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8th July 2021

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Could Apple and Google pull the plug on mobile game monetisation? | Opinion

As consumer and governmental pressure mounts over loot boxes, services like Apple Arcade indicate a desire by platform holders to move away from the monetisation free-for-all

Compared to the imposition of legal restrictions, this week's bad news for the loot box monetisation trend seems relatively benign.

The publication of a research report into loot boxes, commissioned by UK charity GambleAware, doesn't have the teeth of a legislature deciding to take action -- but in explicitly linking loot boxes and how they function to problem gambling, the report sets up further problems down the line for the segments of the industry still clinging to this business model, with its findings likely to be dredged up over and over again at government hearings on potential regulation.

Those hearings and the regulations that arise from them aren't going anywhere; the wheels turn slowly, but governments are getting the bit between their teeth on this issue. The resulting legislation targeting game monetisation practices won't be universal and won't be consistent, with some of it being far too broad and some too narrow to make any difference. Taken as a whole, though, the sweep of various national and supra-national bodies taking an interest in how loot box type monetisation works and whether it's comparable to problem gambling is something that's going to make life very hard, or at least very annoying, for companies operating these kinds of games -- especially those that have in recent years become, for want of a better term, addicted to whaling.

Legislation is almost inevitably going to put the companies who run the app stores, most notably Apple and Google, on the hook for enforcing and overseeing whatever mishmash of laws and regulations end up being in place

However, the real problem for the industry -- especially the mobile gaming sector -- isn't necessarily going to be in how governments choose to regulate game operators. If this were just a matter of loot box monetised game operators being forced to obey some new rules, then much of the rest of the business could shrug and get on with their lives. Legislation in these fields, however, is almost inevitably going to drag in the platform operators -- putting the companies who run the app stores, most notably Apple and Google, on the hook for enforcing and overseeing whatever mishmash of laws and regulations end up being in place.

There's a Mines of Moria kind of feel to this; all the other dwarves were happily digging away and extracting plenty of treasure from pretty reasonable, non-objectionable monetisation methods, but the loot box guys just had to go and delve too deep, and now they've woken up something that could wreck the whole mine for everyone. Apple and Google were more or less happy to be agnostic about mobile game monetisation for a long time; they liked the general free-to-play concept since it meant lots of games their users could start playing for free, and of course they were happy to take a decent chunk of the revenue as major titles like Candy Crush Saga, Clash of Clans and Pokémon Go earned their billions.

Despite the enticement of all that cash, there's clearly been a growing discomfort -- especially on Apple's part -- about the perception of the App Store and Play Store as some kind of gaming clip joints, and as negative sentiment about loot boxes and other monetisation strategies increases and the risk of getting embroiled in the legal fallout from regulation increases, the platform holders' attitudes towards this sector will inevitably sour to some degree.

Their ire won't fall on games in general -- games are a quintessential part of the smartphone experience, something which even legendary gaming refusenik Apple has come around to accepting -- but rather in a rethink of the business model for games on these platforms. Companies with less skin in the game are already circling around that goal; Microsoft's Game Pass and xCloud services are designed to fulfil a lot of objectives on a lot of platforms, but being a premier gaming service on smart devices is certainly one of them. Google and Apple themselves have also both put out feelers that read as experiments in how smart device gaming looks in a world after the dust has settled on the monetisation free-for-all of the past decade. Google has placed its bets on the cloud streaming route with Stadia, while in its Apple Arcade service, Apple has created arguably the most meaningful business model alternative thus far (reflecting, no doubt, that it's also the firm that's by far the least comfortable with the potential reputational damage to its platforms from unpopular monetisation strategies on the App Store).

Apple Arcade is a walled garden inside a walled garden, one that excludes monetisation strategies from the equation entirely

Arcade is a weird service. It's easy to dismiss it as a sandcastle against the tide, like so many other efforts to push back the wave of free-to-play models, but too often I hear motives ascribed to Arcade that just don't ring true. Apple doesn't have any particular nostalgia for the business models of the past, or for how games used to be; its reasoning for investing in the Arcade service is at heart a cold calculation. Apple weighed up the popularity and reputation of existing App Store games against the revenues it realises from their in-app purchases, and found the results of that calculation troubling enough that it invested a pretty significant amount of time and money in creating an alternative. In essence, Apple Arcade is a walled garden inside a walled garden, one that excludes monetisation strategies from the equation entirely. On the surface, that seems designed to appeal to users who are put off by those strategies generally, and parents who want to let their kids play games without worrying about in-app purchases and predatory monetisation more specifically. In a more long-term view, though, it feels like the company is building a Plan B in plain sight.

Nobody outside Apple knows for sure how successful Arcade has been, but its inclusion in the Apple One subscription bundle is probably about to open it up to a lot of new users, and the company clearly feels bullish enough to be continuing to develop and build upon the service. It's still early days, and it shows -- there's a discovery problem that likely won't be fixed until Arcade gets somewhere to live outside the existing App Store application, for a start -- but the addition of a large batch of new games this week, including a JRPG from well-regarded studio Mistwalker, is the kind of shot in the arm the service will need to get regularly from here on out.

An underappreciated thing about services like Arcade, I think, is what having a subscription does to the psychology of paying for other things. Once you have a Netflix subscription, you're likely to balk at paying to rent a movie. A Game Pass subscription messes with your value perception for purchasing new games. Getting an Eats Pass subscription for Uber Eats makes you more likely to order from them, but also makes you less likely to order through another service even if they have a restaurant you like listed, because paying the delivery fees suddenly feels silly when you're already paying a subscription for those elsewhere.

An underappreciated thing about services like Arcade, I think, is what having a subscription does to the psychology of paying for other things

Apple Arcade and its ilk will work similarly. I was never a whale by any means, but I don't object to paying for things in free-to-play titles either. Yet I realised recently that despite playing a lot of mobile games through the pandemic, I've not paid a single cent for in-app purchases since subscribing to Arcade. It's not that all the games I play are on Arcade -- far from it -- it's that the psychology of paying for something in another game has been short-circuited by the few quid I pay for Arcade each month.

I doubt the really big brands in mobile games (Disney's IPs, Pokémon Go, etc.) will feel much pain anytime soon from that kind of shift in behaviour, especially since Arcade's customer base is currently only a small fraction of the number who play something like Pokémon Go. It's early days, though, and it's worth wondering where the tipping point lies at which subscription services like Apple Arcade, Game Pass and their ilk have enough market penetration and influence on consumer behaviour that current monetisation strategies simply stop working for a large proportion of the addressable audience.

It's also worth considering carefully, however, what these kinds of services will mean in the long term for the design of games on mobile devices and elsewhere. For years, mobile titles in particularly have been carefully optimized and fine-tuned to funnel players towards in-app purchases; depending on how the subscription revenue pie is sliced up by the platform holders, we may see that skill at optimization simply being refocused on some other metric (player retention, length of engagement, or some combination of metrics) in ways that, while at least not financially draining, still essentially end up producing Skinner Boxes.

The steady move towards legislation and delegitimization of more sharp-toothed monetisation practices is bound to make companies start to think about alternative ways to do business in this space, none more so than the platform holders upon whose tolerance this entire sector relies for its existence.

Apple Arcade is perhaps the first serious effort at accomplishing that, but for now it's still largely an experiment. It's one worth watching closely, though -- especially as platform holders come under increased pressure to drop their revenue share from app store purchases, a change which would radically alter the calculation on how much they're willing to tolerate in terms of monetisation practices. For the first time in quite a while, the questions of what comes next in mobile gaming business models, how we get there, and how new and old models can coexist all seem to be open-ended.

Celebrating employer excellence in the video games industry

8th July 2021

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