The statistics for the mobile games market revealed by this week's data release from Liftoff make for pretty grim reading for anyone with an interest in this side of the industry. While mobile remains a platform through which vast amounts of revenue are flowing -- indeed, by many measures it's the single most lucrative segment of the games business -- Liftoff's numbers are further confirmation that a trend that's been a serious concern for several years is reaching its endgame phase.
The cost of acquiring users -- getting them to install a game in the first place -- is now at a point where the risk to return of the space will be unappetising to many firms. Meanwhile, ongoing low rates of retention for new players mean that most of that money is wasted, so the cost of getting players to the point where they're engaged enough to pay money for something in the game has reached eye-watering levels.
For some companies, of course, it doesn't matter so much that it costs $4 to acquire a user. If you have a gigantic franchise (Nintendo-related launches of Mario Kart and Pok on titles in the past few weeks spring to mind) or endless buckets of cash to throw at marketing and acquisition budgets, those numbers might be palatable. Indeed, the fact that these soaring budgets make such an imposing fence around the market might actually be preferable to firms for whom budget is less of a pressing concern, given that they function to reduce competition in the space.
"Paying players must, on average, spend $35 on the game in order for it to break even"
For everyone else, though, spending $4 just to get someone to install your game is a hell of a gamble -- especially when you consider that, on average, only around one in 30 of those users is still going to be playing by the end of their first month. Retention rates on mobile remain insanely low; the figures may be dragged down by low quality titles to some degree, but the overall picture remains pretty bleak. One positive potential outcome for the mobile space had been that while acquisition costs would inevitably creep up, better understanding of player psychology and higher quality of titles overall would compensate by driving better retention rates; that has clearly not happened.
Players remain as flighty as ever; it's pretty damned hard to overcome the basic fact that a player who downloads a free-to-play game hasn't invested anything initially and loses nothing from stopping playing. If anything this has become even more problematic as major, long-term successful titles have established themselves in the market. A great many of those expensive acquisitions are actually players of a major game who are looking for a brief distraction with a little variety, but will inevitably fall back into the orbit of their key title (on which they may have spent hundreds or thousands of dollars) after a few days.
Those low retention rates are likely a big part of the reason why the real headline figure of Liftoff's data report -- the cost of getting a user to make their first paid transaction -- is so high. On average, this is now around $35; a pretty huge amount of money for a developer to spend on getting a player to first buy anything. Again, it's worth noting that as an average figure there will inevitably be some games doing a much better job than others, but the trend is clear -- not only is it getting more expensive to acquire new users, it's getting no easier to hold on to them and even more expensive to convert them into paying customers.
A $35 price tag for paying customers is actually something that has a pretty big knock-on effect on a lot of aspects of the mobile market. For a start, it defines a worrying baseline; paying players must, on average, spend $35 on the game in order for it to break even. Since many players will likely just buy whatever low-hanging fruit the developer dangles in front of them in an attempt to push them towards their first purchase -- often a one-time-only offer for a very low price -- the average spend required of other, more engaged players is likely to be far higher than that still.
To reach that average spend, aggressive monetisation becomes pretty much essential. Practices that were once a sign of developers getting greedy are now a baseline for any developer that wants to break even on their investment. Needless to say, this also locks out all sorts of alternative business models; how could something like Nintendo's noble failed experiment with Super Mario Run -- a $10 unlock for all content -- possibly work in a world where it costs $35 to acquire a paying player?
"With little commercial room for anyone but the biggest winners, much of the free-to-play mobile space could be facing a serious decline"
(Again, we're talking averages here, and the high profile of the Mario brand meant Nintendo likely didn't spend even close to $35 for each paid install, but the point stands that for the vast majority of titles, that kind of pricing strategy would invite bankruptcy.)
From a creative standpoint, this is all fairly disastrous. These kinds of costs have erected a wall around the mobile space which, for all that mobile is an 'open' platform on which anyone may publish, is just about as impervious as the wall that used to exist around 'walled garden' consoles. Indeed, while consoles still have their gatekeepers, in many cases it's probably more economically viable to publish a game on a console than on mobile. The fact that anyone with an Apple developer account can push a game out on iOS doesn't mean remotely as much if it's impossible to build a following without investing millions in marketing.
These numbers make it pretty clear why mobile is no longer the platform of choice for indies and small studios, but they also sound like a tolling bell for the involvement of many decent sized companies too. By imposing demands that push the business design of games into an ever-tighter funnel, the economic realities of the market make differentiation of games more and more difficult. This creates a vicious cycle where the only real way to differentiate is with more marketing spend, thus pushing those costs up once again. Faced with that, even companies with deep enough pockets to keep up with the financial arms race would have to ask if this is really the best allocation of their capital.
The question is, what does the endgame here look like? It's not that mobile gaming is going away -- it's still a growth sector and billions of dollars in revenue are passing through it. Rather, it's likely that we're just going to see an acceleration in the focusing and compression of that revenue into a handful of "winners," with more and more of the "losers" choosing to leave the board entirely and focus their efforts, and capital allocation, elsewhere.
Such diversity as mobile currently has is likely to suffer significantly from that trend -- which perhaps puts an interesting spin on Apple's Arcade offering, a strongly platform-backed alternative to all of this that has emerged at a pretty interesting point in mobile gaming history. It's easy to think of Arcade as being aesthetically driven; that Apple has a dislike of aggressive free-to-play systems and wants to see more creative and diverse games on its platform simply because that's its vision for iOS. But if the current free-to-play climate is unsustainable, as Liftoff's figures seem to imply, then perhaps there's a cold business calculus behind Arcade as well.
With little commercial room for anyone but the biggest winners, much of the free-to-play mobile space could be facing a serious decline -- and Arcade would be a pretty great USP for Apple's devices if small to mid-range games start shutting down en masse as their developers back out of a space in which they can no longer reliably make money.
One thing is certain: further rises in these acquisition and conversion costs are simply going to fuel a sense that what's happening in mobile is no longer sustainable. The question is when, not if, these table stakes just get too rich for the blood of a sizeable part of the industry.