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Jan Beckers is founder and CEO of HitFox Group.

Monetization is survival.

If free-to-play game publishers have made it to the top of the app stores’ grossing charts, it’s for one good reason: Monetizing efficiently was not a choice. Indeed, the free-to-play business model forced publishers to develop and implement the mechanics allowing for successful monetization right from the start.

The good news is, in the process they developed some great practices for the mobile industry as a whole.

As competition continues to heat up in the mobile space, with close to 800,000 apps available on the App Store and as many on Google Play, here’s how all app marketers can learn from them.

Changing the Game

Free-to-play has revolutionized the monetization model in gaming by charging players based on their willingness to pay, instead of displaying one set price for all. Indeed, through a dynamic pricing scheme for in-app purchase items, free-to-play has enabled game publishers to monetize the whole of the price/demand curve.

By removing the lower price limit and allowing a vast majority of users to play the game entirely for free, it has triggered two positive effects:  On the one hand, it enabled the generation of high volumes of players, and on the other, it made it possible to monetize part of the long tail of users, either because they are ready to pay smaller amounts, or by showing them ad offers.

By removing the upper price limit, it also made it possible for the most committed players to spend an unlimited amount of money in the game, therefore unleashing an enormous monetization potential. Aeria Games, for example, the publisher of the card-battle game Monster Paradise, recently reported that its ARPPU (Average Revenue Per Paying User) had seen peaks of $90 and above over the holiday season.

Understanding mobile

The most striking realization of Free-to-Play’s potential on mobile is the rise of mid-core games, such as Supercell’s Clash of Clans (which is reported to make $1 million a day, along with the company’s other title, Hay Day). The success of the mid-core genre stands as a strong example of how mobile audiences should be approached: by addressing as many users as possible, but also by understanding and taking advantage of the great variety of mobile usage patterns.

Whether your app is used a couple minutes here and there, 30 minutes during the daily commute, or the whole weekend long, it should be structured in a way that offers (at least) the value that every user expects from it.

Learning from the challenges of free

The free-to-play model, while offering a whole new perspective on monetization, also brought along some major challenges.

First, acquiring users was no longer synonymous with monetizing them. For players to be converted into payers, they also had to be retained and engaged. So publishers had to develop a thorough understanding of the behaviors and usage patterns at play within their game. This was achieved through the implementation of in-app analytics.

For instance, Struan Robertson of NaturalMotion, the successful publisher of free-to-play hits MyHorse and CSR Racing, explained that you should spend time each day looking at your dashboard of stats.

Then, as the cost of acquiring users kept soaring, it became vital for game publishers to know at which price they could buy additional players in order to remain profitable. Sho Masuda, the VP of user acquisition at Japanese publisher Gree, reported that the company used the large amount of data collected over time to forecast what the value of an install for a particular game is going to be.

Finally, quality of players can vary greatly across the traffic sources employed for user acquisition. This in turn strongly enforced the need to accurately track in-app user activity to determine which sources perform best so you can fine-tune the ad spend and optimize the marketing budgets.

Calling all app marketers

To make the most out of their monetization potential — even if survival is not immediately at stake — all app marketers can benefit from the lessons of free:

1. Understand, consider and engage all your users.
2. Unleash the monetization potential of your biggest fans.
3. Understand and take advantage of mobile behaviors and usage patterns through in-app analytics.
4. Continuously track your promotion channels’ performance and optimize your advertising spend.

Game on!

photo credit: E-Plus Gruppe Fotostream via photopin cc

This story was contributed by Eric Seufert of mobile game developer Grey Area Labs.

Retention is the foundation of the free-to-play model. If retention metrics don’t hold, a free-to-play title won’t make money. Conceptually, this makes sense: Lifetime Customer Value is a function of time spent in-game (lifetime) and money spent in-game (value), and most users won’t do the latter until they’ve invested some minimum amount of time into it.

The problem with retention metrics is that they can’t be easily “fixed” through development iteration. Retention is a proxy for fun, and fun is binary: A game is either fun or it isn’t. Short of being able to quickly fix retention, a developer is well served by understanding why her game is bleeding users. This article will identify three reasons why your free-to-play users aren’t coming back.

Source: Supercell

Supercell’s Clash of Clans combines elements of real-time strategy with asynchronous player-versus-player gameplay to create a unique gaming experience.

