Mobile gaming is big and getting bigger. You’ve heard it once, you’ve heard it one thousand times. Japan’s mobile, social gaming giants are killing it; Android and iOS games now generate more revenue than all of Nintendo and Sony’s portable games combined; and games are the most popular mobile app category in the U.S.
What’s more, according to the New York Times, quoting Gartner, game-related spending is on pace to reach $112 billion by 2015 (it’s expected exceed $74 billion this year, up from $67 billion in 2010), and mobile gaming is expected to increase to a 20 percent share of gaming platforms by 2015. Mobile is expected to hold the largest growth of all platforms over that time.
Hooray!? That’s all well and good, but the question remains: If people are increasingly opting for free apps over paid apps (and Distimo’s numbers show that the average selling price of games declined 28 percent over this year), how are mobile game developers going to make money? Over the next 5 years, where is mobile gaming revenue going to come from, and how are game creators going to monetize?
Thanks to a nifty infographic from Mixpanel, the realtime analytics service, most of the future revenue from mobile gaming will come on the back of mobile ads and in-app payments.
According to Distimo, in-game virtual currency is currently one of the foremost drivers of in-app monetization, with 35 percent of the 300 most popular free games using some form of virtual currency to monetize on the App Store.
Then there’s mobile advertising, which will no doubt continue to sky rocket as game developers and ad networks capitalize on the $20 bilion opportunity identified by Mary Meeker in her latest Internet trends report. Americans spend 8 percent of their time using media on their phones, but only 0.5 percent of advertisers’ total ad spend is directed to mobile.
As this tectonic shift continues, and as technology grows around ad personalization, game developers will be able to increasingly rely on advertising as a form of monetization.
Freemium monetization models are becoming increasingly popular, as you’ll see in the data below, but while mobile advertising gets busy maturing, there’s also the monetization model of incentivized installs. This approach, which rewards users for downloading a mobile application in exchange for a secondary reward, usually free in-game virtual currency or goods, definitely has some potential. Incentivized traffic can be a meaningful alternative when things get slow organically building traffic, and the ROI can be there. But there is still some skepticism over the efficacy of incentivized installs, as you can see from Sarah’s post here.
The upside is that there is a huge market for mobile games, and if you’re a game developer, there are increasingly more ways to make money from their games. Some will prove to be more valuable than others, but below is Mixpanel’s snapshot of where we stand in the evolution: