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"It's just people selling picks and shovels, not the people finding gold"

FlowPlay's Derrick Morton on his "mobile last" strategy, and how specialist app stores could save the mobile market

The difficulty of finding success and stability on the app stores is a frequently discussed problem. Yet most small developers still use mobile as their target platform, whether through a lack or proper understanding or a perceived lack of options. According to FlowPlay's Derrick Morton, however, there is another way, one that puts mobile where the economics suggest it should go: not first, but last.

Speaking at the Casual Connect conference in San Francisco last week, Morton, the CEO of FlowPlay and an industry veteran of some 20 years, delivered a decisive and damning assessment of the mobile market.

"The system is really, really broken," he said, citing its inability to sustain a model of developers, publisher and distributors as the most obvious evidence of that fact. "That [model] has been going on ever since I've been in games. But the publisher model does not work in mobile. Because of the razor thin margins there's not enough pie to split."

Anecdotal and statistical evidence that the mobile market yields workable revenues for just a tiny proportion of developers is not difficult to find. Morton offered an example of his own: if you're not in the top 200, your company will have to run on less than $2 million in revenue a year. While unsourced, that figure is certainly consistent with other available data, as was Morton's following point that, "the vast majority of games make no money at all."

"The publisher model does not work in mobile. Because of the razor thin margins there's not enough pie to split"

Morton further bolstered his position with the absolute dominance of a small handful of companies - namely Supercell, Rovio and King, which took 50.2 per cent of all mobile revenue in the US in 2014 - and the troubling trend that total revenue growth is slowing down. According to data from eMarketer, total mobile revenue increased by 70 per cent heading into 2013, but it's expected to grow by just 9 per cent by next year. Then there's the incessant flow of new product, with around 450 new games submitted to iTunes every day - 14,842 games in May 2015 alone, according to Morton's data, with almost 400,000 "active" games already available.

"How can you possibly be discovered with all that noise?" he asked the crowd, before supplying the equally problematic answer: you spend money.

"You can walk around the show-floor here [at Casual Connect] and see how many companies are in the business of customer acquisition, versus the business of making games," he said. "The acquisition people far, far outnumber the people actually making the products. That's a little scary. It's just people selling picks and shovels, not the people finding gold."

Which goes back to those "razor thin margins" that Morton mentioned at the start of his talk. In Europe and North America, where a high proportion of smaller developers focus their efforts, the cost per install for a mobile game is only a few per cent lower than the revenue they will receive from that download. In the US for example, the margin is down to just 35 cents.

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And that's a relatively recent shift, one that, if you started working on a project this time last year, would likely undermine your marketing plans and cost structure. Morton referred to Fiksu's Cost per Loyal User Index, which measures users who download a game and launch it three times: In May 2015 the cost to acquire such a user was $2.47, and that's 50 per cent higher than in May 2014. The conditions of doing business have changed radically even in the last 18 months.

The promise of mobile, Morton said, was a platform with low barriers to entry, which could therefore sustain a larger number of small and independent developers than other markets. But the barriers are now dauntingly high, the proportion of winners to losers almost absurdly skewed. All available evidence suggests that a sensible strategy is no longer mobile first, but "mobile last."

Morton used data from Statista to make the case that, while shipments of laptop and desktop computers did decline between 2011 and 2014, they are expected to level off over the next several years, as far ahead as 2019. Newzoo also estimates that revenue from games on these computers will have a compound annual growth rate of almost 7 per cent leading up to 2018.

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That's lower than the corresponding figure for mobile and tablet games, but still attractive given the more favourable market dynamics. In social casino, Morton said, revenue generated from computers (generally from web games) is higher than mobile revenue, and the costs tied to that revenue are also lower. Morton offered Wild Tangent, Kongregate and Yahoo Games - along with more obvious choices like Facebook and Steam - as examples of places where developers can make a more practical start, and build towards a mobile launch, if they choose to launch on mobile at all.

"Places still exist where you can take a web game and make money from it," he said. "You can take a product that you're considering taking to mobile and test it out first, see how consumers respond, see what your return rates are, what your ARPU is. You can learn that before you go to mobile and start spending real money... If you really just want to test and see what happens before you move to mobile, you really only need a couple of thousand customers. That will tell you a lot about your game, and it leads to better day one reviews."

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This is the best possible approach to mobile for smaller teams, Morton said, though it won't do anything to change the fundamental problems with that market. Indeed, Morton expressed his apparently sincere regrets that mobile had wound up in this position, thanks in no small part to the way Apple and Google inserted themselves into what should have been a more democratic process.

