Effectively Scaling Apps – The Myth of the Whale Busted
Is it better to have 50 customers who each spend $2 with your business, or 2 customers who each spend $50? From the POV of a mobile publisher, it can be easy to believe that it’s the latter, but that can be a dangerous fallacy.
Mobile whales are also a dangerous concept to buy into from a consumer perspective, too. Think about the average player of a free mobile game, who sees multiple opportunities for in-app purchases (IAP) but doesn’t take them. That person likely thinks, “Well, I’m not buying anything, but there must be people who are – and specifically, a handful of people who are spending hundreds of dollars. That’s what keeps this game free for me.”
That’s simply not the case. There are the cases out there, perhaps in your own app, of power users who have spent spent thousands of dollars on IAP. Or, in one case reported by John Koetsier, a million dollars. That’s right, a casual mobile game publisher told him they had a whale who spent over $1 million in their app.
“In the early stages of the mobile gaming explosion, every publisher hunted whales. Only a tiny fraction of gamers actually paid for in-app goodies, and while minnows were OK for ad revenue, big spenders — the whales — drove success,” he wrote in Inc.
However, that’s changing, he said. The number of game players who actually pay is rising – at one point a few years ago it rose by a third in just a few years. Granted, it’s still low, with estimates between 2 and 3%, particularly in Europe and upwards of 4% in North America.\
Additionally, the cost of acquiring said “whales” is much higher than the higher-volume, non-paying users. The average cost of acquiring a user who will make an IAP is $86.61 across Android and iOS platforms. (Android: $86.72/IOS: $77.45). Despite the shorter life cycles of the non-paying users, it’s far easier to generate a return on your initial investment because it’s so much lower.
The cost of losing a whale, too, is tremendous. Counting on a big spender is fine, as long as they stick around. But with the increased competition and the struggles that mobile developers have today with retention, that’s dangerous ground to rely on. Long-term, app publishers must rely more on scalable monetization models that bring in a penny from each sardine, not a million from one whale.
It’s also been shown that whales are highly engaged players, which might appear on the surface to be a good thing. But now consider advertising, which most mobile games incorporate into their monetization model, together with IAP. Non-monetizers tends to play more than one game at a time; while this might be seen as them being “less loyal,” the other way of looking at it is that their attention is already divided by default. Ads may not be perceived as a nuisance, suggested Game Analytics.
And, you won’t have to worry about decimating your player base; they will still come back to your game even if they do find another one to play.
As with nearly everything, the more information you have, the better decisions you can make. That’s why publishers should be consistently poring over the data and diving deep with analytics tools they need to identify top spenders and the mechanisms within the game that drive these users to make purchases. Armed with this information, developers and publishers can offer their users the incentives that best foster monetization, engagement and retention. If you’re feeding some of this aggregate information back to your UA and monetization partners, they can further optimize your ROAS and revenue, too.
Finally, it’s worth reconsidering IAP as complementary to ads, rather than the other way around. First, because you don’t even receive 100% of that revenue! Despite recent rulings, Apple can still charge its 30% fee, which is reduced for “small businesses” aka those publishers with less than $1M in revenue.
Second, because the definition of LTV has changed. It’s no longer as cut and dry as it used to be. For a long time, so much of high-LTV targeting was based around user identification. What Apple and Google are doing now with privacy has pushed developers to be more aggressive about direct monetization of their existing users in creative ways vs. relying on passive monetization based on personal data. It no longer makes sense to focus on acquiring a user who you believe is going to spend more money with you, because that level of certainty around who they are is no longer there.
There is a reason that the entire app industry has slowly shifted from being IAP to being more advertising focused – most gaming app developers simply cannot generate enough revenue from IAP alone. Advertising allows you to make money from the 95% of users that will never spend money on IAP and as such it’s a democratization of your revenue. With all users contributing to your success, you can be less anxious about the churn out of a particular subset of users, and better yet, not worry about spending even more on UA to then go acquire more of the same.
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