The end of mobile gaming as we know it

As they face market saturation and rising marketing costs, mobile gaming marketers are finding it increasingly difficult to report healthy return on investment (ROI). Cost-per-install (CPI) is three times higher than it was in 2010, and day-one retention has dropped 50 percent. Players have plenty of choice and little attention; 74 percent won’t open a game post install.

Meanwhile, the mobile gaming industry is exploding. In 2016 mobile gaming generated $41 billion in revenue, 85 percent of total app revenue, and a 21 percent increase from 2015. By 2020 annual revenue is estimated to double to $80 billion.

But while the pie is growing, competition is getting fiercer — and the pieces of the pie are shrinking. The majority of revenue growth will be won by companies that shift their attention from user acquisition to retention, and adopt player-centric rather than product-centric monetization strategies.

User acquisition: Pouring water into a bucket full of holes

Based on conversations I’ve had with mobile gaming execs, I’d estimate that most marketing departments allocate between 80 percent and 95 percent of their budget to user acquisition (UA). This traditional UA-centric approach assumes we’re still in 2010 — when traffic was cheap and players were loyal. Players have become more expensive to attract and more likely to churn, and today most companies run UA as if pouring water into a bucket full of holes.

Retention and monetization marketing —marketing targeted at players who exist within the company’s database — is more effective than user acquisition marketing in terms of ROI. The industry benchmark for user acquisition ROI is around 1.5X (calculated as player lifetime value divided by cost-per-install). In contrast, ROI from retention and monetization marketing is about 3-10X (calculated as revenue uplift from test vs. control campaigns, divided by monthly retention marketing spend).

There are two simple reasons for this. First, retention and monetization marketing is cheaper than UA. The two most common retention and monetization marketing channels – mobile push and in-app messaging – are free. Second, and more importantly, retention and monetization marketing can be a lot more data-driven than UA. Players within the database are associated with a trove of data and can therefore be targeted with smart personalized marketing. When acquiring new players, marketers are targeting players with very little data. Despite this reality, many marketers invest the vast majority of their marketing budget in UA and leave the scraps to limited retargeting efforts.

Marketing teams are also UA-oriented from an organizational standpoint. Even in companies with three or four large games, millions of installed users and rich databases begging for smart retention marketing, the UA team usually outnumbers the CRM team at least four to one. Some companies don’t even have a dedicated CRM manager at all. Instead, they define the UA manager as a role that requires “managing retargeting campaigns” (perhaps prioritized below “excellent communication skills”).

Retention and monetization: Shifting from a product-centric to a player-centric mindset

The solution isn’t just shifting budget from acquisition to retention; marketers need to evolve how they think about retention and monetization.

Most marketers today run traditional product-centric retention marketing, which means they send generic messages to large groups of heterogenous players. This doesn’t take into account the individual player’s behaviors and preferences, and the result is a high price of generalization. For example, the marketing team decides to display a particular in-app message to all users at the end of level seven because it performed better in an A/B test than a message displayed at the end of level six. This assumes all players behave in roughly the same way, which we know isn’t true.

In fact, at many mobile gaming companies, the product team owns internal communications with players (in-app messages), while the marketing team owns external communications (email, Facebook, Google Display Network, Twitter, etc.). This is the epitome of the product-centric approach, which makes it nearly impossible to create a holistic treatment for a player’s behavioral DNA.

Retention and monetization marketing at its best is player-centric, tailored to the unique behavioral data points of each player. The more tailor-made the messages, the more likely an individual player is to respond to the message and to spend time and money within the app.

The good ol’ days of mobile gaming are over

Changing your marketing strategy isn’t easy, but it’s necessary. Marketers must shift their focus from acquisition to retention, and from a product-centric approach to a player-centric one. Players are high maintenance, fickle and expensive — it’s time for marketers to acknowledge that reality.

Guy Confino heads the social gaming vertical at Optimove, a customer cloud technology that orchestrates hyper-targeted marketing campaigns.