Mobile gaming is set to reach $315.9 billion this year, according to Statista, but it’s not easy money: Various subscription models, IP, operating costs and how people access games make it an expensive endeavor that can be prohibitive for anyone who wants to try something new or different.
Ryan Horrigan, co-founder and CEO of game developer Artie, understands the obstacles that need to be overcome when it comes to publishing new games. “If you look at the mobile game publishers today, it’s kind of like the movie business,” he said. “You either have indie arthouse titles in gaming, like what you find in Apple Arcade. These are really high-quality, story-driven games that don’t make much money, but they’re very artistic and they win awards. Or you have the equivalent of summer movie blockbusters, these mega-games from these mega-publishers.”
As a consequence, he argues, there’s little room for anyone in between, such as newer developers who are trying to put their games in front of people.
“It’s very difficult for new game developers to cross the chasm to compete with the establishment,” Horrigan said. “Like if you started making games 10-plus years ago, at the dawn of app stores, and you succeeded, there’s a pretty big moat between you and any new folks coming forward.”
Horrigan outlined the particular issues that make the moat between new developers and the establishment prohibitively wide and deep, and it starts with costs.
Rising acquisition costs
Games sold through app stores must pay a 30% fee to Apple or Google. That fee is also applied to in-app purchases, meaning that free-to-play games with in-game purchases must pay their share, too. Horrigan calls the steep tax an “encumbrance.”
Apps also have issues with discovery and retention: Even the coolest, hottest games sometimes have a tough time getting in front of people. There are two reasons for this. First, search in Apple’s App Store is, to use a technical term, utterly borked. Former Apple App Store editor Neil Long wrote for The Guardian about how searching for a game using its exact name won’t always return a hit and the prevalence of cloned games means that the real deals are taking a huge hit. But even if you’ve unlocked the achievement of someone finding your game, how do you get it to stick?
“It’s really hard to keep the attention of players in a crowded app ecosystem or your private home screen,” Horrigan said. “Retention for mobile games is down 20% over the last three years. Every year, it’s kind of more and more downward.”
It doesn’t help that customer acquisition costs in general have been increasing dramatically, and Apple’s App Tracking Transparency measures have made it harder for advertisers to identify consumers. Even when people are playing your game, it’s hard to advertise to them through other platforms or across games.
Licensing
To help overcome these discovery issues and the problem of market saturation, game developers are coming to rely on tried and trusted characters and scenarios to draw people into their worlds. Recognizable IP (Pokémon Go, anyone?) helps draw in the crowds, but that comes with its own challenges.
“My belief is that mobile web, mobile publishers, mobile game publishers today have really leaned into IP, because you need to get players’ attention in an extremely competitive or saturated market,” Horrigan said.
So whatever revenue you do make, you can take 30% off the top for the in-app purchases, but the licensing deal takes another significant chomp out of the revenue-shaped fruit bowl.
“Mobile publishers, they’re not only paying 30% to Apple and Google off the top, but they might also be paying 20% to 30% to a Disney or Marvel or a Hello Kitty,” Horrigan said. “So you might have half of your revenue out the door. Right off the top.”
Operating costs
These fees are hitting developers before they’ve even encountered their operating costs.
“I think a couple of years ago, most estimates were at about 35 to 40 cents per player per hour in terms of rendering graphics in the cloud,” Horrigan said. While there’s limited public data on these costs, Horrigan said he doesn’t think there’s been any significant change in these figures. When you add app store fees to possible IP fees, and then factor in the costs to run the game, producing a game makes no economic sense. For a free-to-play mobile game, you might bring in between 5 and 20 cents average revenue per daily active user, which leaves you with a loss because advertising itself also became a lot less lucrative.
“It’s costing me three times as much to run the game for their play session,” Horrigan said. “The math doesn’t work.”
Antitrust and privacy
Antitrust policies have a significant impact on the ability of developers to target ads. In April 2021, Apple turned off its Identification for Advertisers (IDFA) feature, which previously permitted mobile app developers to accurately personalize and deliver ads to their users by collecting information on how individuals interacted with advertising campaigns.
When Apple started asking people for permission to collect their data, only between 10% and 15% of users consented. Suddenly, developers had lost access to expansive, granular data about their users that allowed for effective advertising. What does that look like for game developers in real terms?
“A recent market study said cost per install is up 88% on iOS for games in the last two years because of those changes,” Horrigan said. “Generally speaking, that means iOS is almost two times more expensive to acquire a player.”
Competitive alternatives to games
There’s also been a slowdown in the number of apps being downloaded, following a peak during the pandemic when people were looking for activities to occupy their time.
“In mobile gaming, business shrank for the first time ever last year,” Horrigan said. Obviously, some of that is economic conditions, but it’s shrunk 6.4% for the first time ever. So you wonder, are we at peak mobile games? And is the business going to win?”
That’s the question, then: Can mobile gaming overcome the loss of advertising revenue combined with crushing app store fees and cloud rendering costs to keep providing entertainment? Artie thinks it’s found a solution and is delivering games directly to players, often via social media. There are no app store fees, no cloud rendering costs and discovery is happening in apps that players are already engaged with, such as Instagram or TikTok.
Sidestepping the app stores
“It’s not an entirely new idea; people have been doing it to varying degrees on PC browsers. But it hasn’t been very easy to do on mobile browsers because of the constraints,” Horrigan said. “We realized that with 5G, device and network maturity, and the GPUs that we could access through the browser are constantly getting better, you don’t actually need to download a game to run a high-quality game anymore. You can stream the data to the browser of Instagram or TikTok, for example, and then use the same open web standards that a web game would be using … You can run a higher-performance web game leveraging the cloud but also the client side.”
Once a player has accessed a game via, say, an Instagram influencer, they can play the game instantly in a pop-up browser, followed by two choices: return to social to play the game or save it as a bookmark or progressive web app on their phone screen. It will look like an app and behave like an app but not actually be an app or have gone anywhere near the app store. By obviating those app store fees and chasing discovery through new means, Artie believes that it provides the opportunities to deliver new games to more people.
“Our belief is that if you do go over the top and you remove at least 30% of the off-the-top economics, it will give you more creative freedom to go after different audiences,” Horrigan said.
Maybe it isn’t so much that mobile killed the video star but that change is gonna come.