This Week in Apps: Photoshop for iPad bombs, Google Play’s new rewards program, iOS bug fixes

Welcome back to This Week in Apps, the Extra Crunch series that recaps the latest OS news, the applications they support, and the money that flows through it all. What are the developers talking about? What Do app publishers and marketers need to know? How is international politics playing out in the App Store? What apps is everyone using?

As November kicks off, we’re looking at a number of big apps launches from Microsoft and Adobe — as well as what went wrong. We’re also looking at the iOS bug-squashing release, a bunch of data about app install trends around the world, Google Play’s new loyalty program and what it means for developers, the continued scrutiny of Chinese apps by the U.S. government, and more.

Fast Facts

eMarketer remindS us that it recently put out a big report on app installs with a ton of insights. It’s actually been live for a few months, but ICYMI, here are some of the key data points and highlights:

  • The average iPhone user in the U.S. downloaded 47 apps in 2018, up from 44 in 2017.
  • The average number of apps installed is rising — up 15% from 2016. In the U.S., Japan, South Korea, and Australia, users had more than 100 apps downloaded in 2018.
  • Smartphone users spend the most time using their top 5 apps. In 2017, the top 5 accounted for 87% of usage. Now (Apr. 2019) it’s 83%. The No. 1 app had a 49% share of the time spent, now it’s 44%.
  • The number of smartphone users in the U.S. will grow just 3% in 2019, compared with 13.2% in India and 12.1% in Indonesia.
  • Related, app downloads grew 165% in India from 2016 to 2018. In China, 70%. In Indonesia, 55%. And in Brazil, 25%. The U.S. app downloads grew just 5%.
  • In June 2019, the App Store had 1.8 million apps compared with Google Play’s 3.1 million.
  • 43% of iOS app install referrals came from Facebook properties, and only 6.6% came from Google properties.
  • Apple Search Ads drove 12% of non-organic installs in May 2019.
  • In-app video ads outperform display ads. Install-to-register rates for video were 35.1% in Q1
    2019 on the Liftoff network, compared with 28.5% for display ads.
  • App engagement drop-off rates after day one are the biggest in shopping apps. (25% engagement after the first day, but 8% at 30 days). Travel also sees a big drop-off. (20% after the first day and 6% after 30 days).

Headlines

iOS Bug Squashing: Apple fixed the iOS bug that killed your background apps. Apple this week finally squashed a very annoying bug in iOS 13 that made the OS overly aggressive about killing background apps and tasks. Apps like Safari, YouTube, Overcast and others were impacted, leading users to lose emails or the video they were watching just when they switched away for a few seconds. What Apple can’t fix is a growing concern that Apple has “lost the plot” following a series of extremely buggy software updates across its product line, which made users hesitant to upgrade to macOS Catalina, and bricked people’s HomePods.

Google admits it can’t secure the Play Store on its own: Google this week announced partnerships with security firms ESET, Lookout, and Zimperium to form what it has branded the “App Defense Alliance.” The goal, the company says, is to unite the security industry to fight malicious apps across Android’s ecosystem of 2.5 billion devices. Basically, Google will integrate its own detection systems with each partner’s scanning engine to help it uncover potential risks and threats. However, the fact that Google is now essentially outsourcing security to a partner ecosystem is an admission of failure, to some extent, about its abilities to keep the Play Store free from bad actors on its own. (But of course, we all knew that already, right?)

Photoshop for iPad is tanking: Adobe released its most important mobile app ever with this week’s launch of Photoshop for iPad. But fans panned the app because it’s missing several key features. Like RAW support! The app now has 2 stars out of 5…yikes. So what went wrong?

To read more, subscribe to Extra Crunch.

This Week in Apps: iOS 13 complaints, Q3 trends, App Store ratings bug

Welcome back to This Week in Apps — the easiest way to keep up with everything that happened in the world of apps over the past week — from the breaking news to the trends and all the other information an industry watcher needs to know.

