple does. I hope Google will build a bridge between mobile and web by enabling Adsense in the Android marketplace.
Darya: For me I think the best way to discover games is a good catalogue. If Google creates something across all these spaces — Android, its social network, the search engine — that could synchronize a catalogue of all games it would be great.
Ben: We’re in favor of anything that can help consumers find the best content and then figure out what their friends are playing. There are opportunities around notifying people about what their friends are playing. Highlighting real content and letting people know what’s coming to the story.
Perry: If Google can allow developers to bid on Adwords for searching in the Android market, that would be an interesting feature that would help developers get distribution out. Search would be a really logical thing.
Kim-Mai: I’m wondering about the cost of user acquisition. What kind of costs are you paying for users and if there are any channels that are working for you.
Ben: It’s gone up 2 or 3x over what it was six months ago, roughly. We’re lucky that we have a community that loves our games – our number one channel is cross-promoting new games to them. It’s paid off for us. They tell their friends and they download it.
Perry: We’re also seeing that costs are going up. But because we have a huge user base and DAU that come to our games every day, we can get people to notice our games from within the internal network. On the Android side, we see it starting up there. Now we’re starting to spend money on the Android side to get users, but for a long time we didn’t and it was just organic from the internal channel.
Darya: For us, iOS user acquisition costs are up. But we’re not very focused on iOS anyway. We have a good position there because our Mystery Manor iOS title is already up there. We didn’t spend any money on Android in the beginning either even though the cost was around $3 for us when we started. Now, though, it’s actually going down.
Perry: I think user acquisition costs on Android and iOS are even.
Ben: For us it’s a different kind of problem. The problem is a little more pronounced on Android because there’s a lack of inventory. We’d like to buy more traffic, but there isn’t traffic available.
Kim-Mai: Any of you considering Amazon or Windows phone?
Suleman: We follow the users. We’ve seen users adopting Amazon, so we will as well. When we see an uptick on Windows Mobile we will adopt.
Darya: We have one game on Amazon and a couple of other games in other Android markets. We try to cover those other stores, but we can see that compared to the official Android market there is a much lower user base.
Kim-Mai: Crowdstar told us the Amazon market monetizes 5x better. Is that the case?
Darya: Revenue-wise yes, but the user base and the discovery is different.
Ben: I think its an issue to compare a next generation tablet to the entire Android market.