You don’t communicate quality

Some free-to-play developers think a user’s scarcest resource is money, which is a mistake. If a user is playing your game on an iPhone, iPad, or a high-end Android device, she has disposable income to spend on entertainment. A user’s scarcest resource is her time, and if you don’t communicate to her that your product is of the highest quality and worthy of that investment from the very first game session, she’ll delete it.

Your game needs a “quality hook” — something that allows the user to immediately discern that it was professionally built and not the product of a few crates of Mountain Dew and three weekends in a basement. Most of the time, this is done through graphics that have been obsessively perfected, but it can also take other forms: realistic physics, a new gameplay format, or elements of the real world convincingly and authentically integrated into gameplay.

You don’t give the impression of deep gameplay

Back to the scarcity of time: When I download a new game, I won’t invest any time into it unless I think it’ll provide me with entertainment for months to come. If your game doesn’t give the impression of a long lifetime of rich gameplay, a user won’t take a gamble on it. Free-to-play gamers are looking for a relationship, not a one-night stand.

Players will see the potential to play a game for months or even years through a geometric pricing curve and an extensive product catalogue. The worst way to communicate deep gameplay is by not having anything but renewables or one-off upgrades. Users want to return to good games, but they want to feel that their time is being rewarded with new, ever-richer experiences. Free-to-play gamers won’t give your game the benefit of the doubt – deep gameplay must be communicated early and acutely.

Source: Kabam

Kabam’s Kingdoms of Camelot appeals specifically to hardcore players with its complicated tech trees and intensive resource-management mechanics.

Your game is trying too hard to appeal to everyone

Gamers have distinct tastes, and there’s a big difference between a farm simulator and a shooter. Stuffing gameplay elements from every genre into your game won’t endear you to all gamers; it will merely obfuscate the value proposition to your target demographic and make your game look schizophrenic.

The best games focus on a single core gameplay mechanic and build a rich experience around that. If a player can’t quickly ascertain your game’s core experience without being distracted by multiple gimmicks, then she won’t play it again. Players need to understand what exactly they’re getting good at through progressing in your game: Are they becoming more accurate at shooting? Are they improving their timing in fighting? Are they becoming shrewder in their command of in-game resources? If this progression isn’t clear, players will have a hard time becoming engaged with your game.

Conclusion

Free-to-play gamers aren’t to be taken for granted; the fact that a title is free doesn’t mean players will tolerate bland, uninspired gameplay from it. When your game is first launched by a player, it is competing not only for her time but also with every other free-to-play game that she could download almost instantly.

Low day-one retention indicates a failure to communicate the points outlined above, but it also indicates that players, for any number of other reasons, simply don’t like your game. And short of a glowing recommendation from a close friend, that perception is almost impossible to reverse.

Eric Seufert is the head of marketing and user acquisition at Grey Area Labs, the Helsinki-based mobile developer behind Shadow Cities. He blogs regularly at ufert.se.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Few companies have contributed as much to the flowing of independently produced games as Unity Technologies. The maker of a 3D-graphics game development platform, Unity 3D, got its start in Copenhagen, and now it is based in San Francisco. More than 1.3 million developers are using its tools to create gee-whiz graphics in their iOS, Android, console, PC, and web-based games. Nintendo’s new Wii U console will support games built with Unity, as will the upcoming Ouya Android-based game console. The pattern here? Unity wants to be the engine for multiplatform games, period.

Slowly but surely, Unity has risen from the low-end to support better and better graphics, chasing after high-end PC and console engine makers such as Epic Games. David Helgason, the 34-year-old chief executive and co-founder of the company, has guided this revolution in indie games and better development tools.

More than 139 million players have installed the Unity plug-in on their web browsers since 2008, making Unity into one of the world’s biggest game platforms. Unity distributes 3D game on new platforms through its side-business Union, and it has created its own marketplace where developers sell 3D assets to each other. Here’s our edited transcript of our interview with Helgason.

GamesBeat: Tell us where you’re growing.

David Helgason: We’re firing on all cylinders. It’s kind of crazy. We’re having another year of 100 percent growth. Now we’re touching 1.2 million, maybe 1.3 million developers, of which 300,000 used Unity in the last month. The base of developers keeps growing.

More than 30 percent of our business now comes from Asia. The Asian expansion we’ve done in the last 18 months has been incredibly successful. Japan is our second-biggest market now. Being out there, we’re doing things that we couldn’t really do from our western base.