"The App Store and Google Play, the established intermediaries between you and your games, give you one point of contact. It shouldn't have happened that way," he said. "Do you buy all your software from Dell when you buy a Dell computer? No, you don't. Do you buy all your software from Microsoft when you have the Windows OS? No, you don't. But when you have an Android device or an iOS device, you're pretty limited on where you can get software for that device.

"We need specialists, who really love and breathe and live their games. Not the one-size-fits-all stores we have now"

"It didn't have to be that way. There's no reason why this couldn't be a different system, where everything happens in a browser and we can freely promote our products through search tools and the web. But the two powers that be decided they would be the intermediaries and control everything. That makes it really hard."

One way of shifting the balance would be through the rise of smaller, independent storefronts, Morton said, and there are certainly people attempting to make that happen.

"What makes more sense is store-fronts that specialise in the kind of game that you play. If you're a mid-core player, why are you getting your game in the same place as Candy Crush? That doesn't make sense. We need specialists, who really love and breathe and live their games, who do a great job of editorialising and presenting those games. Not the generic, one-size-fits-all stores we have now."

This final point had an unexpectedly personal resonance. In my early teens, when I was just starting to recognise the specific kinds of entertainment I enjoyed, there was an independent game retailer opposite my local supermarket. Every item in that shop - from its narrow selection of the latest releases to Japanese imports to curios for the Spectrum and Commodore 64 - was hand-selected by the owner. If you were of a certain disposition, you could choose blindly and still strike gold.

It was there that I really discovered my sense of self as a gamer, and I believed that sort of intimate consumer experience had been lost amidst the noise of the digital age. Morton is right: we need that intimacy now, perhaps more than ever before.

Latest comments (19)

Lots of truth here, great to hear it being said at a conference to boot.
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Robin Clarke Producer, AppyNation LtdA year ago
Yes, this is how one would frame the data to reach the conclusion that the sky is falling.

All these trends show is that the market is maturing. It's no longer possible to muddle in with no idea how to make a game that people want to play (rather than have to be tricked into playing) and a load of VC money and sit back and wait for the revenue to roll in. Worrying if you only know how to fast follow, not so much if you actually value craft.

Averages are meaningless when the market is polarised between effective hits and oceans of junk.

Targeting two very different platforms instead of learning to do one thing well is terrible advice. Why not just soft launch to get actually relevant data instead of going round the houses?

There are already multiple storefronts on Android, and yes, ones that do decent numbers.

A system where there was a total diaspora of mobile storefronts is what we had before iOS, and it was a disaster for everyone except the carriers. This was within the last ten years, it's not hard to research.

Most users don't religiously play one type of game.
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I agree, at this point marketing has become more important than the product. Unfortunately we have seen this very same thing in many industries.

Want a successful game.. start with a lot of money, buy a known license..market the hell out of it, and just make sure to create at least an average game. The game is the least important part of that equation.

Edited 2 times. Last edit by Todd Weidner on 19th August 2015 4:19pm

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David Amor Director, MAG InteractiveA year ago
The game is the least important part of that equation.
Ugh! Not true. You may as well set fire to your marketing budget if you don't have a decent game. I'm not sure what other industries you're referring to, but F2P games only see a return when people enjoy and pay for the game. With that in mind, it's imperative that the game is strong.
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Craig Page El Presidente, Awesome EnterprisesA year ago
He says new store fronts are the answer, but I don't think Apple will give up their 30% and let that happen. And since Google and Microsoft just copy everything the app store does (royalty rates, censorship of anything rated T or M, burying every app they don't hand select), they won't let this happen either. Amazon's the same too.

That's pretty depressing actually. I don't think there will ever be a future for decent games on phones unless Valve decides to make a Steam marketplace app for Androids.
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Some great numbers in this report and a lot of truth spoken. My feeling regarding the mobile games world for a long time is that anyone earning a safe salary from a mobile related company, or any new budding developer just happy to be given a chance cannot really make a value judgement on the relative financial merits of the offering to the vast majority of independent mobile developers relative to other formats and other eras of games development. Morton's numbers are mind blowing in their simplicity, In terms of breakdown of money it works (very roughly) like this (assuming ios and android are roughly equal in market share and cost per install is roughly 80% of revenue received by publishers/devs):-
Global mobile revenue = 100%
Apple = 15%
Google = 15%
Companies driving Installs = 56%
Rovio, King, Supercell = 7%
All other Developers = 7%
So bearing in mind 164,000 games submitted to iOS alone this year (many of which will also be on googleplay and visa versa) we now know that the average game not submitted my King, Rovio or Supercell will clear a profit of 0.00004268% of global mobile revenue this year.
In other words the companies driving installs (the guys selling the picks and shovels) are collectively making $1,312,090 (across all games) for every $1 made by the average game outside of the top 3 franchises.
On top of this the average mobile game actually costs $25,000 to make and receives just $5,000 in revenues, in other words is made at a loss of around $20,000... and that is before we factor in any additional costs spent in pursuit of acquisitions.
What is most fascinating is that back in the 90s as developers/publishers we would receive around about 6 for a game that retailed at 20 once physical production of goods, lorry distribution, physical retail, VAT and marketing costs had been deducted (in other words 30% of the money paid by the customer).
And yet here we are in 2015 in a digital world with no cost of production of goods, no lorry distribution, no physical retail and yet these days mobile developers/publishers are only retaining 14% of the money paid by the customer once they have factored in the cost of customer acquisition.
How have we collectively allowed ourselves to be duped into getting half of the money we used to per game when the cost of production and distribution is so much lower now?
Answers on a postcard please.