The app industry is as hot as ever, with 194 billion downloads in 2018 and more than $100 billion in consumer spending. People spend 90% of their mobile time in apps and more time using their mobile devices than watching TV. In other words, apps aren’t just a way to waste idle hours — they’re big business, and one that often seems to change overnight.

In this Extra Crunch series, we help you to keep up with the latest news from the world of apps.

This week, we’re looking at that one iOS 13 bug everyone is complaining about, App Store Q3 trends, plus the latest revenue numbers announced by Apple and Google during quarterly earnings. We’ve also found a new product for figuring out what may have caused spikes or changes in an app’s history, and we’re tracking new information about Microsoft’s Xbox Console to mobile streaming service as well as Google’s Motion Sense.

And more!

To get this information, subscribe to Extra Crunch.

Headlines

Everyone is complaining about iOS 13 killing background apps

Apple released iOS 13.2 with Deep Fusion this week. The release also included new emoji, Siri recording opt-out, bug fixes and security improvements. But it didn’t solve the background app bug.

As a result, developers are angry and users are frustrated. A number of iOS 13 users are complaining about iOS 13’s aggressiveness in killing background apps and tasks, which is attributed to poor RAM management. This particularly affects apps like Safari, YouTube, Overcast and others. Users have lost Safari tabs, emails they were composing, or the video they were watching just after switching away for a minute.

The complaints are all over Twitter, Reddit, and Apple’s own forums. A MacRumors post about this has over 400 comments.

This has been a problem since the betas, but people were hoping they’d be addressed by the public releases. Apple hasn’t clarified what’s at fault here, but there’s speculation about the impact of the memory-intensive camera system.

As TechCrunch editor Matthew Panzarino put it, it “feels like I’m back on iOS 3.”

Developer Nick Heer of Pixel Envy says the bug isn’t catastrophic, but “it absolutely should be the highest of priorities to fix it. It’s embarrassing that all of the hard work put into making animations and app launching feel smooth is squandered by mismanaged multitasking,” he says.

Radar filed.

Consumers spent more than $500M on photo/video apps in Q3

Outside of mobile games, entertainment and streaming apps are also pulling in the big money. But there’s another category benefiting from the shift to the subscription model: photo and video apps. In this category, you’ll find apps that promise to touch up photos, add filters that can make or break Instagram careers, as well as the video giants like YouTube and TikTok.

photo and video app store revenue growth q3 2019

In Q3, the category grossed more than $500 million, up a whopping 75% year-over-year, says Sensor Tower. It’s also seeing an annual growth rate of 101% since 2016. Much of this is attributable to YouTube, which alone was responsible for 30% of the category’s revenue in Q3. (Just wait until TikTok takes in-app monetization seriously, though.)

top apps photo and video app store revenue q3 2019

But now, it’s not just the top apps that are growing. In Q3, 22 apps exceeded $3 million in gross user spend, compared to just 2 in Q3 2016. And 7 apps had more than $10 million in revenue, including TikTok, VSCO, Facetune 2, FaceApp, and PicsArt.

App revenue tops $39 billion in first half of 2019, up 15% from first half of last year

App store spending is continuing to grow, although not as quickly as in years past. According to a new report from Sensor Tower, the iOS App Store and Google Play combined brought in $39.7 billion in worldwide app revenue in the first half of 2019 — that’s up 15.4% over the $34.4 billion seen during the first half of last year. However, at that time, the $34.4 billion was a 27.8% increase from 2017’s numbers, then a combined $26.9 billion across both stores.

Apple’s App Store continues to massively outpace Google Play on consumer spending, the report also found.

In the first half of 2019, global consumers spent $25.5 billion on the iOS App Store, up 13.2% year-over-year from the $22.6 billion spent in the first half of 2018. Last year, the growth in consumer spending was 26.8%, for comparison’s sake.

Still, Apple’s estimated $25.5 billion in the first half of 2019 is 80% higher than Google Play’s estimated gross revenue of $14.2 billion — the latter, a 19.6% increase from the first half of 2018.