One of them is the Nintendo partnership, where Unity becomes the default development kit for the Wii U. When you get a Wii U dev kit, you’ll be getting a license for Unity on the Wii U from Nintendo. It’s an industry first. Someone at your site just wrote an article about the Wii U and indie games. That hammers in how much Nintendo cares about ensuring that they’re strong there. It’s quite fascinating. There’s a lot of naysayers about the Wii U. But we and many other people believe that this is a smart approach for them. They’ve opened their ecosystem up to the Unity community.

And then of course we’ve been doing all this tech stuff. Unity 4 is in beta now. We’ve seen some pretty amazing things coming out of there. Our demos look like a computer-generated movie or like a Pixar movie.

Our customers have been extremely successful. There’s always the quip that, yes, it’s easy to make games with Unity, but people aren’t making money with it. It’s been hard to challenge that. But as of a few days ago, three of the top 10-grossing games in the App Store were made with Unity, including Rovio’s Bad Piggies, CSR, and Kingdoms of Camelot from Kabam.

GamesBeat: How do you measure success relative to some of the other guys, like Epic Games or whoever the competition is? How do you gauge whether you’re gaining ground?

Helgason: It’s more a question of whether they’re gaining ground on us in the mobile space. There’s way more top-grossing apps made with Unity than any other engine. Beyond that, there’s the long tail where we’ve done extremely well. We estimate several thousand games made with Unity in the App Store. Anybody else, we can’t count more than a couple of dozen. That’s how we measure success. We serve the long tail, and new revenue has been growing extremely fast as well.

GamesBeat: You have the Wii U now. You’re breaking into consoles. Where else are you moving into that the other guys used to be?

Helgason: Some the Kickstarters that are going on now — Wasteland 2 and Project Eternity are both Unity-based. Big PC projects. We’ve always seen the in-house engines as our biggest competitor, not necessarily any other company. You’d have used an in-house engine or Unreal or Crytek for games like these. So on the PC side we’re making a very strong moves. On the current-gen consoles, we haven’t made a lot of headway, although there are games that are on both PS3 and Xbox 360 that are done by the community and also upcoming titles by first parties. The Wii U will be the first console platform where we’re extremely early and extremely well-established. I’m not going to claim this, but I haven’t noticed anybody else announcing support for the Wii U. I have no idea for sure which companies will be there, but we will be there extremely early, and we expect a lot of wins on that platform.

We have a policy where we don’t announce anything until we’re completely certain that we’ll be there. We’ll hold off on a lot of announcements until we know exactly how it’s going to work.

GamesBeat: You have mobile. Do you have the same share on different platforms? Are you as represented on Android as you are on iOS?

Helgason: I would guess so? Our Android revenues are lower than our iOS revenues, but we still sell close to as many licenses on Android. The original version of Temple Run was not done on Unity, but they quickly ported it to Unity and relaunched on Android. Then they did the upgraded version on iOS, also using Unity. A lot of these games are going cross-platform. By the way, we just announced Windows Phone 8 support. Shortly afterwards, a lot of people who hadn’t announced the same thing declared Windows Phone 8 support. We think we’re also going to be enabling that platform.

GamesBeat: When you guys come up with better and better stuff, what you’re trying to do is also climb up this 3D food chain. Where you can add more and more 3D features and make it easier to create different kinds of high-end effects. Are you catching up with Unreal or the CryEngine.

Helgason: Game Developer magazine published a survey May, done by Mark DeLoura. It dealt with mobile game developers specifically. The question was, which engines are you using for your mobile development? When the results came back, 53 percent self-reported using Unity. 38 percent, were using no engine, building it themselves from the ground up. A tiny percent was an open-source framework for 2D games, and then I think six percent was Corona? They’ve slid into single digits.

We think it’s the same on both console and desktop. The biggest competitors are actually internal engines. As time goes by, the need for an agile platform increases, the complexity of technology grows, and Unity gets better at a very fast clip. What we’ve seen is that it’s increasingly uneconomical and kind of senseless to be building your own engines. There are people who’ll keep doing that for a while, like the Frostbite engine at EA. We’re not going to replace those in the next year or two. But for more and more use cases, we think we’ll be replacing other engines, in particular home-built engines.

A bit less than two years ago, we looked at ourselves and saw that we were becoming fixtures on the mobile front, but we needed to be able to seal up the high end. We needed to make it so everyone has access to the technologies they need for high-end games, whether it’s a small team or a big team. We have an extremely friendly pricing structure. It’s ridiculously friendly in most cases.

