Experienced gamers know it's virtually impossible to win without a sound strategy. The same logic applies to game developers, and in mobile, there's no strategy sounder--or more lucrative--than the freemium model. Earlier this month, mobile app analytics provider Flurry reported that freemium mobile games--i.e., titles that are free to download but offer premium in-app transactions like virtual currency and virtual goods--now generate 65 percent of gaming revenues in Apple's (NASDAQ:AAPL) App Store. What's remarkable is that as recently as January 2011, freemium iOS titles yielded just 39 percent of App Store revenues, far behind traditional paid game downloads. Flurry adds that with games typically representing more than 75 percent of all top 100 grossing applications in the App Store, the freemium concept is now the dominant business strategy across the mobile development landscape.
This week Flurry followed up on the earlier report with even more eye-popping metrics. According to Flurry, roughly 3.5 million consumers are now spending money within freemium iOS and Android games--71 percent of transactions are under $10, 16 percent fall between $10 and $20, and 13 percent exceed $20. The average amount spent per transaction: An astounding $14. "There are two reasons the average settles here," explains Flurry Games GM Jeferson Valdares. "First, within the 'under $10' bucket, most transactions cluster at the $9.99 level, followed by $4.99, and finally $0.99. In fact, in total, consumers spent $0.99 less than 2 percent of the time... The second reason the $14 average seems high is because the high-end of the spending spectrum is very high. Among all purchase price points, over 5 percent of all purchases are for amounts greater than $50, which rivals the amount paid at retail for top console and PC games."
Drilling deeper into the data, Flurry finds that transactions eclipsing the $20 benchmark generate 51 percent of in-app mobile game revenues. Transactions yielding $10 or less represent 31 percent of in-app revenues, and transactions in apps priced between $10 and $20 make up the remaining 18 percent. "Further breaking down the 'over $20' category, 30 percent of the total revenue is generated from transaction sizes of over $50," Valdares states. "If you're a game designer, your main takeaway is that very few transactions--and consumers who complete those transactions--make up the bulk of your revenue." In other words, go after the big spenders or go home.
But all in-app transactions, no matter how large or how small, depend on one thing: Delivering a gaming experience so compelling and so immersive that consumers can't help but hit the purchase button. Gamers approach freemium titles from a different perspective--because they spent nothing to acquire the application and because there are thousands of other mobile apps vying for their time and attention, each freemium game has to foster levels of user interest and commitment so strong that smartphone owners consider in-app enhancements an absolute must-have. Only a fraction of freemium games will translate that kind of customer enthusiasm into a willingness to drop $50 or more on an in-app purchase, of course. But it can happen--and if you don't believe you can win the game, then there's no reason to play. -Jason