Rise of the IAP Boss

Rise of the IAP Boss

Newzoo has mobile gaming on track for an estimated $70 billion in global revenues this year — 51% of the total game market. As a mobile game developer since the early 00’s, I’m hardly surprised — but I am in awe. This is big market.

iOS and Android are stronger than ever as the Coke-and-Pepsi rival platforms, publishing and distribution have re-structured themselves, and thousands of new developers have come and gone since the launch of the iPhone. We’re deep in the throes of a world we tried to imagine almost two decades ago, a world of wireless distribution over large-scale networks comprising a big chunk of the overall game market.

What’s left of the old retail world of physical boxes on shelves — much like video and music — are remnants of a bygone era, nostalgic, archaic, boutique. Video games don’t quite live and die by the graphics sword as they once did, either, by high-polygon counts or texture memory, and the heady days of big-dollar budgets, huge teams and deep pockets to fund them are fewer and farther between. We continue to have higher-performing GPUs, smaller footprints and new display technology. We’ve got plenty of devices and form factors, and we’re doing more at the shader level. In particular, VR/AR/MR/XR are bringing, albeit more slowly than anyone wants to admit, new ways to experience games.

But the fundamentals — the look, feel, depth, mechanics, gameplay — are less a function of technology than they are slaves to the markets that have evolved from the platforms. Big productions and high quality don’t compete nearly as well in this world. Yes, we continue to see small numbers of deeply designed, cinematic-quality games — and lest we forget that Steam has kept PC gaming alive — but they’re not the main stream anymore.

And there’s the rub, because the biggest problem we face is now our biggest market segment — mobile games. I’ve said before that the thorn in mobile gaming’s side is discovery, which is almost exclusively a function of the platforms, which are in turn a function of two things: Free-to-play (F2P), which allows players to play without paying (or with the illusion of not paying) and pushes developers to spend a large part of their time micro-managing monetization, and what I call Free-to-create (F2C), which is the low barrier to entry to game development. By themselves, F2P and F2C are beneficial, desirable, worthwhile. Together, they may be destroying what it means to be a game developer.

F2P

Like its grandfather the game demo, F2P works by enabling players to optimize for avoiding a false positive: It costs players nothing to try before they buy. If they’re in love, they’ll invest time and money; if not, they don’t feel quite so duped or dumped or disappointed. F2P is more sophisticated than dear old grandpa though and relies on a careful in-game IAP (In-App Purchase) plan. Developers must take care to give players the right combination of free and paid experiences unique to the game. Risk/reward mechanics, quantity and timing can be very tricky to nail, and add significant costs to development.

Poorly implemented IAP misses crucial opportunities to make money or, on the flip side, players feel ripped off or manipulated. More than ever, developers must be at the right place and at the right time to become profitable, but for the user, it’s a seemingly endless source of low-risk gaming potential. 

F2C

F2C in the purest sense is a wonderful thing — anyone, with some effort, a little money and a reasonable amount of time can design, develop and deploy a game or app that functions like a game. The new developer gets to learn something exciting and rewarding (design and programming), gets the distinction of doing it, and dreams of having a hit.

The platform gets the benefit of massive amounts of content to sell, theoretically for every conceivable taste, desire or need that billions of potential players may have. This makes the platform more popular, draws new players, makes current players stickier and encourages developers to believe that they’re competing for consolidation. The opportunity cost is so low that, not only do novel games emerge from unlikely, would-be developers, the sheer size of the developer base greatly increases the chance of game content that more closely or clearly taps into current cultural trends and preferences. We’ve seen it many times already on both iOS and Android, despite the overwhelming number of games made with shallow or amateurish content.

Where’s the Value?

In the heyday of feature phone games (2001-07), mobile games were mostly P2P (Pay-to-play), developed by professional teams who sold them for a fixed cost — the retail model. This was also the case in the early days of smartphone games.

