Apps are big business, and the biggest app business is games. In 2012, Flurry estimates revenue earned from apps will approach $10 billion, with games taking over 80% of the pie. The free-to-play business model (aka freemium), where consumers download and play the “core loop” of a game for free, but then pay for virtual goods and currency through micro-transactions, is the most prolific business model in the new era of digital distribution. When it comes to app consumption on iOS and Android smart devices, consumers spend over 40% of all their time using games.
The most successful companies in the new mobile economy, from Electronic Arts to Zynga and Mobage to Supercell, deeply understand consumer behavior differences by game genre. This level of understanding greatly informs a company’s app acquisition, retention and monetization strategies. In this report, Flurry examines the consumer behavior differences by app usage, retention and demographics for the top nine freemium game genres in mobile gaming. For this analysis, Flurry leveraged a sample of more than 300 million consumers using iOS and Android games each month. Please note that, for consistency, we include only free titles.
In the chart below, we lay out a “loyalty matrix” that plots the top nine freemium game categories by how often they’re used compared to how long consumers continue to use them over time. Specifically, we plot the 90-day retention rate of app categories on the x-axis against the frequency of use per week on the y-axis. We lay the “scatterplot” out in a Cartesian coordinate system with four quadrants.
Quadrant I represents a “sweet spot” for developers, whose games are used intensively by a set of highly retained users. Well-designed “appointment” mechanics drive frequency, as users are compelled to maintain and progress in their respective game. Social Turn-based games succeed in building an active, loyal user base by offering popular “evergreen” games played among friends. From a revenue perspective, while there exists significant potential to show advertising impressions to consumers who use so frequently, games in the Slots and Resource Management & Simulation (labeled as “Mgmt/Sim”) genres commonly monetize via in-app purchase. However, companies that maximize revenue in Quadrant I extract revenue from consumers willing to pay via in-app purchase, and then by showing ads to those who do not pay.
Quadrant II is characterized by the most intensive usage over a short customer lifecycle, and is occupied solely by the Strategy genre. This audience is demanding, game lifecycles are short and a game’s live services must be flawlessly executed. Successful Strategy game developers accelerate monetization by driving competition among players (“Player vs. Player”) and by encouraging fast game progress through premium currency spends. With frequency of use so high, users churn through content quickly. To maximize retention, developers must continuously release new content after the game’s initial launch.
Quadrant III also attracts a fickle gaming audience, but adds the challenge of having fewer opportunities per week to monetize the user. The well-documented success of the Card-Battle genre in Asia, and now Western markets, is even more impressive when considering the short time frame developers have to drive transactions. Targeted user acquisition is critical to avoid paying for large batches of users that will drop off quickly due to the “hardcore” nature of the content and game mechanics.
Quadrant IV features easy-to-play and highly repeatable games that can remain on a user’s “play list” for years. These evergreen titles may lack the depth required to generate sizeable in-app purchases, but do generate substantial advertising impressions over time. In addition to driving strong ad revenue, the large audience size of these games can be used to cross-promote a developer’s more narrowly focused, but better monetizing titles.
As the mobile app economy grows, the sophistication of its related advertising services will reach those found on the Internet today. Leveraging big data, the ability to target users based on demographics and personas, and then track the effectiveness of such targeting is just starting to take hold (Flurry has invested in this direction with its own services like Flurry AppCircle, an ad network, and Flurry Ad Analytics, an ad effectiveness solution). As developers and app marketing providers become more savvy, they can better acquire the kinds of users that will reliably play and pay in their apps. Below, using the same sample set of games, we look at the Age and Gender of users by genre.
A quick review shows that Quadrant I is largely comprised of middle-aged females that play games we know to have attractive retention and usage metrics.
Quadrant II shows that males are not extending into the same 40+ average age-range as female players. Casino / Poker games tend to attract older males the best.
Quadrant III is undoubtedly the hottest sector of the mobile gaming market, with young, male “core” gamers pausing their console gameplay sessions to increasingly play mobile games. These young men are difficult to corral, but can monetize at a rate that justifies the cost and effort of acquisition.
Quadrant IV shows younger females adopting games that feature more involved gameplay than those played by the middle-aged female crowd. While the youngest users enjoy the quick solo experience of the Endless genre, the late twenties / early thirties crowd are diving deeper into game mechanics and making it a social experience.
