Average iPhone app prices have sunk from $3 in 2009 to nearly to $1 this year and the defensive position is to assume they are heading towards $0. Enter freemium: apps that are either try-and-buy or free to download and play but offer in-game upgrade purchases (or questionably, advertising).
But freemium economics can be a bummer. Glu Mobile’s margins have shrunk since it went all-in with freemium. Likewise, as Korea-based Gamevil has changed from a paid download model to in-app purchases, its operating income margin has grown in the wrong direction.
Click here to view graph.
But it’s not a total bummer. We have at least three success stories to review:
- Way back in 2009 Tapulous’ Tap Tap Revenge 3 generated 5X the revenue from in-app song packs compared to paid downloads. (Tapulous was acquired by Disney at a 2.9 forward year revenue multiple in July 2010, a relative deal compared to the other 50+ deals in our mobile media M&A database).
- Last year’s Smurfberry mania was so hot it forced Apple to require UN and PW log-in before in-app purchases could be billed.
- And this year’s case study: Natural Motion’s CSR Racing had an $11 mil. month this summer from in-app purchases alone.
And the games business is hits-based, so timing and predicting consumer tastes and preferences are key. In addition, word of mouth is the best app marketing available and reviewers can sink half-baked apps fast. So don’t go to market with a weak product.
Initial Quality Pays Off
Simply, the longer your game is played, the higher your chances for in-app purchases. For instance, of gamers who made an in-app purchase, “44% did not do so until they had interacted with the app at least ten times,” according to a January 2012 Localytics survey. So far it appears the most popular in-app game purchases unlock new levels or in-game upgrades.
So if the key to freemium is a high-quality and addictive game that is playable for more than several hours: how deep and entertaining is your gameplay?