Edited 3 times. Last edit by Jon Hare on 20th August 2015 2:02pm

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@John You're saying mobile now looks & smells like AAA console did in 2010? Blasphemy!
I could type a load of stuff to tell you how I agree but I'm too lazy, instead I'll repost part of an article I wrote last year (sorry):
(from here http://www.gameinformer.com/b/features/archive/2015/02/20/opinion-why-conventional-thinking-about-mobile-game-design-isn-t-smart-thinking.aspx)

"Before digital stores, publishing a game required hilarious amounts of cash, and big money invariably means small creative ambition. Triple-A games began to look the same. Thousands of sweating employees were warehoused in giant offices cranking out versions of whatever shooter/racer/RPG their bosses thought was big at the time.

Then mobile came along and changed everything. You couldn't make full-fat games like on Steam, but its digital stores enabled any broke-ass developer to self-publish a game and, for a minimal fee, upload it directly to a mass audience. Together with cheap off-the-shelf game engines, mobile took a baseball bat to the balls of the entrenched industry and the bureaucracy of retail, publishing, and bosses. Or so many triple-A employees thought as they excitedly packed their bags and left.

So maybe at Fireproof we were coasting on idealism, but in 2012 mobile looked like a gift to us. We were a bunch of jobbing contract artists, and the cheapness and openness felt like wings on our back. The market was a blank canvas where everything had been reset to zero and it was all to play for. So at the time, I was surprised that mobile developer events seemed to broadcast the same very narrow message of what a mobile game should be. Whatever you pitched, it had to be a free-to-play casual game with gated gaming sessions, locked by timers or difficulty and unlocked with cash. To make a hit you needed to hire services from PR, marketing, sales, online, user data analysts - the lot. Naturally, developers just starting out can't afford any of this, so before you sniffed a keyboard you needed to woo investors or a publisher to pay for it all, each of whom will bashfully insist on owning your company or your game before so much as flashing an ankle.

This was not the reaction to a new, fiendishly open platform we were looking for. In fact this "package" for success smelled horribly familiar: It had the sure whiff of the top-heavy console and PC business.
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@Barry Since 1995 Media mega-corporations and their shareholders, marketeers, platform holders and middlemen have been trying to steal the lion's share of money up for grabs away from both developers and more boutique publishers and the smaller games retailers too. In this we can congratulate them on stupendous success.....
The fact that today for every single, digitally delivered, mobile game somehow 86% of the money ends up in the hands of people who are nothing to do with the development or even the financial backing of the game is absolutely, FUCKING DISGUSTING.
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The game is the least important part of that equation.

dont take it out of context. The game is important, but not as important as license strength and marketing. Dont think so? Make the exact same game. But one has Licensed Simpsons characters and a nice marketing budget, the other doesnt. Guess which ones sells 100x more than the other?
Hell, dont make the same game, Make an OK game with Simpsons and marketing, and a real good game without, guess which one still sells and which one doesnt?

Dont fool yourself, we live in a kardashian world. The sizzle sells, not the steak.

You may as well set fire to your marketing budget if you don't have a decent game.

yep, you said it, a DECENT game, With good marketing and a good license, all you need is a decent game, not a good one or great one, just a decent one. My point Exactly!