As mobile gaming rapidly matures, it is becoming increasingly difficult for new and small developers to succeed. The game quality bar has risen dramatically, user acquisition costs continue to climb and organic installs via app store discovery and featuring are harder to come by. One great equalizer for developers is the ability to collect and harness the power of data. In fact, game developers tend to be the “power users” of analytics, using sophisticated metrics to track user progress, tune gameplay and maximize monetization (a large part of Flurry Analytics' use base is game developers). In an industry that has historically been considered more artistic and subjective, connected devices and the ability to rapidly iterate on already shipped titles has ushered in an age of science and measurement. In short, data has enabled the “gamification” of the mobile industry.
The iOS and Android app economy continues to grow, with freemium games leading all app revenue models, now accounting for more than 65% of app revenue.
In its most recent analysis on freemium games, Flurry revealed that the amount of time and money consumers spend varies significantly by age. Younger consumers spend a lot more time, but older consumers spend a lot more money. In this post, we shift our focus to understand how freemium consumer behavior varies between men and women. We’ll compare differences in time spent, money spent, transaction volume and average price per transaction.
And since the world of marketing and advertising traditionally looks at consumer behavior by “demo” (i.e., the market broken down by demographics of age and sex), we likewise present all of our findings by demo. By Flurry’s calculation, the freemium audience represents among the largest and most attractive concentrations of educated and affluent consumers in consumer technology today. From conversations Flurry is having with the industry, brands and advertising agencies continue to show increasing interest in accessing this audience.
This study uses data from a sample of iOS and Android freemium games with over 20 million users across more than 1.4 billion sessions gathered from Flurry Analytics, which tracks over 110,000 apps across the major smartphone platforms. The amount of money spent was tallied by summing the total transactions multiplied by their respective price points. Time spent was observed by tracking the total minutes spent playing these games. Let’s start by looking at time spent. Please note that figures presented in charts have been rounded up to nearest whole percentages.
The chart above shows a graphical cross-tabbed view of time spent by age versus sex. Adding up all the percentages across each column totals 100%. Blue columns represent males and pink columns represent females. The amount of time spent by males and females is broken down by age group, from youngest to oldest, left to right. The total split of time spent is presented in the legend, with men edging out women 53% to 47%.
What we take away from this chart is that time spent in freemium games on mobile is relatively evenly split among males and females, with 18 -34 males (coincidentally considered the best target for hardcore games) representing the largest group about a third of all players. 18 – 34 year old girls come in accounting for 27% of time spent. In total, freemium gamers tend to be younger, with 83% of them under 34 years old.
Switching our attention to money spent in freemium games, males lead in money spent by a greater degree, accounting for 58% of total money spent. Across each age group, men lead women in spending, with the greatest difference occurring in the 25 – 34 year old age group. For freemium games, spending is concentrated between the ages of 25 - 54, with men in this age range representing nearly half (45%) of spending and women representing another third (32%).
After finding that men and women spend similar amounts of time playing freemium games, but that men out-spend women 58% vs. 42%, we further drilled down to understanding this difference. Breaking out the number of transactions by demo, we see the similar clustering of transactions into the 25 – 54 year old span of users, but see that transactions are more evenly completed by both men and women. In this age range, men drive 40% of transactions and women drive 35%. This is quite a bit different than total money spent by this age group, which came in at 45% male versus 32% female.
Calculating and presenting the data by amount paid per transaction, we find our answer. Men spend an average of 31% more per transaction, or $15.60 versus $11.90. In fact, male spending dominates female spending across each age group by a relatively consistent margin. In the “sweet spot” of revenue generation, 25 – 34 year olds, representing a whopping 49% of total revenue, men out-spend women by 37% per transaction.
Flurry believes that, aside from the raw appeal of a game, the ability to measure and act on this kind of data will make the biggest difference to the success or failure of freemium game companies. Zynga, who is poised to have one of the most successful IPO’s in history, recently described itself as “an analytics company masquerading as a games company.” Segmenting and targeting an app audience will reveal where to spend precious company resources to attract, retain and monetize the most valuable consumers.
In turn, advertising agencies and brands increasingly want to reach this new mass-market audience, who now spends more time in apps than browsing the web, and is primarily concentrated in freemium games. The ability to describe this audience by demo will make the difference between whether or not Madison Avenue can work with game developers. And since only 3% of consumers spend on freemium games, companies that monetize the other 97% of the audience, non-payers, will additionally succeed.
Flurry believes that the industry is at an exciting juncture, in terms of mass-market viability, real consumer spending and the ability to segment and target audiences. We know one thing for certain: companies follow consumers because consumers have money. And consumers are now in mobile apps, especially freemium games.