The charts were more volatile than they are today. There were far fewer games, and players voted with their money up-front. Developers were diligent, and an MVP was closer to a full-on release candidate than a beta release. They still had to do a solid job of writing advertising copy, producing image assets and providing support. They could also price their games higher and had a much better chance of being noticed on the deck. (Development was also more frustrating due to the number of different phones and operating systems and APIs — but that’s another, much longer, discussion).

Back then developers did their best to score coveted first-party deals with device manufacturers, but most either self-funded or had publishing partners who were ready and willing to fund them. The platforms were new and the distribution all-digital, but the traditional retail publisher-developer model worked much as it always had.

Things changed with the arrival of the iPhone. A handful of developers early on saw the potential for massive amounts of traffic via F2P, and their successes attracted more amateurs, which was only possible because of the low barrier to entry — F2C. The platforms flooded with new games, a large number of which were half-conceived or half-implemented, or both. This quickly had the effect of cramming the digital shelves so full that P2P (with some exceptions, like Angry Birds and Infinity Blade, for example) could not compete with F2P.

In fact there was a period — nearly all of 2010 — when an explosion of very good games that would have otherwise been P2P were free with very little IAP. This created a small group of lottery winners — developers who pulled massive traction, bolstered by the new mobile gaming press and incremental improvements to the platforms’ storefronts. These crucial early hits trained players to expect higher-value F2P, but when the smoke cleared developers still had to pay salaries — so they dove more deeply and cleverly into IAP.

Fast-forward to today, where we’re now at over a million active games across the iTunes App Store and Google Play, growing at a rate of hundreds of new game submissions per day, most of which are F2P or have a F2P option in addition to P2P. Practically speaking, it’s absurd. Imagine a million titles in a physical retail store — if you spent just one minute per title reading each description, you’d be trapped in the store for almost two years. (Further imagine that every game on the shelf is free — you can just take it home and try it.)

The result of all of this is that, unlike the old retail model in which developers tended to focus on quality, successful mobile developers had to become masters of low budgets, test markets and market triage, frequent updates, daily engagement with players and of course, IAP. Otherwise they were just playing hit-game roulette. The bottom line is that we now have a mobile genome full of junk DNA whose value, if any, is not well understood. Discovery is still fundamentally broken, and while we have the requisite gaming genres and digital endcaps with featured titles, they’re mostly games whose survival depends on clever monetization models, not quality.

So, where’s the value? For players, it’s whatever is on those few endcaps fronting an endless aisle of other games they will never see (though the aisle serves an important function by creating the illusion of platform power, credibility and trust). It’s a dollar here and a dollar there, and the latest loot crate on sale. It’s not always easy to tell how much fun players are having, but it’s clear they are still under the illusion that mobile games are practically “free”, though “whales” — that small percentage of players who will rack up hundreds, even thousands of dollars in IAP — are ever-present.

In terms of quality, it’s still a race to the bottom, though we are seeing some improvement as the most successful publishers become bored with their large catalogues and over-optimistic about their successes. But publishers still rarely fund anything that isn’t high-profile IP or derivative, and you can’t blame them — the discovery problem and the immense cost of marketing a title into a featured slot or Top 3 list would make anyone risk-averse. (This is not uncommon in traditional games, either, but’s it’s far more profound in mobile.) For self-funded new developers, most still wind up as “one and done” — they make a single game then close up shop when it’s immediately clear they will never recoup their costs.

For professional developers who have the stamina and resources to stay in the game, they’re largely reactive and resistant to re-investing profits into higher quality. They understand what they’re up against. To quote Trip Hawkins from a few years ago, “There really ought to be an institute for studying virtual economies…  It’s about thinking about your game like you’re the merchandising manager at Bloomingdale’s. Once you have made a game that has good lifetime value, then you can afford to buy marketing.”

Trip is dead-on, but that kind of reality-check messes with our basic worldview as game developers. We cling to the idea that what we’re doing is magical and novel and creative. Meaning, Mastery, Skill, Flow, Risk, Reward and Story are our prophets, and Fun is our God, but IAP is the Boss and without him, there is no game.