The major factor in the slowing growth is iOS in China, which contributed to the slowdown in total growth. However, Sensor Tower expects to see China returning to positive growth over the next 12 months, we’re told.

To a smaller extent, the downturn could be attributed to changes with one of the top-earning apps across both app stores: Netflix.

Last year, Netflix dropped in-app subscription sign-ups for Android users. Then, at the end of December 2018, it did so for iOS users, too. That doesn’t immediately drop its revenue to zero, of course — it will continue to generate revenue from existing subscribers. But the number will decline, especially as Netflix expands globally without an in-app purchase option, and as lapsed subscribers return to renew online with Netflix directly.

In the first half of 2019, Netflix was the second highest-earning non-game app with consumer spending of $339 million, Sensor Tower estimates. (We should point out the firm bases its estimates on a 70/30 split between Netflix and Apple’s App Store that drops to 85/15 after the first year. To account for the mix of old and new subscribers, Sensor Tower factors in a 25% cut. But Daring Fireball’s John Gruber claims Netflix had a special relationship with Apple where it had an 85/15 cut from year one.)

In any event, Netflix’s contribution to the app stores’ revenue is on the decline.

In the first half of last year, Netflix had been the No. 1 non-game app for revenue. This year, that spot went to Tinder, which pulled in an estimated $497 million across the iOS App Store and Google Play, combined. That’s up 32% over the first half of 2018.

1h 2019 app revenue worldwide

But Tinder’s dominance could be a trend that doesn’t last.

According to recent data from eMarketer, dating app audiences have been growing slower than expected, causing the analyst firm to revise its user estimates downward. It now expects that 25.1 million U.S. adults will use a dating app monthly this year, down from its previous forecast of 25.4 million. It also expects that only 21% of U.S. single adults will use a dating app at all in 2019, and that will only grow to 23% by 2023.

That means Tinder’s time at the top could be overrun by newcomers in later months, especially as new streaming services get off the ground (assuming they offer in-app subscriptions); if TikTok starts taking monetization seriously; or if any other large apps from China find global audiences outside of China’s third-party app stores.

For example, Tencent Video grossed $278 million globally in the first half of 2019, outside of the third-party Chinese Android app stores. That made it the third-largest non-game app by revenue. And Chinese video platform iQIYI and YouTube were the No. 4 and No. 5 top-grossing apps, respectively.

Meanwhile, iOS app installs actually declined in the first half of the year, following the first quarter that saw a decline in downloads, Q1 2019, attributed to the downturn in China.

The App Store in the first half of 2019 accounted for 14.8 billion of the total 56.7 billion app installs.

Google Play installs in the first half of the year grew 16.4% to 41.9 billion, or about 2.8 times greater than the iOS volume.

1h 2019 app downloads worldwide

The most downloaded apps in the first half of 2019 were the same as before: WhatsApp, Messenger, and Facebook led the top charts. But TikTok inched ahead of Instagram for the No. 4 spot, and it saw its installs grow around 28% to nearly 344 million worldwide.

In terms of mobile gaming specifically, spending was up 11.3% year-over-year in the first half of 2019, reaching $29.6 billion across the iOS App Store and Google Play. Thanks to the fallout of the game licensing freeze in China, App Store revenue growth for games was at $17.6 billion, or 7.8% year-over-year growth. Google Play game spending grew by 16.8% to $12 billion.

The top-grossing games, in order, were Tencent’s Honor of Kings, Fate/Grand Order, Monster Strike, Candy Crush Saga, and PUBG Mobile.

1h 2019 game revenue worldwide

Meanwhile, the most downloaded games were Color Bump 3D, Garena Free Fire, and PUBG Mobile.

Image credits: Sensor Tower

Singapore-based game studio Mighty Bear raises $2.5M ahead of debut release

Mighty Bear, a game studio startup that grew out of King.com’s former office in Singapore, has landed new funding as it readies its debut title for smartphones.

