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[Gamesbriefers] Are there too few whales?

By on April 2, 2014

Continued from ‘Are mobile conversion rates really this low?

Eric-Hautemont1Eric Hautemont CEO of Days of Wonder

I don’t see why these stats would be tough for any cynic to swallow: instead, they might just prove a point – that there is a growing number of F2P mobile developers and $ competing for a limited, possibly diminishing, number of whales; this would also help explain the exponential rise in “user acquisition” costs.

Teut WeidemannTeut Weidemann Online Specialist at Ubisoft

The assumption that whales is an attribute fixed to certain human beings is wrong. Whales don’t exist, they grow. All it takes is the right game. So there is no limit on whales.

Eric-Hautemont1Eric Hautemont CEO of Days of Wonder

Maybe, maybe not: whales grow and die, too. As a former exec at Zynga once told me “People loved and loved our games… until they hated them!”

Ben Cousins1Ben Cousins Head of European Game Studios at DeNA

The assumption that whales will ‘see the error of their ways’ is based on the idea that all whales ‘obviously’ regret spending. Zynga’s fall is nothing to do with F2P and everything to do with Zynga

There is specific research that show the majority of spenders in F2P games do not regret their purchases (EEDAR).

“the exponential rise in “user acquisition” costs.” is caused by an increase in the average revenue per user, which is caused by an increase in the absolute number of whales.

Source: three years working for one of the companies responsible for pushing up the UA costs.

eric seufertEric Seufert Mentor at Gamefounders

I see no reason to believe that the number of “whales” has stopped growing:

– Global smartphone penetration continues to grow: expected worldwide smartphone penetration by EoY 2014 is 1.75BN, up from 1BN in 2012 (source: emarketer). Smartphone penetration continues to grow in the US, too; it increased by 7% from three months ended October 2013 to tme January 2014, to 66.8% (source: WSJ)

– obviously consumers continue to prefer freemium games to paid downloads; the percentage of freemium apps in the App Store jumped from 77% to 92% over the course of 2013 (source: mobileminute)

– The cumulative amount of money paid out developers by Apple more than doubled in 2013 *alone*; by January 2013, Apple had paid out $7BN, and by January 2014, Apple had paid out $15BN (the App Store was launched in 2008) (source: Forbes).

Could more smartphones, more freemium apps, and more aggregate revenue possibly result in fewer (or the same number of) whales? Sure, but it’s not likely. But user acquisition costs are rising precisely *because* more whales are entering the ecosystem. Developers don’t blindly throw money at UA: they spend based on LTV, and as segmented LTV rises, so do targeted bids. If UA prices are rising, it’s a sign that there’s more money to chase.

Eric-Hautemont1Eric Hautemont CEO of Days of Wonder

Or UA prices could be rising simply because too much money is going after the same pool of users (or a pool of users that isn’t increasing as fast as the pile of money being thrown to acquire them).

Having been a VC in an earlier life, and having witnessed first-hand lots of irrational spending among VC-backed companies during the prior dot-com boom, paint me skeptical. Back then many also thought paying $ 8 for CPA was justified; until it turned out, it wasn’t so much the case.

Time will tell…

Emily GreerEmily Greer CEO and co-founder at Kongregate

Completely agree with Eric S. Would also point out that the high CPIs in mobile that everyone is shuddering about are just rising to the level that CPAs have been at on the open web for years where game developers are competing head-to-head with e-commerce bids.

I do think some money has been spent irrationally on UA in mobile in the last few years but I think the current prices are not only reasonable (based on the LTVs we’re getting on some of our games) but also inevitable. Will most games be able to spend profitably? No. But most console games don’t spend significant amounts on TV advertising while Call of Duty and the other top end can. It’s a similar power curve of performance dynamic.

eric seufertEric Seufert Mentor at Gamefounders

FWIW I cannot think of a single developer that is spending unprofitably at a scale that would appreciably increase overall market CPIs. Small devs and some of the publishers almost certainly are, but they’re not a big enough force to move the market. The big guys are spending profitably.

Ben Cousins1Ben Cousins Head of European Game Studios at DeNA


I work for one of these companies.

It goes like this

“Our LTV for this game is $2, we can’t afford to spend more than $1.50 on UA”

New game gets launched

“Wow! Our LTV for this game is $5, we can up our bids to $4 for this one!”

It is NOT

“Our LTV is $5, but we are having trouble acquiring whales at $2, we need to up our bids to $4”

The business is aggressive nowadays. Winners make it big. Everyone is immediately bidding the maximum they can for new games. The only mechanism driving increased UA costs is per-user revenues increases, and that’s happening because there are more whales.

Eric-Hautemont1Eric Hautemont CEO of Days of Wonder

Interesting. I was under the (apparently mistaken) impression that Gree and DeNA scale backs in the Valley where due to their spending having gotten ahead of their revenue traction (in the Western world). Was I wrong?

If your new LTV increases to $5, why up your bid to $4 then, instead of keeping your bid at $1.50 and taking all the excess in profits?

Getting $ 5 at a cost of $ 4 is marginally worse than getting $2 for $ 1.50, btw (you’d be 14% better off spending that $4 to purchase your older users at $ 1.50 and netting $2 in LTV).

Ben Cousins1Ben Cousins Head of European Game Studios at DeNA

I’ve never known of any DeNA game in the west ever be permitted to acquire users at more than current LTV, including my own (aside from very small amounts in soft launches).

I can’t speak for Gree, but the DeNA western business has been 100% profit focussed since Japan started managing ngmoco.

You obviously don’t increase to $4 across the board, but it enables you to go higher, and that helps because the more users you ask for, the higher the cost per user.

Increasing bids from a higher-LTV game enables you to scale the userbase further than previously possible and then (if you have multiple games) you can cross-promote into other products to increase a users LTV as they move across the entire portfolio.

eric seufertEric Seufert Mentor at Gamefounders

You shift the optimization curve, you don’t necessarily ratchet bids up to just below LTV. If I make $.15 in profit per user for 10MM users, I’m making more aggregate profit than if I make $1 in profit per user for 1MM users (often because the 10MM level gets you chart position). This gets complicated because CPIs don’t increase linearly with volume acquired, but generally speaking, maximizing profit involves increasing bids when LTV goes up.

Oscar ClarkOscar Clark Evangelist for Applifier

All the optimisation stuff makes sense… but acquisition and engagement are levers which have to be built on the basis of a great game. We have to constantly aim to make better games.

Teut hit the nail on the head when he said Whales don’t ‘exist’ they grow. It’s about Player Lifecycle and whale spending behaviour is a symptom of Engaged players who are retained and delighted long enough to commit to regular spending

The Zynga comparison is fair until you look at the type of goods they sold in game. These were generally about vanity or time. Neither built much Utility for long term player’s; at least in hindsight. However I suspect the issue was that players evolved faster than Zynga adapted.

I still hold to this data being interesting but not particularly meaningful in this form. The use of averages assumes that there is a normal distribution curve at work below the data. I suspect that this isn’t the case and there is such a range in games performance with a majority performing poorly and a minority doing vastly better. I also wonder if the principles of including all players who download makes any sense at all. There is no barrier to download. That’s the point if F2P how many people are prevented from assessing a game at all by the pay wall who might have spent something in time (perhaps even becoming whales)?

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