Freemium games on iOS and Android continue to dominate the app economy, now accounting for over 65% of all revenue generated among the Top 100 grossing apps in the App Store alone. In a series of recent pieces on free-to-play mobile games, we’ve shared insights about the relevance of this business model, consumer spending by price point and what kinds of items consumers purchase.
In this report, we focus on the audience who plays these games. Specifically, we study differences between those who play and those who spend money in mobile freemium games. This study uses data from a sample of iOS and Android freemium games with over 20 million users across more than 1.4 billion sessions gathered from Flurry Analytics, which tracks over 110,000 apps across the major smartphone platforms. Let’s take a look at the results.
In the chart, we compare the relative distributions of time and money spent by age group. Starting on the left-hand-side, the green bars represent which age groups spend the most time playing freemium games. We see that ages 18 – 24 account for the most minutes spent, 32%, followed by ages 25 – 34 who represent 29% of usage. Ages 13 – 17, 35 – 54 and 55+ then account for the rest of usage time at 22%, 14% and 3%, respectively. The average age of the consumer, based on time spent, is 26.6 years old.
Next to the green bars, in blue, we show the amount of money these same consumers spend on in-app-purchases within the same set of games. The top spending group is 25 – 34 years old, accounting for 49% of total dollars spent, next followed by 35 – 54 year olds at 28%. By contrast, the most dedicated users of these games in terms of time, the 18 – 24 year olds, rank only third in terms of money spent, generating 16% of IAP revenue. 13 – 17 year olds, a popular target audience of these games, account for only 5% of revenue. Finally, the 55+ age group delivers 2% of revenue. The average age of consumers who spend money in these games is 32.2 years old.
Broadly, we observe that heavy users of freemium games are younger, while spenders in freemium games are older. The half that uses these games most, 13 – 24 year olds (55% of time spent), deliver only 21% of the revenue. And the half that spends heavily, 25 – 34 year olds (49% of money spent), represent just 29% of usage. We believe much of this has to do with play patterns, disposable income and relative available time.
In social games, consumers can advance in the game through “the grind,” the core set of gameplay activities that allows the user to level up, earn in-game currency and progress. But to progress via “the grind” takes time and patience. For consumers that have more time (or less money), they can afford (or must be) more patient. Younger gamers, presumably high school and college-aged, likely have more time but less money. So the grind is something they're willing or must commit to, in order to progress. And with more total available time throughout their days, they can play more frequently. Simply put, they become your loyal users, but it’s harder to extract money from them.
On the other hand, 24 – 35 year olds presumably have more disposal income, but less time, due to work and family demands. This combination makes them less tolerant to engaging in “the grind,” but also better positioned to buy their way out of it. They play less often, but make quicker progress by simply spending. Further, when we expand the age range to 24 – 54, this older group generates nearly four-fifths of all revenue in freemium games. In short, your whales may be older than you think.
Our conclusion: Gen Y plays, but Gen X pays.
[Editor's Note: Jeferson is Flurry's GM of Games, who works with iOS and Android game developers to build more profitable games]
Digital distribution of games is disrupting the retail portable game category. At the heart of this disruption is the proliferation of iOS and Android devices, which is doubling as a powerful portable gaming platform and challenging Nintendo DS and Sony PSP for gamer mindshare. In previous reports (2008 - 2009, 2009 - 2010), Flurry measured that iOS’s and Android’s revenue share of the U.S. portable game software category exploded to 34% in 2010 from just 1% in 2008.
Over this same time period, we calculated that Nintendo’s U.S. portable game revenue share contracted to 57% from 75%. All the while, Nintendo chief executive, Satoru Iwata, has remained outspoken, calling smartphone games worthless and warning the gaming industry of boring consumers. In contrast, Wedbush Morgan Securities veteran video game analyst, Michael Pachter, stated in April 2011 that “Nintendo will have to share the market with Apple and Android” because “the onslaught of $1 games is going to continue.” By Flurry’s calculations, the onslaught is now coming in at a crushing $14 per transaction and from within the Trojan horse of freemium (a.k.a. free-to-play) games.
Here we dissect transaction sizes within iOS and Android freemium games, the current juggernaut of smartphone game business models. This report builds on analysis released earlier this month, when Flurry revealed that games drive 75% of revenue generated among the top 100 grossing iOS apps, of which 65% were generated from freemium games. In the chart below, we look at how 3.5 million consumers spent their money across top iOS and Android freemium games.
The left-hand column shows the distribution of transaction sizes within freemium games: in other words, how many times consumers spent anywhere from $0.99 to sometimes over $100 per transaction. Each purchase equates to a virtual good or currency in the game a consumer is playing. We organize the data into three price buckets: under $10; from $10 - $20; and over $20. You’ll see 71% of all transactions are for amounts under $10, 16% are for spends between $10 to $20 and 13% are for amounts greater than $20. The average amount spent per transaction is $14.
