Launching a Mobile Game Business (Part 1)

Creating a Game Business
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Editor’s note: This is the first of a 2-part series by Anthony Hurtado, a veteran of the mobile publishing and advertising industry. In this series, Anthony gives sage advice for anyone looking to break into the sector and launch their own mobile game business. To view part 2 of this series, click here.

Why these early consideration matter

Since the launch of the App Store in 2008, mobile games have been the dominant force in the app industry. With millions of games in the app stores, and over a thousand more being added each year it would appear as if mobile games are a turn-key business; just design and build a game and then boom: success, fame, and fortune, right?

Wrong

The truth is that over 90% percent of those games become zombie games. They’re technically alive, but effectively dead. They have less than a thousand downloads and are unsearchable in the app stores. For a multitude of reasons thousands upon thousands of individuals decide to build a mobile game. To avoid becoming a part of the Walking Dead, let’s review the steps you can take BEFORE you ever design a mobile game.

Step 1: Define the end goal

The “hobbyist”

Of the millions of games out there, some exist as passion projects by gamers who can code, or by people who want to practice with coding and decide to do a simple game. If your end goal is to just “have fun” and make your own custom games for yourself and maybe your friends, that’s fine. Stay comfortable in your own little world. We will call this archetype the “hobbyist”.

The “lifestyler”

Now perhaps you read the above description and thought, well that’s not quite me. I do make games primarily for enjoyment, but it’d be nice if it could pay the bills, or at least have some extra spending money.”

That’s fine, and once again, a common position. You are what I call the “lifestyler”. It’s a lifestyle business. Learn from the rest of the steps and see if you can execute them to escape the game zombieland and generate some revenue. I warn you that you likely won’t, but at least now you’ll have chance of attaining that lifestyle dream.

The “businessman”

Being a lifestyler isn’t sustainable today. A few years ago yes, absolutely, but today it’s just too hard. It fails costs-benefits analyses. So, we’ve covered the hobbyist, the lifestyle guy, what remains is “the businessman”.

Money Batman Superpower

Your goal is to create a mobile gaming business. You focus on the P&L because this is your baby that you hope to grow into the next Supercell. God bless your ambitions my friend.

It’s a different world from the one in which Supercell and all of them came up, but I like to think that one positive characteristic of a hits-driven industry is that it’s still possible for a new start-up to come in and become a part of the top-tier establishment. The odds are against you for sure, but that’s okay!

Making the most of these tips

This article focuses on the steps you need to take BEFORE you even get to the design stage of mobile games. It does not remove the risk and improbability of success; it simply reduces it. Now, I said this about the work performed pre-design. When I say pre-design, I mean pre-idea, pre-everything, but the fact that you want to do a mobile game.

It’s okay if you have a mobile game idea, but if you’re looking to treat your mobile game as a business, then you cannot be married to the idea that you’ve been wanting to do since the first iPhone came out.

You cannot let your emotions cloud your judgement. Don’t get me wrong passion is great. YES! You will need to be passionate about your business to weather the storm. However, if you’re married to the idea of a Match-3 game that is basically Candy Crush with a different color scheme, it doesn’t matter how passionate you are, you will fail. So, turn the corner and let’s make the next hit.

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Step 2: Genre selection

All investors say know your market, and they’re right. To build a product for your business you must know what industry, what audience you’re serving.

The same business maxims that apply to analog business can also apply to your new digital business (i.e. mobile game). At last count, Apple has 18 mobile game categories and Google features 23 (although live wallpaper and widgets don’t count in my opinion).

Yes, there is a mismatch in numbers between the two platforms, so you may have the same game in two different categories. So how do you pick a genre? The first step is to identify the opportunity. Let’s start with the low hanging fruit. How many apps are there in each genre? To find out, check out Appbrain’s helpful Google Play Statistics and a Statista iOS report.

