A 15-year-old Belgian teenager spent $46,000 on Clash of Clans a few weeks ago. The game itself was downloaded for free, but his empire was at risk and he did what needed to be done to protect it… This little anecdote goes to show that IAP (in-app purchasing) can generate substantial revenue. While game developers do not aim, nor do they wish to extort money from their users, they all want to know how to maximize the future’s most profitable source of revenue for mobile applications.
Let’s get acquainted with a few facts, courtesy of Gartner:
- Global app revenues in 2013 totaled $26 billion, out of which 17%, or $4.6 billion came from in-app purchasing.
- The total number of downloads in all appstores reached $102 billion in 2013 (of them, 90% in Apple’s Appstore and Google Play).
- 91% of all downloads are free (83 billion), expected to reach 94.5% in 2017.
- The forecast for 2017 is for IAP to surpass the revenue from paid for apps. IAP are going to be the leading source for app returns, taking over 48.2% of the total revenue.
These figures clearly show that free downloads already prevail and the trend is only growing. Revenue has to come from somewhere. Therefore, advertisements and IAP are a significant part the developers’ business models, with IAP taking the lion’s share.
According to Webopedia, “Users typically make an in-app purchase in order to access special content or features in an app, such as power-ups, restricted levels, virtual money, special characters, boosts, etc. The purchasing process is completed directly from within the app and is seamless to the user in most cases, with the mobile platform provider facilitating the purchase and taking a share of the money spent (usually in the range of 30% or so), while the rest goes to the app developer.”
The upsides of IAP for developers are quite obvious ($$$, right?), but the challenges are out in the open as well. Users have mixed feelings towards IAP with reactions varying from supportive to hostile. On the plus side, there are users who see it as their way of contributing to the industry, an opportunity to give something back to an app they use and enjoy, in particular if it is a free one. Other users, on the other end, experience IAP as extortion. They feel as if they are being lured to an app which is supposedly free, but once in, they are expected to pay and spend money. Between these two extremes we have the less idealistic ones – those that would pay for a feature if they see an added value to it (this is true for paid apps as well), or perceive IAP as “the rules of the game.” Game developers and publishers try to address all these users without alienating anyone.
Incorporating IAP in Your App
Who is more likely to perform many purchases? Men, women, teens? In what regions? Those who just downloaded the app, or returning loyal users? What do users do right before they perform an in-app purchase? These are some of the important questions a developer and a marketer must have answers to in order to retain IAP by power users, increase purchases by latent users and convert those who never performed an in-app purchase before. The trick is to come with the right offers to the right audiences at the right time. How do we do it? With analytics. As Farmville co-creator, Sizhao Zao Yang states: “Since Zynga is heavily metrics driven, we can tune the channels to enhance reach.”
According to TechCrunch, 44% of mobile app users don’t make an in-app purchase until their tenth session in the app; 33% make it somewhere between their second and ninth session; and 22% purchase on their first session. 0.15% of users generate 50% of IAP (TechCrunch). Women make 31% more IAP than men; they spend 35% more time in gaming apps than men do; and have 42% higher seven-day retention on average. The basic rule of “know thy customer” is just as relevant for apps as it is for the off-line world. Actionable analytics will show you how to personalize your app. Don’t lose eye-balls because users were not correctly segmented. Make sure to reach the right audience with the right content, at the right moment. CoolaData’s gaming solutions address precisely these challenges.
The secret sauce to IAP success is based on unified behavioral analytics. CoolaData identifies users who are inclined to perform in-app purchases sooner rather than later, or on the other hand, those who are prone to never make an IAP without extra incentives. The future of gaming monetization is all about optimizing in-app purchasing with power analytics.