This note is kind of a new way to give you a data-backed brief on what you need to know as a game marketing and publishing professional.
It’s in part based on an insightful conversation I had with Lexi Sydow, Head of insights at Data.ai, (which you can listen to on Apple Podcasts, or Spotify) and is designed to help you understand what’s really happening in the mobile game market and offers a few smart strategy moves that you can implement over the next 6-12 months.
The state of the mobile game market
The mobile game market is currently experiencing a multi-quarter period that some folks are calling “softness”. This softness argument is based mainly on the comparison of year-over-year growth rates from the same period in 2021 which shows around a 10%-15% decrease in market revenue, as reported by several market research firms (data.ai and Sensor Tower).
This decrease is accentuated by several earnings reports from large game companies, some of them reporting the same type of decrease in mobile game revenues.
That being said, this is kind of all over the place as some game companies are still reporting growth. For example, the recent Playtika earnings report shows that the Casual game portfolio is experiencing growth, while their social casino leading title is experiencing a decrease in revenues.
So what’s really happening?
Driving influencers for current performance
First of all, a sizable chunk of that 10%-15% decrease can be attributed to its tough comparison to 2021. That was a period characterized by unnaturally strong performance for mobile games, driven by the COVID induced tail winds the game market saw. If we smoothen the growth from the past several years within the mobile game market (and exclude the COVID anomaly), we’d see that the market is still in growth mode long-term.
Next, think about the role that inflation plays. When the cost of living goes up, households have less money to spend overall, which could result in more people spending slightly less on entertainment.
Lastly, the fear of a looming recession might be causing people to spend less on entertainment (and other discretionary items) and increase savings, in anticipation of a tough period ahead. This recession hasn’t happened just yet as GDP figures in the US still show annual growth and unemployment is still at record lows.
These three factors make up for a kind of perfect storm for mobile games. When thinking about these factors, it’s clear why some are bracing for a tough period for mobile games.
All of these factors are relatively temporary in nature.
When we head into 2023, and the comparison period changes to 2022, you’ll notice less chatter about the fact that the mobile game market is shrinking, simply as a result of easier comps.
Come to think of it, our addiction to analyzing year-over-year growth figures is kind of a simplistic view that tells very little about longer-term trends and it’s impossible to determine what the long-term prospects of a market are from one year annual growth rates.
Inflation would also decrease, hovering around the mostly-acceptable levels of 2% per year, as they’ll respond to higher interest rates by the Federal Reserve and supply-side pressure on the economy.
And in the case that a recession would arrive as a result of high interest rates, higher unemployment, and other variables, that too shall pass. It’s a normal part of the historical economic cycle in the world.
So, what can you do if you’re in charge of publishing and scaling mobile games in the next 6-12 months when you’ll likely experience lower LTVs and pressure from your leadership to be more conservative with your UA budgets?
Let’s unpack it.
Insight #1: Hybrid monetization models for the win
The move I like the most in this environment is doubling down on hybrid-monetization which many smart teams in the industry are already implementing.
It’s super strategic for a reason, impacting more than solely monetization performance, but acquisition as well.
In general, user acquisition teams attempt to spend their UA budgets as long as their campaigns meet certain thresholds in terms of ROAS. In a period of consumers spending less on in-app-purchases, the IAP based ROAS would almost certainly decrease, which would make it tough to spend budgets profitably.
UA teams would have a better chance to drive growth in DAUs and MAUs if the R side of the ROAS equation, ‘revenues’, were higher.
If consumers are more reluctant to spend on in-game IAP but still want to consume games, what alternatives do you have to provide them to still “pay” for your game experience (be it game progress, or more game content, or more play time)?
Rewarded ads fit like a glove to this period. As long as you manage player experience holistically and don’t hurt retention (driving uninstalls by making the experience too littered by intrusive ads), consumers may be more likely to act on rewarded ads as “free” alternatives to buying more in-game stuff. A balance has to be made.
So, with rewarded ads supplementing lost IAP revenues by earning your game the eCPMs on that inventory and generating ad revenues, you can make it way easier for your UA team to deploy their budget because you’ll improve ROAS.
I believe this route will become more and more popular in the coming quarters.
Insight #2: User acquisition opportunities
Someone really smart once said “Never let a good crisis go to waste.”
So, at a time when many UA budgets are being managed more carefully, there might be more opportunities in the marketplace to acquire new users for much more attractive CPIs as the competition for inventory decreases.
Some game companies executed a strategy around March-April 2020 when COVID hit, based on the fact that acquisition costs were super low. It allowed these companies to acquire tens of millions of new players for a much better cost.
As I mentioned above, the driving factors behind this temporary hiccup will pass. On the other side of this journey you’ll probably still have titles to grow and scale, so ask yourself whether it’ll be easier to do so if you took advantage of lower CPIs to expose your title to a massive audience during this period or not.
Yes, it could be that it’ll take more time to recoup that investment and you might need to accept that these players won’t have great LTV curves for some time. But at the end of it, their LTV curves will improve over time, and even of they churn and uninstall the game, it could be easier to re-engage them after the recession and encourage a re-download (as long the game is fun, they had a great experience, and you have more game content to update them with like a “there’s something new here” line of messaging.)
The result of this strategy deployed by some companies during the early days of COVID resulted in many billions of dollars in revenues generated in the two years following that.
This of course requires alignment and long-term thinking from everyone on your team, including leadership, but has massive potential.
I hope this helped you get a good grasp on what’s going on in the mobile game market as we head into 2023, and gave you some ideas to bring up with your team.