28 feb. 2011

The Android apps economy (II): games as a service

The Android ecosystem is changing economic rules for game developers and publishers, as we explained on a previous post. Basically, what it is happening is that the biggest success is achieved by free apps and games, while monetization comes via ads (mostly AdMob), in a very similar way how mass media obtains its revenues. The more traffic and use, the more money. That is why Google is not very worried about new Android app stores already available or soon to come, as we explained last October. Apps as a new mass media.

Beside that, Android is also going to allow In-App-Purchases (IAP) very soon, as they announced some days ago. This is something very important because every report shows they are the key factor for revenues, as we stated on a previous post about it. We just have to wait and see which are the features Android provides and its revenue share model.

These two main sources of revenue (ads and IAPs) may only work if gamers get engaged with apps and games. So it is key for developers to provide not only good software but also to reach stickyness. Apps and games should be used and played again and again to obtain good economics. And that is why we talk about that apps (and games, our focus) should become a service, and will never be again a product.

Games as a service means players may receive from time to time extra features for their games that encourages them to play once more. In the past, while games were a product, when a player finished the last screen, the game ended and that was all. Now, players (ideally) may want to come back again and again to its favourite game because it offers them something new.

That is key for the two models:
  • Ad based. If you want your users coming again and again you may have to offer them something new from time to time. And, of course, they will come again only if the game has satisfied them in the past (the mere addition of new features is not a success guarantee). This new content has to be provided often, because something we have learned within the market is that users may get rid of their apps very quickly if they have finished them (and even when they have not). That is something that applies specially to games, because other apps may be kept on a bigger percentage.
  • In App Purchases. A smart movement would be to provide extra and new features via IAPs. This is the philosopher´s stone of the business, in our opinion. If developers may provide to its gamers with a title that is engaging, treating it not as a product but as a service, and are able to deploy a sustainable In App Purchasing model, they may be successful in economic terms.

We think Google is teaching developers via data obtained in every title update that this is the model they want to push: every time a developer updates its titles already published in the market, it receives a big flow of new users. That is because the app appears again in the "new" featured apps, but also it is a clear statement: the more developers update their apps, the more users they get for them.

Apps and games as a service. And IAPs as the summit of this model. We will go on working on this, and keep you informed. Stay tuned!

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