The startup was founded by four former King.com staffers — Simon Davis, Fadzuli Said, Benjamin Chevalier and Saurabh Shukul — after the gaming giant closed its Singapore office — inherited via the acquisition of Non Stop Games — following its $5.9 billion acquisition by Activision. Today, Mighty Bear’s team of 18 counts experience working with Ubisoft, EA, Lucasarts, Disney, Gameloft and others.

The startup previously raised $775,000 in a pre-seed round in early 2017, and this time around it has pulled in a seven-figure USD investment. The deal is officially undisclosed, but a source with knowledge of discussions told TechCrunch it is worth around $2.5 million.

The deal was led by U.S.-based Skycatcher, New York hedge fund banker Eric Mindich’s Everblue fund, and M Ventures from Los Angeles. Others in the round include Singapore’s Atlas Ventures, Lev Leviev — who is co-founder of VK.com among other things — and existing backer Global Founders Capital, which is affiliated with Rocket Internet.

“We’ve already got a good set of investors from Europe and Asia so we realized we needed networks in North America, too,” Mighty Bear CEO Simon Davis told TechCrunch in an interview.

Davis added that, beyond extending their reach for purposes like hiring, partnerships and more, they open up the potential for IP and media deals further down the road.

First thing first though: Mighty Bear is working to launch its first title, which Davis said will be an MMORPG. Right now, it is being secretly tested for scalability and technical capabilities among users in India and the Philippines with a view to a full launch on iOS and Android later this year. Davis said the company plans to launch another title, too, with both games managed concurrently.

“We’ve basically taken a genre that we know is monetized and engaged with hardcore users and tried to bring it to a large audience. Our goal is to take big desktop experiences and streamline them into five-minute bursts,” he told TechCrunch in an interview.

You may not know it, but you may have run into Mighty Bear’s concepts already even though it hasn’t fully launched a title yet. That’s because part of the research and development process includes creating and disseminating videos and advertising for mock games through channels like Facebook.

That, Davis explained, can help Mighty Bear in all manner of ways, from basics such as figuring out what kind of visuals or advertising approach gets engagement from users, to broader purposes such as understanding the types of games that people want to play.

“The process helps witter down ideas to those that will get traction with users. If a game makes it through the various internal gates we have, and to soft launch, then we have the best potential for it to perform well,” Davis said.

Developing artwork and advertising for ‘fake’ games isn’t as obscure as it may sound. While it isn’t usual for smaller studios, it’s a practice that Davis said is common at huge game development companies — that in turn is a reflection in the experience that the team at Mighty Bear has under its belt.

Games firm Netmarble to raise $2.35B in Korea’s largest IPO since 2010

 Netmarble, one of the world’s top mobile and PC gaming firms, has filed to raise as much as $2.35 billion (2.66 trillion won) through an IPO in its native Korea. The firm said in a filing [in Korean] that it will issue 16,953,612 new shares priced between 121,000-157,000 KRW each (that’s approximately $108-$140) with a view to raising up to 2.66 trillion won ($2.35 billion).… Read More

SGN becomes Jam City and announces a new Peanuts game

Jam City desk Mobile gaming company SGN announced today that it has a new name, Jam City. This isn’t the first time the company has rebranded — it was called MindJolt before acquiring SGN and then taking on the name in 2012. The change may be an inevitable reflection of the company’s — and the industry’s — transition from social to mobile games. CEO Chris DeWolfe (who… Read More

Google beefs up ads, analytics, and updates for Android game developers

Google Play is bringing a ton of changes for game developers.

Game developers are about to get a handful of tools that should make their jobs easier.

Google announced a number of improvements to its suite of Google Play game services that should help developers make better apps and more money. These features include a way for studios to bypass the review process for updating their games and a new ad that acts an instant demo. Mobile gaming is a $34.8 billion industry, and Google wants a bigger share of that. The company is behind Apple when it comes to spending on mobile games in markets like the United States and Canada, but these tools could help close that gap.