Capture the Saturation Ratio

The main takeaway with this sub-step is that you want to identify the market with the least friction, the least competition. Given the industry’s competitive profile, the fewer the apps, the better. Yet, obviously, you don’t want just the least number of apps. Nothing operates in a vacuum, Content may be King to marketers, but Context is King to businesspeople.

So, what you’re striving for is a nice balance such as the lowest number of apps per user. So, you need to know both the number of users in that genre as well as the number of apps in that space. To dive even deeper try and find out the number of active apps.

Most apps have been abandoned and haven’t been updated in ages, so look for apps that have had an update in a month, a quarter, 6 months, and even a year. This is your real market size (relative to competitors). I like to call this ratio, the Saturation Ratio.

Play To Your Competitive Advantage

So, that’s great you’ve identified some good genres based on favorable # of apps: # of users. However, maybe your background isn’t relevant to any of those genres. Sure, strategy games have a great ratio (example, not fact), but you’ve never played strategy games and have no interest in strategy games. Well, I would remind you to remember Step 1’s passion lesson, but I hear you and I even agree, GIVEN THE RIGHT CONTEXT.

As an example, perhaps your background is in the casino industry. Currently, few would advise someone to create a new social casino game. The market is mature with over 80% of the revenues controlled by the top 15 apps. Yikes.

Casino Games Revenues

However, if your background has given you a unique insight that none of the top apps have then it could make sense to venture out into that space. For example, I recently began working with a client who owns interesting IP that could allow them to carve out a unique niche within an unattractive genre. However, given the context of their IP and special business model I support their entry into this hyper-competitive genre.

The business world is all about edge (i.e. competitive advantage), so don’t think that just because the genre has an “eh” Saturation Ratio that you should avoid. Play to your strengths, just be sure that it’s a real competitive advantage. Your passion is rarely a CA. Even your industry experience (such as knowing slot math) may not be a CA.

You should honestly analyze whether your strength is a value factor in that genre. Will having better slot math help you have a more compelling slot game that will then when coupled with other best practices help you establish a foothold. Honestly, in that example it probably wouldn’t.

Follow The Money

Okay, so at this point you’re thinking pick a market with favorable competition levels and market size, and play to my strengths. Yet of course, there is plenty more to it. The next factor is adding the context of profit potential. Note that I said PROFIT potential, and nothing with revenues or the like. Clearly revenues are a huge piece of the profit puzzle, but costs can creep into your reality out of nowhere.

I’ll focus on revenues in a later section. First, examine whether the genres you’ve narrowed in on will be high-cost markets. There are two cost centers in particular on which I would focus:

Development Costs

Certain genres require very intense development. For example, a RPG game will require far more resources than a Word game. Project out the staff you would need to build this mobile game AND support it. Perhaps your genre would demand a lot of new content in short time frames. Or perhaps it would require a lot of server space and a strong Dev Ops person. Definitely, do not leave the costs analysis to the initial launch, costs are everywhere!!!

Welcome to being a business owner, now you see why so few do it, and even fewer keep doing it. You might have a cheap initial build, but then have to have huge content teams to keep it fresh.

Marketing Costs

To some, user acquisition is the name of the game in the mobile gaming space. The reality is that it’s an integral piece, but as you can imagine nothing is as simple as one element. Nonetheless, research what CPIs users are being acquired in the prospective genres. Now, if you’re going to be a big hit, the reality is that a small portion of your customers will be bought at market rates.

Instead, you will need brand equity, solid app store rankings, a good viral loop, etc. Still, you need to be aware of how much the general market costs. All financial modeling should include a worst, expected, and best case outputs. The worst-case scenario is that you are paying market rates for your users, so know what that is.

Also, do not think that marketing costs are just what you pay the ad network or DSP. You will need to create the ads, monitor the ads, attribute the ads to installs (and pay attribution fees), etc.

I wouldn’t get too worried about modeling out every single potential cost, but some key ones (like those mentioned above) should be in your modeling. Otherwise, you could end up wondering why your margins are so much worse then what you projected. Overall, you need to have a financial model that includes the above two cost centers, and the business as a whole. Do not worry on your numbers being right.