Let’s spend a moment on the $14 average, which may seem high to you at first blush. There are two reasons the average settles here. First, within the “under $10” bucket, most transactions cluster at the $9.99 level, followed by $4.99, and finally $0.99. In fact, in total, consumers spent $0.99 less than 2% of the time. Why then would so few consumers spend just $1 in freemium games when this price point is so popular among premium games (the pay-before-you-can-play model)? Because freemium games drive a different decision-making mindset for consumers. They simply are deciding whether or not to spend. Our data shows that around 3% of consumers will spend money in freemium games. A deep commitment to the game experience appears to influence their buying habits. The second reason the $14 average seems high is because the high-end of the spending spectrum is very high. Among all purchase price points, over 5% of all purchases are for amounts greater than $50, which rivals the amount paid at retail for top console and PC games.
Now, let’s look at the amount of total revenue generated per price bucket. Scanning this column, we see the amount of revenue generated per price bucket is flipped in comparison to the price points at which the bulk of transactions occur. On the low end, we’re “packing sardines;” that is, accumulating a lot of small transactions. While the under $10 bucket delivers about two-thirds of the transactions, it only accounts for about one third of the dollars. On the other end of the spectrum, at the “over $20” spend-level, we find the “whales.” In fact, further breaking down the “over $20” category, 30% of the total revenue is generated from transaction sizes of over $50. If you’re a game designer, your main take away is that very few transactions—and consumers who complete those transactions—make up the bulk of your revenue. Therefore, your “meta-game” should be about whale hunting.
By the end of 2011, Flurry estimates that total U.S. iOS and Android game revenue will surpass $1 billion. Digital distribution has already affected notable Media & Entertainment industries including film, newspaper, television, music and books. The video game industry is no exception, with portable gaming already feeling the impact. The key to any business playing in this space, whether incumbent or challenger, will be to understand and command consumer engagement, and turn that engagement into revenue events. The freemium business model on mobile, enabled by a device that is always with consumers, and always connected, is unlocking profound new ways to deliver value and extract revenue from consumers, and for far more than just $1 at a time.
To free, or not to free
Among the most common questions we get from game developers is whether the free-to-play (a.k.a. freemium) model makes sense for their next game. For teams that have always charged players up-front with a premium pricing model, the thought of distributing games for free makes them very uncomfortable. I made the switch myself when I joined a free-to-play social games startup as a Studio Director in 2009, so I’m well aware of both the anxiety and the opportunity.
To best answer this question, I decided we should do it the Flurry way: with hard data. To do so, we compared the revenue generated by pricing model, freemium vs. premium, among the top 100 grossing games in January and June of this year. Premium simply means charging for the download (e.g., $0.99). Freemium describes the free-to-play model, where the game is given away for free, and then the consumer can purchase virtual currency and/or virtual goods through in-app-purchases. Tracking over 90,000 apps with its analytics service, Flurry can measure the amount of revenue generated per ranked position in the App Store top grossing category. The chart below compares the proportion of revenue generated by each model.
Inspecting the chart, we see that free games already represented 39% of the games revenue generated by Apple’s App Store in January, but that number has since risen to 65% last month. The traction of the freemium business model is undeniable and growing fast. In fact, with games often occupying more than 75% of all top 100 grossing apps in the app store, it’s the single most dominating business model in the mobile apps industry today.
Unleashing the beast
In the old paid world of video games, success was measured by multiplying the number of units sold by the unit price, the traditional retail model. In the new world of digital games distribution, it’s all about how many players you can keep engaged with your free game, followed by how many compelling spending opportunities you can provide them.
When you make your game free and add in-app purchases, two powerful things can happen: first, more people will likely try your game since you’ve made the “ante” zero; and second, you will likely take more total money, since different players can now spend different amounts depending on their engagement and preferences. It’s not unheard of for individual players to spend into the tens of thousands in a game they like.
Flurry data shows that the number of people who spend money in a free game ranges from 0.5% to 6% depending on the quality of the game and its core mechanics. Although this means that more than 90% of players will not spend a single penny, it also means that players who love your game spend much more than the $0.99 you were considering charging for the app. And since you gave away the game for free, your “heavy spender” group can be sizable.
Free-to-play is here to stay. If you’re a game studio, you simply need to understand how to take advantage of this game-changing opportunity. In future posts, I’ll cover strategies and tactics you can employ to make this powerful model work best for you.