But can companies take a share of the virtual currency revenue, or are they restricted to using it as an opportunity to promote their brand through sponsorship and ads?
The opportunity is muddied further by the dilemma of whether to charge per download or follow the freemium model and rely on in-game purchasing for monetisation.
To try and clarify some of these points, we asked four mobile industry experts for their opinions on the virtual currency market.
Carl Uminski, chief operating officer at Somo
One way for advertisers to take advantage of this market is to sponsor a game or brand purchases within it. You buy a drink – it’s Coca-Cola. Purchase a car in a simulation game – it could be an Audi or a Chevrolet. It’s about fitting your brand into the games. Millions of people globally are buying virtual branded products; it builds huge brand awareness and associates your products with something they enjoy.
Digital marketers could definitely be making better use of this. They want to reach their target audience as cost-effectively as possible. Game developers, Zynga, TinyCo, EA and PlayFish are providing brands with an already established and engaged audience.
In September, the IAB found that there are 32.5m gamers in the UK alone, there are lots of affluent, older men and women as well as young people, it’s not a niche.
Mobile advertising yield is currently quite low for mobile app developers and it only starts to become interesting when you can achieve huge scale. Angry Birds, Paper Toss and Paper Glider have managed to scale and achieve significant income from virtual payments.
According to a report by Macquarie Equities Research featured on Business Insider, just 2.2% of Zynga’s players contribute to the company’s $800m plus revenue annually. Players pay on average around $70 per quarter or $280 per year to play, around 680,000 players are paying about $1,100 each every year.
Although Apple takes a 30% cut of in-app purchases, it is still the most scalable distribution channel, easily controlled via the iTunes store.
The freemium model is the preferred way for developers and it is really consumer-friendly – in an increasingly competitive app market, people want to try before they buy.
Developers and brands should be building these things into their business models as these are some of the best opportunities to make a share of the billions being made in mobile gaming at the present time.
Renate Nyborg, digital director at Edelman
In-game advertising on consoles has been much slower to develop than predicted; a key challenge is brands having to spend a minimum four or five figure budget to commission a single campaign on say Xbox or Playstation games.
Mobile in–game purchases on the other hand are a cheap, fast and scalable way to reach gaming audiences with your brand, and the revenues in social gaming underline the potential opportunity for contextual product placement for brands: such as selling a Vodafone McLaren branded race car ‘upgrade’ within Need for Speed, or having a Red Bull power-up within a Red Bull sports game.
I think there is space for someone to prove its value and do something unique. On one hand, there is a great opportunity to trial this at a low cost, and potentially reach audiences in a fairly unique and therefore more engaging way.
However there are challenges: mobile gaming audiences are highly fragmented compared to console, PC or social gaming; there are few real franchises like Angry Birds; and there are few case studies to convince clients that this is a good investment. If you can convince them, and set realistic goals, I think there’s an opportunity to shine.
Whether to choose between paid-for games or freemium entirely depends on your game. If you have a game that is designed to be highly addictive or involves great storytelling to keep you coming back, freemium can be a very profitable model. Shadow Cities and Mafia Wars really make it work.
But your game needs to be very good to keep people coming back and spend their money.
In a nutshell, if you’re game is very good and will keep people coming back for week/months, go freemium. If your game is very good and is more of a one-off burst of fun, paid-for can be great but raise the price. If your game isn’t very good – don’t do it. Spend the money on Apple shares instead.
On a side note, I wish not as many developers had gone down the ad-funded/freemium route as few of those games will make much money at all – you need something like a thousand times more free downloads and plays to make as much as a single 69p download – and it’s more or less ruined the market for medium quality paid-for games.
Terence Eden, developer community manager at InMobi
It’s time for brands to realise that customers are willing to spend money on in-app purchases. We’ve seen how popular DLC (downloadable content) is on the console gaming platforms – that eagerness to spend is also present on mobile.
One thing to consider is how much you are offering users – they can be incredibly price sensitive. So brands will need to experiment to find the ‘sweet spot’ on spending.
Digital marketers should be looking in to how they can improve their message to users. A mix of free and premium content helps to drive repeat usage and improve revenues.
The great thing about virtual currency is that it is a zero-margin industry – that’s great because most payment services still take a significant cut of revenue.
At InMobi, we’ve found that it’s best to keep a mix of freemium and premium. We strongly encourage developers to experiment with their monetization strategies.
Some games earn a phenomenal amount of money through in-app advertising. For others, it makes sense to offer both a free and a paid version of the app. Listen to your users and see which approach brings you in more money.
Tim Dunn, director of mobile strategy at Isobar
While the notion of brands charging for branded games is in general bad, the growth in gaming in general is creating a raft of new opportunities for brands to create really contextual mobile media for a targeted audience.
One of the best examples of innovation here is KIIP, an ad network that rewards consumers for progressing through game levels with treats from brands who sponsor the space.
So while there’s no direct benefit from the payment, the brand gets to associate itself very closely with game progression, and the creative use of this space can be pretty cool.
Freemium is a space which is still working for many developers, with the free version of the game with limited functionality compelling the user to buy the full one to get to the next set of levels etc.
However, while this is established for the iOS ecosystem, the weaker billing system and lack of customer willingness to pay directly on Android means that many games on Android find it more effective to be ad-funded than to try and charge.