The economics of the mobile games market are broken, but there is a solution

March 17, 2014

Games are the preferred content on tablets, racking up 67 percent of user time in 2013, according to the gaming investment and research company Digi-Capital. But all is not well in tablet gaming land. Game studios attempting to build a sustainable business around tablet games are struggling, especially independent and smaller studios responsible for so many of the creative and engaging games launched since the first iPad hit the market.

"The economics no longer work for 98 percent of native tablet games"

NY-based market research firm SuperData recently published some disturbing data for iOS mobile game developers. SuperData estimates that the current cost-per-install (CPI) for mobile games in the Apple App Store stands at $2.73 and is trending up. This past holiday season the CPI reportedly jumped up into the $4 to $7 range. That means if you are not one of the very few studios lucky enough to get its game featured by Apple or coax installs through viral means, you have to spend big marketing bucks with an app marketing firm just to get your game on a user’s device with no guarantee that the user will actually play your game or spend money within your game. This involves major monetary risk.

The study also noted the average monthly revenue per user generated by gaming apps has leveled off at $1.96. Clearly the economics are off.

The odds are extremely high that marketing your game in the app store will be a money-losing proposition. To have even a chance at making your marketing investment back you need to maintain a strong purchase conversion rate amongst your user base, and hold their interest for one to two months, which in gaming years is forever.  Now throw in the game development costs, which for a moderately sized team of seven people, may conservatively fall in the $400 to $800k range, and it starts to get ugly. The economics no longer work for 98 percent of native tablet games.

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Fortunately, there is a very promising alternative emerging for tablet game developers. Just as the web helped break down pre-existing content monopolies and became the democratizing force in opening up all sorts of content to the masses online, the mobile web is beginning to do the same thing on mobile devices, especially tablets. Tablets are largely complements to desktop computers here in the U.S., but in many regions around the world are becoming a central media/computing device. And on tablets users are very comfortable using their browser for search and content surfing.

Why will mobile web gaming succeed in a space dominated by native games on iOS and GooglePlay?

Here are some core reasons: First, since a mobile web game can be played with a simple tap of a link or game icon, it removes the friction that exists for native in playing a game on your phone or tablet. You may say that the act of downloading a game is quick and easy, but downloading from an app store is still a commitment and it is friction.

Second, mobile web games can be distributed and played by millions of users with zero marketing cost. Yes, zero. Mobile web games are ultra portable and can be found and played through browser search and/or within mobile web game sites and portals, on game sections of major mobile media sites, within the game marketplaces being introduced by all major phone carriers and new mobile operating systems like Mozilla and Tizen, as well as within mobile messaging apps like Kik. And guess what? A mobile web game can easily be wrapped for and launched within native app stores.

Finally, because the games are produced in HTML5—and as a result can be supported cross platform—the cost of producing a mobile web game can be far cheaper than the cost of producing native games. Create the game once and distribute it on all tablets regardless of device type or operating system.

It is the early days of mobile web gaming, but the market is rapidly gaining speed, especially in China and India where mobile web apps and games are growing in lockstep with their exploding tablet markets.

What does this mean? It means that the economies for tablet games don’t have to be broken. That there is an alternative. Which is good news for tablet users and tablet game developers alike.

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