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Juniper: Carrier billing, licensing could generate extra app revenues

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Sian Rowlands

Siân Rowlands

One never needs to look particularly far to find the latest success stories in the mobile games space; the most recent topic du jour, for both industry pundits and those in the Juniper Research office, is King's Candy Crush Saga.

I would just like to point out right now--if you're not aware of this game, I accept no responsibility for any loss of time or money arising from you further investigating and downloading it. Only released for smartphones and tablets in November 2012, and adopting the free-to-play model, the game has achieved hit status--its in-app purchases are reportedly generating $800,000 in revenue per day for King. This huge revenue means that King have actually stopped advertising in the game--all 395 levels of it. The simple tutorial, played as the user progresses through the game, encourages them to return--it is widely regarded that the majority of users 'drop off' and stop playing an app the first day after downloading it, proving why a simple, comprehensive tutorial is so important.

The timing of the in-app purchases is also crucial, and users must decide between being locked out of the game for 24 hours or unlocking stages and paying for extra lives or moves. Taking advantage of people's natural loss aversion (meaning users care much more about losses than gains) when they are already highly engaged with the game seems to be keeping King in the Top 5 Grossing Apps charts.

However, lurking around the corner from these success stories is often a story about a company who's not been performing well. Zynga saw a 40 percent fall in monthly active users (MAUs) and 30 percent fall in revenue for Q2 2013 compared to Q2 2012. The recent appointment of former Microsoft executive Don Mattrick as CEO, arguably has the potential to turn around the fortunes of the social games developer.

It is clear that functioning in the app store ecosystem is becoming more challenging. The low barriers to entry and acceptance of the freemium model means the leading app stores are saturated, and the challenge of discovery is taking hold. To break into the top 50 charts for iPhone apps, analytics firm Distimo found that a developer of a free-to-play app must see 23,000 daily downloads and to break into the top 10 a staggering 70,000.

Generating revenue remains a priority for developers, and Juniper Research found in our recent report Future App Stores: Discovery, Monetisation & Ecosystem Analysis that of the $75 billion spent on consumer apps in 2017, 73 percent of that would be spent via the in-app purchase mechanism. And indeed games would be the category of app contributing greatest to that $75 billion. The move to the in-app purchase has not gone unnoticed by many key players in the app store ecosystem; instant messaging giant WhatsApp recently changed its iOS business model from pay-per-download to freemium (users are required, on all platforms, to subscribe for 99c a year to use the service after one year's use, and the subscription is carried out via the in-app purchase API).

Many of the largest app stores take a share of any consumer spend on apps, so what exactly are these storefronts doing to increase their revenues? A key opportunity exists in carrier billing, an attractive offer to network operators and consumers, given that the billing relationship is already in place for both post-paid and pre-paid customers. Carrier billing can be implemented in multiple app stores for users with multiple devices, so in essence they are able to target all their users who download apps to their device. Through implementing this billing mechanism, app stores are able to monetise all their users--including those who are in regions with low credit card penetration, or who are too young to own a credit card. Mozilla, whose devices are aimed at consumers in emerging markets, has carrier billing as the default payment mechanism in its Firefox Marketplace.

Yet whilst King is seeing great success with Candy Crush Saga's simple in-app purchases, certain developers are thinking outside the box with regards to monetisation. Perhaps one of the best examples here is Rovio, developer of Angry Birds, who is reportedly generating 45 percent of its revenue from licensing of plush toys and other merchandise. This clever strategy allows Rovio to monetise a large proportion of its user base who might never make an in-app purchase--for instance parents who are purchasing gifts for their child's birthday--an in-app purchase will obviously not cut it, but a cuddly Angry Bird? Enough said.

The choice of apps in the iTunes store is overwhelming and it is unsurprising that so many offer in-app purchases, as they offer a justifiable revenue stream for developers, and consumers can choose whether to spend or not. However, given that so many games are only popular for a given period of time, it is clear that both developers and app stores will be considering how sustainable their revenue models are, and how the app store ecosystem can be bolstered.

Siân Rowlands is a Research Analyst with Juniper Research. Her areas of focus include mobile content and applications.

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