The freemium model has taken the mobile gaming market by
is growing wary of it. That has potentially game-changing
(pardon the pun) implications for companies who have built their
fortunes on freemium titles, such as
, among others.
Without fail, nearly every title in the Top Grossing charts of
the iOS App Store is free but offers in-app purchases. Apple gets
its standard 30% cut of in-app purchases, so why is it fed up
with the freemium model?
"Apple is frustrated."
recently interviewed Stoic, the small indie game developer behind
The Banner Saga
. The role-playing game was released on PC last year, but Stoic
is now preparing to bring the title to iOS. Most of the technical
work is already done, but now Stoic just has to figure out how to
price the game.
The challenge is that the app market has become so competitive
that consumers balk at premium app prices. For obvious reasons,
this trend frustrates developers to no end, since it makes app
monetization quite difficult. It turns out that Apple shares that
frustration. Here's Stoic co-founder John Watson:
Apple is frustrated, along with everybody else, about the
mentality that's gone rampant in mobile app markets, where
people don't want to pay anything. They want to pay as little
as possible. They think that four dollars is an exorbitant
amount to pay for a game, which is very illogical considering
most people's lifestyles. They'll spend $600 on an iPad, and $4
on a coffee, drop $20 on lunch, but when it comes to spending
four or five dollars on a game, it's this life-altering
decision. I'm frustrated with that too.
Apple has been advising Stoic on how to price
The Banner Saga
, and Stoic's other co-founder Arnie Jorgensen says that Apple is
encouraging the developer to "go higher-end."
Candy Crush Saga
crushes it, but King is getting crushed
Consider King's blockbuster hit
Candy Crush Saga
. The addictive freemium title accounted for 67% of King's total
gross bookings in the first quarter. Gross bookings were $641
million during that quarter, putting
's take at $429 million. Apple's cut of all those extra moves,
extra lives, and lollipop hammers would depend on King's platform
mix, which is not directly disclosed.
King did say that 75% of total bookings came from mobile,
without breaking out iOS and Android specifically. If iOS is just
, then that's nearly $65 million for Apple from
freemium game in
In the second quarter, King made some progress with
Candy Crush Saga
only contributing 59% of gross bookings.
Kim Kardashian rakes it in
Shares of Glu Mobile soared in July, almost entirely thanks
to its hit
Kim Kardashian: Hollywood
game. That jump was thanks to estimates that made headlines,
pegging the game's annual run rate at approximately $200 million.
Kim Kardashian herself is reportedly entitled to a 45% cut of the
game's net profits, which similarly led to headlines of her
grabbing $85 million after factoring in approximately $10 million
However, that ignores the cut that goes to platform operators
like Apple and
. Google tends to share its portion with distribution partners,
and again Apple's share would depend on platform mix. Still,
Apple also stands to cash in alongside Kim Kardashian in a big
way if the game can sustain its success. Shares have come back as
the hype dies down.
Premium can't compare to freemium
Apple has a
deep philosophical appreciation
for good design. That includes product design along with software
design. Apple has annual Design Awards for both iOS and OS X. One
of the 2014 winners was
, which Apple then featured prominently in the App Store.
costs an upfront $4 on either iOS or Android, and does not offer
How well does an elegantly designed game with a premium price
tag fare after getting various types of promotion from Apple?
Developer ustwo recently disclosed that the title has sold 1
million copies. Before factoring a temporary price cut to $2 or
the share to platform operators, that's upwards of $4 million in
gross revenue. We do know that over half of those sales were on
iOS (it sold 500,000 copies on iOS before the Android version was
released), so Apple's share would be just over $600,000.
Revenue from promoted premium games can't compare to what
freemium titles bring in.
The dark side of freemium
There are several possible reasons why Apple may be tired of
freemium. First off, it settled a class action lawsuit just last
year over excessive in-app purchases made by children, offering
refunds to parents. European regulators are even cracking down on
both Apple and Google, prohibiting the companies from marketing
apps as "free" if they offer in-app purchases.
Even beyond kids, in-app purchases largely succeed with games
that are highly addictive rather than well designed. Most people
would agree that addiction is negative, and perhaps Apple is
morally opposed to profiting off addiction.
Apple encouraging premium games over freemium games doesn't
mean it will stop supporting in-app purchasing. For now, freemium
developers can still sell virtual goods to their hearts content,
but eventually a day may come when freemium fatigue sets in among
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Apple, Inc. Is Wary of Freemium iOS Games And You
Should Be Too
originally appeared on Fool.com.
Evan Niu, CFA
owns shares of Apple. The Motley Fool recommends Apple, Google (A
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