What you’re striving for with the financial model is understanding all the linkages within your business. What activities drive certain costs. What consequences do marketing costs have on overall users which then has the following effect on revenue, etc. The goal of the financial model is to reduce the number of unexpected surprises, especially on the costs side.

Step 3: Customer Revenue Research

In performing Step 2 you likely learned a lot about your new market, or as we will call them, your audience. Who is playing your game, what is their playing style, their motivations, their purchase potential. While Step 2 talked about costs and competition, revenue should have been a consideration.

Step 3 is about supplementing the genre research with revenue research. If in the course of doing such you find that this market is historically poor for revenue generation, you may want to loop back to Step 2. That is okay! The whole point of this pre-design process is to evaluate whether to create this game in the first place.

There are several ways for you to generate cash from your game, but generally speaking, the game is monetized either through advertising or through the sale of virtual goods (or a virtual currency that is used to buy virtual goods).

The IAP vs. Mobile Ads debate

The two methods are neither a pick one or the other, rather they can be combined, and this often makes sense. In fact, under the right context, such as rewarded video ads, users will actually be happy to see a mobile ad!

Rewarded Video Ad Mobile

A Rewarded Video Ad in Disco Zoo

Chartboost does a good job outlining how this can be done. You need to see if there is a lot of app store revenue relative to other segments. If there isn’t, it would indicate that it’s being done through advertising, or some other type of program (i.e. e-commerce, selling leads data, etc.).

You should also Google around to see if you can find some revenue benchmarks for that genre. Many firms have published studies or blog posts talking about expected conversion rates, ARPU, LTV, etc. for specific genres (normally the most popular ones).

Play, test and learn!

Beyond studying the macroeconomic trends of the genre, you can zoom in on the top 10, top 20, top 100 games (grossing and general) to see how they are monetizing their audience. Play these games, study these games and learn what they’re doing.

The last recommended way would be to reach out to the developers themselves. A top 10, 20, 50 developer may not respond to an open business development question, but you’d be surprised at your success in getting responses. Learn from them. Remember, people are vain, they love telling their war stories.

Okay, so you’ve analyzed the possibility of in-app purchases driving revenue, now it’s time to look at advertising. Well, on one hand a good ol’ fashioned way of reviewing this was to pay attention to ads that you saw when you were playing the top 10, 20, 100 games in your space. Which games have ads? Did they interrupt the gaming experience? Did it tie into the overall game flow?

What type of ad unit was it?

  • Banner (avoid)
  • Interstitial (possibly)
    • Full-screen
    • Partial
    • Survey?
  • Video ad (yes)
  • Native ad (possibly)

Beyond this grind method you can use a service called MixRank. It’s built for sales teams, but their mobile dataset feature is interesting because you can see what SDKs the app is using. These would include the SDKs from their partner ad networks and SSPs. A side benefit is that since it’s meant for sales teams it often has contact information, so that cold e-mail outreach previously mentioned could be performed easier with Mixrank information.

Another company in this space that has even more information (but I believe is more expensive) is Apptopia. In addition to SDK information they’ll provide download, engagement metrics, and revenue estimates.

At this point in your analysis you should know whether your audience is receptive to ads (and possibly the types) and predisposed to buying in-app purchases. With this knowledge you can go ahead and make some financial projections. You can also take all of this monetization knowledge and incorporate it into your future design. In order to successfully retain and monetize your users the revenue levers must be a part of the game experience, and not a disruption which is what happens when you bolt on ads or unnecessary in app purchases.

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Editor’s note

To view part 2 of this article (steps 4 – 6), click here.


Anthony Hurtado

Anthony Hurtado started his career in the mobile gaming industry in 2011. He worked at the investment firm behind Best, Cool & Fun Games, before joining Latin America’s biggest mobile games publisher as the Director of BD, where he launched a mobile ads network called RevMob. He remains involved in the gaming industry through research projects, consulting, and currently as the Director of Business Intelligence for Evus Technologies.