During a presentation today at the Game Developers Conference in San Francisco, Google Play Games boss Morgan Dollar and product manager Ben Frenkel ran down the changes that developers can expect to see in the coming months.

Here are the major points:

  • Panda PopGame parameters management: This enables developers to instantly change certain things in their games without having to submit an official app update. If a ton of players are struggling with a certain enemy, the studio now has the option to tweak that with no hassle.
  • Predictive analytics: A new feature for Player Stats in Google Play services that shows the groups of players that are likely to spend money or leave an app.
  • Search trial run ads: Developers can now embed demonstrations of their games into ads inside of Google searches on Android.
  • Portrait video ads: The majority of people who play games and watch interstitial videos hold their phones vertically, and now Google is offering up an ad unit so that developers can reach those people without hitting them with an awkward-looking horizontal video.
  • Active user targeting for games: Developers will get the option to target ads directly at players who have spent more than 30 minutes playing games in the last 30 days.
  • Admob Mediation: Incentivized advertising built into Google Play.

One of the big things to notice about many of these features is that they are something we’ve already seen other companies doing, but now Google is building a toolkit that it gives to away to all of its developers for free. This reduces the barrier of entry for smaller studios, and it also reduces friction for a popular iOS developer trying to bring games to Android.

More information:
Get more stories like this:  twitter  facebook









With just 3 games, Supercell made $924M in profits on $2.3B in revenue in 2015

Supercell's offices

There’s something magical in the water, or the snow, in Finland. Helsinki-based Supercell announced some astounding financial results for 2015 based on revenues from its three hit mobile games: Clash of Clans, Boom Beach, and Hay Day.

The company made profits (before certain items) of €848 million, or $964 million, on revenues of €2.109 billion, or $2.326 billion. That compares to earnings before income tax, depreciation, and amortization of €515 million, or $592 million, in 2014, on revenues of €1.545 billion, or $1.777 billion.

Clash of Clans, which debuted in August, 2012, accounted for the bulk of that revenue, though Supercell didn’t say how much. The game was ranked at either No. 1 or No. 2 during the course of 2015 on the top-grossing list. It’s not official, but pretty clear, that Clash of Clans is the most successful app in the world.

The company also paid a dividend of €14 ($15.50) per share, resulting in a total dividend payout of €603 million, or $669 million. Supercell also initiated a share buyback scheme from its employees amounting to €114 million, or $128 million, in the past year.

That’s an incredible financial result for a company with just 180 employees. And 2016 is off to a good start, as Supercell’s Clash Royale has take the No. 1 spots in top downloads and top-grossing games in the U.S. Apple app store. The game is No. 1 in 44 countries right now. Supercell just announced that it has more than 100 million daily active users in almost every country.

Supercell has had unprecedented success in keeping its three games in the top 40 (and two in the top 10) for several years.

Ilkka Paananen, Supercell’s CEO, said in a statement, “These financial results are of course great and we are very proud of them. However, the real highlight for us is how we’ve been able to get here while staying true to our founding vision that was all about people.”

Clash of Clans is one of very few Western games to find an audience in Japan, and that's only after developer Supercell invested heavily in marketing.

Above: Clash of Clans is one of very few Western games to find an audience in Japan, and that’s only after developer Supercell invested heavily in marketing.

Image Credit: Supercell

He added, “We believed that if we bring together the best people, create the best possible environment for them, then with enough time and some luck, some great games will follow. Games that millions of people around the world will want to play for years and years.”

And he said, “Despite the financial success, we have been able to keep the company relatively small. Today we are 180 people where most people know each other by name, and where people work in small and independent teams, in a zero bureaucracy environment.”

I’ve visited Supercell’s headquarters (housed in an old Nokia high-rise) in Helsinki, and it is a very small, cozy, and collaborative environment. The entire Clash of Clans team operates in a small section, and there are board games everywhere along the shelves by the kitchen.