Edited 6 times. Last edit by Todd Weidner on 20th August 2015 11:23pm

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@ Todd. Yes you are right that the quality of the game is important, but the bigger issue is how the revenue is split on these good games. It is the system that needs changing, much as Apple are to blame for invoking the $0 price-point which has undercut our industry entirely it was never their vision that of the 70% they allocated to developer/publishers only 20c of every dollar they received would actually be retained by them to spend on development, with only any remainder of that actually being true profit.
Games are a mere 1.5% of Apple's income so unfortunately they don't care enough about our plight on an economic level. However when the majority of the 99% of developers who are said to make a loss on mobile games abandon these platforms except for work for hire ... then Apple or Google or another big player may flip the switch and focus more on quality and less on quantity.
Samsung for example are restricting their store front to a mere 3,000 games to try and retain some semblance of quality control. In my opinion this is a great move as it will actually support the good quality games that you talk about... in my opinion right now we need to focus on the structure and systems that the games come out under more than the games themselves... Unfortunately

Edited 1 times. Last edit by Jon Hare on 20th August 2015 9:52pm

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David Amor Director, MAG InteractiveA year ago
all you need is a decent game, not a good one or great one, just a decent one]
To be clear, I think you need a great game. I think Kim Kardashian is a great game. According to the App Store the vast majority agree.
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Keldon Alleyne Developer, leader, writer, Avasopht LtdA year ago
Think shelf placement and user acquisition for a minute.

The only shelves at the moment that users are presented with are ads and the top 'x' apps shown on the app store or at the top of a search for a type of product. Also bear in mind that these shelves have no geographic segmentation,

The problem with the online ads market is that competition for acquisition naturally pushes the cost closer to the most you could afford to pay to make a profit from a player. This means that the value of user acquisition always approaches towards zero.
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Keldon Alleyne Developer, leader, writer, Avasopht LtdA year ago
To be clear, I think you need a great game. I think Kim Kardashian is a great game. According to the App Store the vast majority agree.
Isn't that logic circular and somewhat ignoring the fact that two average games would sell differently on the app store purely as a result of having the Kim Kardashian brand attached?

It in a sense implies that the brand does not affect app store sales and therefore, people are paying for brands for absolutely no reason. That can't be correct. Think about it.

Edited 1 times. Last edit by Keldon Alleyne on 21st August 2015 12:52pm

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David Amor Director, MAG InteractiveA year ago
Of course licenses can help a game. A cohesive marketing plan is important too. I'm just reacting to the sentiment that an average game is good enough. I don't think that's true, regardless of whether you have a license and a sizable marketing budget.
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Keldon Alleyne Developer, leader, writer, Avasopht LtdA year ago
But David, an average game is enough for obvious reasons, mainly being that fans will try the game, and that the brand loyalty makes users much more forgiving. It would be good to see what behavioral psychological studies have found on the influence of brand strength.

Sales as a metric of a subjective quality is self fulfilling even if it is incorrect. As an example, there are games that users actually rate as average that sell well (remember, marketing got the sales not the game play) while at the same time there are games with high user ratings that can't get the expose to have gotten the sales. That doesn't mean the game with higher sales is better or that sales is any indication of anything other than the fact that it was marketed effectively.

When a brand is attached to anything the user experience includes the emotional association too. It's why a mug with David Beckham plastered onto it will sell more and be used more than one without. It's not that the mug is better quality than the others, but the emotional attachment increases usage.

We should expect the same phenomenon to be demonstrated in game playing too in the way that, the aspect of being associated with the act become a part of the gaming experience too, affecting attach rates as well as altering the word of mouth dialogue. No longer is it, "I played this great block moving game," but rather, "have you played the new {insert-celebrity-name-here} game?", which is much more effective.

And history has shown, average games with brands do do well using the best measurement we have, which is user reviews. As a metric, how long and often the average user plays are better indicators than sales, which only judges marketability.

Edited 1 times. Last edit by Keldon Alleyne on 21st August 2015 1:24pm

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What are the multiple storefronts on Android? For example the Samsung's Galaxy App Store is a DOA. If the largest manufacturer who has its store on every single device they sell cannot get it off the ground, what chances does others have?
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I think you need a great game.
and I respectfully disagree. I sure wish it were true because it would make finding great games easy, just look at the top sellers, it just isnt the case IMHO. Im lucky to find 2 or 3 games a year that I would consider great.

Look around we live in a world where you can make billions selling tap water in plastic bottles and terrible "food" as long as you create a catchy Eat fresh like slogan and market it enough.. Its all about marketing and licensing in this society. Why else would companies happily pay celebrities and athletes tens of millions of dollars to just be seen using their product.

Edited 3 times. Last edit by Todd Weidner on 22nd August 2015 3:04am

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Robin Clarke Producer, AppyNation LtdA year ago
What are the multiple storefronts on Android?
Amazon is the main one I was thinking of. There are some big ones in China and Korea as well.
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David Amor Director, MAG InteractiveA year ago
an average game is enough for obvious reasons, mainly being that fans will try the game, and that the brand loyalty makes users much more forgiving
It lowers the UA costs for sure. I doubt a license has much effect on retention and session time.
I think you need a great game.
and I respectfully disagree
We disagree on what constitutes a great game. But that's okay.

Edited 2 times. Last edit by David Amor on 25th August 2015 12:24am

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