We began hiring a lot of people who came from these big studios. We have people working with us now who’ve worked on the Frostbite engine, the Glacier engine at Square Enix, and so on. We’re pushing it as hard as we can, rapidly closing the gap between the very highest end that you can think of and what Unity does. That gap is not close, but it’s closing at a geometric pace.

GamesBeat: Flash 11.4 seems to have made a little progress. What do you think of that development?

Helgason: We’re still in pre-release mode, sorting out bugs, with our Flash export. Adobe is also improving their platform, so we’ve been working with them quite closely on the engineering side. There are many limitations in Flash still, but we’ll be swatting them one by one over the next few years. Unity works quite well there. There are released games on it now. The Teenage Mutant Ninja Turtles game. A lot of small games have been built that way. Some pretty big social gaming studios are working on Unity-built and Flash-exported browser titles. That should all be coming out in the next few months. It works already, and it’s pretty sweet.

We haven’t seen the adoption we expected of it yet. I think there’s been uncertainty about the revenue share and how that’s going to work. People are starting to understand it and realize how it makes sense for their business model. We think it’s a very important part of the lineup, but one among many others. Our plugin has now been installed on 150 million machines, and we have a deal with Qihoo in China where they are working on installing it on a very large number, hundreds of millions of machines, to make that base even broader. We think our browser plugin is more relevant than ever.

Stand-alone apps for Mac and PC are kind of resurgent, though. There was a period when if it wasn’t in the browser, it didn’t matter. Now it’s more and more clear that stand-alone applications, clients for MMOs and things like that, and also smaller games sold through Steam and the Mac App Store and the upcoming Windows software store, are resurging. Once you’ve installed on a user’s machine and you have an icon on the desktop, that’s a very sticky place to be. People are realizing that running off to the web wasn’t necessarily sustainable for everyone.

GamesBeat: Mixamo was telling me they had an announcement coming up with you.

Helgason: They have this pretty cool technology that’s not exactly bundled in Unity, but you can get access to it through Unity. You can animate any character in a really flexible way. It combines well with our new animation system, which makes it extremely easy to retarget animation coming from any source, including Mixamo. We demoed it in that keynote we did. It’s a money shot for people who know something about character animation. You can take a particular complex movement and apply it to a character with very non-standard geometry — in our case it’s a big teddy bear — and have it move in a realistic way without having to craft original animation for it. Mixamo has a huge library of animation. They’re keeping their relationship with us and making it even easier for people who may not have animators on staff to have access to a lot of complex character animation.

This is the whole drive of Unity, to take all these hard things and make it flexible enough for the really big companies, and make it easy enough for individuals to use. It’s a complex design problem and it calls for more work than doing something that’s just high-end or just very simple. But that’s the beauty of Unity.

GamesBeat: What do you think about whether 3D or 2D is going to become the biggest on mobile?

Helgason: I think it’s a mix. If you look at the top-grossing games, the ones that are made with Unity, two of them are 2D and one is 3D. If you look at the rest it’s also a nice mix. So I don’t think it’s either-or. Many games that look 2D are actually built in a 3D manner, too. There’s a lot of things like parallax effects that are easier to do in a 3D space. You just have to place the camera so it looks right. There’s some pretty amazing stuff coming out built like that.

The drastic fall of Zynga on Facebook is showing that their way of building games — not focusing on anything but 2D in a very simplistic world — is not necessarily sustainable. People do lose interest in it over time. Most of the social games companies… Some of them are adopting Unity just for personal projects. Others are actively shifting towards it in a big way. They like the flexibility of being able to mix and match.

Unity still has its weaknesses. It’s not perfect for 2D. But it’s gotten a lot better in the last couple of years. The community has built some amazing extensions for Unity that make it easy to work with a mix of 2D and 3D or even pure 2D. We’re also working in that direction. 2D is kind of a subset of 3D. You just place planes in front of the camera. Once you start working like that, there’s a lot of interesting opportunities that arise. I think at least half the games that are made with Unity, at least on mobile, are fundamentally or mostly 2D.

GamesBeat: How many employees do you have? Have you talked about revenues at all?

Helgason: We’re 210 people now. The only thing we’re saying about revenue is that we’re significantly profitable. We opened up some new offices, including some very strong local offices in Seoul, Tokyo, and Shanghai. We’re working very closely with companies there. We’re very proud of having a global company, where the leader of our Shanghai office speaks perfect Chinese, he’s from there, he knows everybody. He can go and talk to the studios on their terms and understand their problems. Today, in mobile, a third of our revenue is coming from Asia. The rest is split between the U.S. and Europe.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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NaturalMotion is on a tear with its latest iPhone game, CSR Racing, which is generating more than $12 million in revenue per month. It’s doing so well that the company has acquired the game’s developer, the Boss Alien game studio in Brighton, England.