Supercell said that it killed 14 games so far, before it was able to successfully launch its fourth game, Clash Royale, last Thursday.

Given the results, it’s no wonder Supercell is so valuable. Last June, Japan’s SoftBank bought an additional 22 percent stake in Supercell (bringing its ownership to 73 percent) at a valuation of $5.5 billion.

Based on Finnish law, Supercell reports its earnings once a year. The company once received a 400,000 euro loan from the Finnish government. The company has paid back that amount many, many times over in taxes.

Clash Royale is a very simple real-time strategy game with Clash of Clans characters.

Above: Clash Royale is a very simple real-time strategy game with Clash of Clans characters.

Image Credit: Supercell

Comment on this story:  Twitter / Facebook









Why engagement is the best measure of mobile monetization

Clash Royale is a card-collecting take on Clash of Clans.

Most game companies manage their businesses using operating metrics that give insights into audience (metrics such as Daily Active Users, or DAU; Monthly Active Users, or MAU; number of installs; various day retention); and monetization (metrics such as Average Revenue Per Daily Active User, or ARPDAU, number of Payers, Average Revenue per Paying User or ARPPU).

The key objective of these operating metrics is to help managers understand the fundamental health of the games and their future outlook, and to help make business decisions.

But do these metrics truly help?

If you are a hedge fund manager, focused on going long on companies that would deliver favorable financial results next quarter and going short on the companies that won’t, by all means you should be focused on DAU, ARPDAU, ARPPU, and conversion metrics.

However, if you are running business for the long term and focused on building a sustainable game that delivers fun and value to your players, I believe that overly focusing on these metrics hurts more than helps.

I believe that it is time to rethink operating metrics for games.

The problems with existing operating metrics

Existing operating metrics over-index revenue performance

Game companies are under close scrutiny by investors for their quarterly performance, putting them under immense pressure to deliver strong financial performance. The unintended consequence of this pressure to deliver financial performance is that game teams can over index on generating revenue instead of delivering a better experience for players. For example, to meet short-term financial goals, the general manager of a game could turn up the monetization dials raise and thus grow revenue in a given quarter. However, not only would this revenue growth be short lived, but more important, it would also come at the cost of cannibalizing future quarters’ revenue. Worse, if repeated often, regular turning up of monetization dials could destabilize the in-game economy and cause the eventual implosion of the game.

Companies need metrics that can help them identify such patterns that could have impact on long term sustainability of their games.

Existing operating metrics are lagging (not leading) metrics of business health

Most game companies generally have robust revenue models that take into account historical trends on DAU, ARPDAU, and user retention; user acquisition forecast from the marketing team; content update plan and resulting impact on ARPDAU; user retention from game teams. These revenue models can be pretty accurate for established games over the short term as long as things go according to plan, which is not always the case – especially after major events like content updates or launches of new versions.

Businesses have to come to terms with how DAU, ARPDAU, and ARPPU are the lagging indicators and often times, these will fail to forewarn managers of impending revenue decline. Managing business with these metrics is akin to driving while looking into rearview mirror.

Game developers need operating metrics that are the leading indicators of the business and help them make decision based on future potential of the games vs. historical performance of the games. Companies need an early warning system that could help them identify such revenue drops in advance so that they can take timely actions and also set right expectations with various stakeholders.

Existing metrics don’t measure & reward what is fun for players

First, while most game companies embrace the idea of building games that players will love to play, the existing operating metrics don’t include any metric to measure players’ love, fun, or satisfaction. And game-development teams operate to yield results on metrics they are measured against, which, at times, could be at odds with the company’s value of delivering fun to players.

Second, free-to-play games don’t come with a price sticker, and players’ spending in the game is completely voluntary. Game developers can turn monetization dials, increasing (or decreasing) squeeze in the game in order to encourage players to spend more (or less). Game developers need to know the right level of monetization for its games. Are they leaving money on the table, or are they overcharging players? They need to measure entertainment value of games for players to help them decide the optimum level of monetization.

