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How Bad is the Discovery Problem?

By on May 24, 2013

This is part of a series of guest posts by David Garth, President of brand licensing consultancy The Parallax Corporation. You can read the full white paper at the Parallax Corporation website.

Part 1: The Discovery Problem and Rising User Acquisition Costs

As the marketplace for mobile and casual games has become larger and ever more crowded, it has become increasingly difficult for publishers and developers to get their games noticed and overcome a growing discovery problem. For just the month of March 2013, Xylogic counted almost 31,000 new iPhone apps and over 22,000 new Android apps in the US app stores alone. (Of these new apps, 18% and 22%, respectively, were games).

With 1.5M mobile apps already available in the US, and the number of game app downloads projected to grow from 21 billion in 2012 to 64.1 billion in 2017 (Juniper Research), it’s no secret or surprise that the sheer volume of different games that makes it hard to attract attention from consumers.

The cost of marketing and advertising is correspondingly on the rise. The ‘big boys,’ publishers and developers with deep enough pockets to spend very large sums of money on advertising and marketing to get their products noticed, are driving up the cost of customer acquisition. It’s getting more and more difficult for smaller developers, who cannot afford these costs, to reach new audiences. Developers are already doing everything they can to increase revenues by improving conversion rates and maximizing player retention and monetization. But they’re fighting an uphill battle, as long as the expense of customer acquisition costs continues to rise and eat into profits…

According to the FIKSU Cost Per Loyal User Index, the average cost, for brands who proactively marketed their apps (across all types of app categories, which are generally less expensive than for games), rose from $0.94 in March 2011 to $1.36 in March 2013,which is an increase of 45%. The Cost Per Install (CPI or Acquisition Cost Per User, the ACPU) for unpaid installs in the gaming world is currently in the $1 to $8 range.

Delving into this more deeply, if the Cost Per Install for a free-to-play game is on the low end of this range, at $1, and the game has a monthly conversion rate of 5% (which in itself is considered high by many industry observers), that means the Acquisition Cost Per Paying User (ACPPU) is $20. In order to break even on the customer acquisition cost alone, the game would have to generate (net of the 30% platfrom share to Apple or Google) an Average Revenue Per Paying User (ARPPU) of $20.

How realistic is that? To put it into perspective, according to SuperData Research numbers from last year, the average paying social game user in the US spent $37.59, while the conversion rate across all genres was 2.5%. Apply that conversion rate to an acquisition cost of $1 and you get an ACPPU of $40 vs. net ARPPU of $26.31 ($37.59 minus 30% platform share to Apple or Google), resulting in a loss of $13.69. It’s not easy to make a profit under these circumstances.

It’s unfortunate that producing a good game, or even a great one, is no longer enough to stand out from the crowd and be discovered by enough prospective users. Even some critically-acclaimed games go largely unnoticed by consumers – a disappointment to many in an industry that prides itself on innovation and creativity, and where the hope is that the commercial success of a game ought to correlate somewhat closely with its quality. In short, the combination of the vast number of releases and the rising cost of marketing has turned discovery into mobile gaming’s thorniest problem.

About David Garth

David Garth is the President of The Parallax Corporation, a boutique licensing and consulting firm focused on brand licensing for mobile games and consumer products