Of course, the game has only been out for six weeks, and the data is based on one full month’s worth of revenues. We can’t exactly extrapolate and conclude that the game will generate $144 million in a year’s time. But CSR Racing, which features beautiful 3D graphics, is the world’s top-grossing game on iOS (iPod Touch, iPhone, and iPad). Oxford, England-based NaturalMotion is focused on developing high-end 3D games as well as publishing those created by external developers. The success shows that the top games on the App Store are starting to generate some serious money.

CSR Racing is its seventh title in a row that has hit the charts for the company. The last one, My Horse by developer Munky Fun, was also a big hit for its realistic depiction of horses in a 3D environment. Torsten Reil (pictured above), the chief executive of NaturalMotion, said in an interview with GamesBeat that the company will increase its number of releases and now has six titles in development.

Apple showed off CSR Racing at its Worldwide Developer Conference in June, and the game launched as an exclusive on iOS on June 28. The free-to-play game makes money through the sale of licensed cars, which are selling at three times the rate of car sales in the real world. Reil said the company doesn’t spend much on marketing and that its titles go viral through word of mouth.

“This is a validation of the approach we are taking of doing console-quality games that are free to play,” Reil said. “The market is moving from 2D games to 3D games fast. The 3D games can generate more revenues with much higher margin.”

The Boss Alien studio is operated by former Disney Black Rock studio executives Jason Avent and Tim Swan. They will continue to run the studio as a stand-alone division. Terms of the deal were not disclosed.

“The entire Boss Alien team is excited to be joining NaturalMotion. We share the vision of creating amazing games that reach millions of people,” said Avent. “We’re very proud of what we’ve achieved together with CSR Racing, and now we’re focused on growing our studio and creating more hit games.”

“Our vision from the outset has been to focus on making games that people want to play – and to go viral through quality. Our combination of deep free-to-play monetization insights with polished gameplay and high-end 3D graphics generates margins impossible for the old type of 2D resource management games, especially those who have to aggressively spend to buy players.” said NaturalMotion CEO Torsten Reil.

NaturalMotion was founded in 2001 and initially created game development tools such as Euphoria and Morpheme to enable game developers to build realistic characters that look and move like real people. The tools have built-in physics so that motions look accurate and interaction with the characters seemed flawless. Many game makers licensed the technology.

But NaturalMotion tried without success to take on the giant of the sports game business, Electronic Arts, and its flagship title Madden NFL Football. NaturalMotion made a console game called Backbreaker Football, which featured brutally realistic football tackles. The concept was good. But when it debuted, the game was full of bugs, and critics panned it in 2010. NaturalMotion released a bug fix that cleared up many of the problems, but the game never recovered.

The company pivoted into the iPhone and iPad game business to get its second life in digital games. Using an outside developer, the company released a 99-cent version of Backbreaker on the iPhone in 2010 and saw millions of downloads. It then created a new studio, NaturalMotion Games, to develop iPhone games and launched games on the App Store such as Backbreaker 2: Vengeance, a sequel to the football title; and Jenga, based on the board game. Both feature cool physics simulations that had never appeared on a handheld device.

It published the Munky Fun title, My Horse, in 2011 and saw huge revenues from it. Reil said that each new title is giving the company more knowledge about how to handle monetization and gameplay loops. The company recently raised $12 million from Benchmark Capital in a second round of funding so that it can try to become the No. 1 iOS game company, Reil said. Competition includes Electronic Arts, Zynga, Epic Games, Gameloft, Glu Mobile, and many others.

Reil said that CSR Racing is growing revenues even faster than My Horse, and the company isn’t spending a lot of money on user acquisition, which is a big hurdle for a lot of iPhone game companies.

“The others have cash and will battle it out with user acquisition spending,” Reil said. “We don’t want to play that game.”

A multiplayer version of CSR Racing is coming later this summer, and Reil believes that will boost the game further. The firm now has 160 employees in Oxford, London, Brighton and San Francisco.

“We’re expecting the game to sustain its revenues through in-app purchases,” he said.

NaturalMotion isn’t yet tempted to move to Android or other platforms.

[Image credits: the company]

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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