Companies need a metric to measure players’ fun and make that a part of the measure for their teams. They need their teams to not just deliver on DAU, ARPDAU, and revenue performance but also deliver on players’ satisfaction.

The solution

Engagement as the measure of fun

I believe that the best measure of players’ love is their engagement – spending time in the game, taking turns to play, completing sessions, sharing with and inviting their friends to play –  reflects on their satisfaction with the game. The simplest and most effective measure of engagement is the number of game sessions played and the average session length. Simply stated, the amount of time a player spends within a game could be the best measure of her engagement and thus satisfaction.

Engagement also the key for monetization

I believe that the more a player (and her friends) plays a game, the more money she will be willing to spend on it. Analysis of several publicly listed free-to-play game companies in China* reveals that revenue per user hour for all these companies in almost all quarters, ranged between RMB 0.35-0.45/hour, suggesting that players eventually pay for engagement (*analysis during the period when these companies disclosed a broad array of operating metrics; most companies have since stopped disclosing those metrics). Although the games are free-to-play, knowingly or unknowingly, players want to spend a fixed dollar amount per hour of entertainment.

Interestingly, average revenue per user hour (ARPUH) in this analysis was in the same range for different categories of games including hardcore games that were perceived as highly monetizable games with per payer monetization at  ~RMB 200/month; and advanced casual games that were perceived as low monetizable games with per payer monetization at ~RMB 60/month. Implication being that, although players of hardcore games spent four times more dollars compared to that of casual games, they also spent roughly fourfold more time playing games, effectively spending the same dollar amount per hour of gameplay.

Below are two charts comparing average revenue per paying user and average revenue per hour for three of the largest public listed free-to-play game developers – Perfect World and Giant published hardcore games; and Tencent published mostly advanced casual games. While Perfect World’s per paying user monetization was almost four times of that for Tencent and that for Giant’s was at two times, revenue per hour for all the companies was within the range of RMB 0.35-0.45/hour.

At

ARPUH China

Given that players are willing to pay the same dollar amount per hour of game play (effectively setting the equilibrium price of entertainment per hour), game companies can grow revenue per user only by growing engagement. If a game developer tries to arbitrarily raise the price increasing squeeze in the game to extract more dollars from player, player engagement would decline. Conversely, lowering price by reducing squeeze would result in higher player engagement.

Engagement vs ARPU

An analysis of game companies’ historical performance validates the hypothesis that engagement and per-payer monetization negatively correlated with each other.

The diamond shapes in the graph below depict that whenever the company tried to raise per paying user monetization, the engagement took a hit and easing on monetization helped them with higher engagement.

More important, monetization spikes were followed by sharp drops in total revenue, which leads me to believe that raising squeeze on players not only results in reduced engagement (as shown above) but also higher player churn, with revenue cannibalization occurring in future quarters.

Revenue dropsThe analysis validates my views that (a) engagement is the best measure for players’ satisfaction; (b) players are willing to pay a fixed dollar per hour of entertainment; and (c) driving short term revenue growth by dialing up monetization would lead to decline in engagement and consequently revenue loss in medium term.

Conclusion

Engagement and average revenue per hour are the two most important operating metrics that game companies need to track. In order to grow its revenue sustainably, game developers need to focus on growing player engagement and ensuring that entertainment price (revenue per hour) stays within range. Spikes in average revenue per hour are symptoms of a team growing short term revenue by increasing squeeze, which would inevitably be followed by engagement decline and revenue loss in subsequent periods. These spikes in revenue per hour should serve as an early warning system for an impending revenue decline in future periods.

The engagement metrics should be the key part of the business discussions and review process within the game companies. Games should be measured not just on revenue, DAU, but also on player engagement. In the end, I believe that these changes could help bring the game developers closer to their core values of delivering fun for players.

Atul Bagga was most recently the CFO  for Zynga Asia and was an equity research analyst covering digital media and Internet with Lazard Capital and ThinkEquity.

 


Comment on this story:  Twitter / Facebook