Mapping the post-ATT way forward for cellular free-to-play gaming

Again in the summertime of 2020, a month after Apple unveiled its App Monitoring Transparency (ATT) privateness coverage at its WWDC developer convention, I posited that ATT and different comparable, impending privateness insurance policies would catalyze a 3rd “evolutionary” development for the free-to-play cellular gaming trade.

For this train, I proposed a taxonomy of improvements and transformations inside the cellular free-to-play class which can be hierarchically ranked based mostly on breadth of influence:

  • Evolutions are market-level adjustments — such because the introduction of the smartphone or the Video games-As-A-Service mannequin — that influence client behaviors and elementary sport design ideas;
  • Revolutions are enterprise mannequin adjustments that inform the ways in which free-to-play video games are monetized, such because the adoption of in-game promoting, subscription packages, and battle passes;
  • Permutations are sport design adjustments that influence game-level interplay and engagement behaviors.

My argument within the aforementioned piece is that ATT essentially alters the marketplace for free-to-play cellular video games: it impacts not simply sport design decisions (permutation) or the methods wherein monetization is carried out (revolution), however the elementary character of the free-to-play gaming enterprise mannequin throughout distribution, monetization, and engagement.

The consolidation that I predicted in my 2020 piece has principally materialized: the greenback quantity of gaming M&A transactions in 2021 was almost 3 instances that which befell in 2020. And 2022 noticed extra greenback deal quantity nonetheless, with the 2 largest online game acquisitions in historical past introduced in fast succession: Take Two’s acquisition of Zynga and Microsoft’s acquisition of Activision Blizzard, which owns King, the developer behind the perennially chart-topping Sweet Crush franchise. Consolidation inside the free-to-play cellular gaming class has already been realized and is certainly a minimum of a contributing catalyst to the upheaval that’s enjoying out, broadly, throughout the class.

On this article, I’ll present an outline of how I consider the cellular free-to-play gaming class will proceed to remodel within the medium time period now that ATT is healthier understood, and what builders ought to be cognizant of as they navigate that evolution.

Observe that I don’t foresee the loss of life of free-to-play on cellular. And whereas I consider that ATT was the first catalyst for this evolution, the circumstances for mass consolidation had been already ripe forward of its rollout, and ATT is solely the primary concrete, mass-scale, consumer-level privateness coverage to be launched in what’s going to in the end be a full transformation of digital privateness norms. Apple helps 1.8BN energetic gadgets, having introduced 900MM energetic iPhones in 2019; again in Could, Alphabet introduced that it helps 3BN energetic Android gadgets, with 1BN new gadgets having been activated within the yr prior.

Free-to-play as a enterprise mannequin didn’t precipitate the mass proliferation of smartphones — it arose as a response to it, and shoppers have propelled free-to-play to whole ubiquity on smartphones with their wallets. Whereas SensorTower estimates that client spend inside the cellular gaming class can have declined by somewhat greater than 2% in 2022, it forecasts a return to modest CAGR from 2023. Free-to-play is a genie that may’t be put again within the bottle: as soon as shoppers grow to be acclimated to a worth level of $0, growing the price of entry is a combat in opposition to financial gravity. Working challenges received’t trigger the extinction of free-to-play. On this piece, I’ll try and map out the adjustments I see taking root inside the free-to-play market, with coloration on how these adjustments ought to inform developer technique.

Has ATT truly impacted the cellular free-to-play market?

The suitable place to begin in ascertaining the post-ATT way forward for cellular free-to-play gaming is contemplating whether or not ATT has systemically impacted the cellular free-to-play gaming market within the first place. I proposed in IDFA deprecation: winners and losers, written in December 2020, that the assorted segments of the cellular gaming market would expertise differing levels of influence from ATT: notably, I posited that top IAP-monetization video games, corresponding to these within the social on line casino class, would see an excessive magnitude of influence, versus a minimal general influence for reasonable IAP-monetization video games, corresponding to these inside the informal class.

This spectrum of influence appears to take form in Playtika’s newest earnings report. Playtika is a scaled, diversified, multi-studio cellular gaming firm: it operates a legacy portfolio of social on line casino video games and a portfolio of informal video games, lots of which had been developed by studios that the corporate has acquired. Whereas income for the quarter beat analyst expectations, it was principally flat on a year-over-year foundation at 1.9% progress, and that progress was delivered from the corporate’s portfolio of informal titles. From the earnings name:

Income throughout our Informal video games grew 14.4% versus a year-ago…On line casino themed video games income for the third quarter was down 10.2% versus a year-ago…The digital consumer acquisition surroundings continues to evolve and prices per set up have elevated within the third quarter. As we glance out to our plans for 2023, we are going to proceed to extend advertising and marketing funding in our progress franchises whereas being disciplined and data-driven in how we allocate advertising and marketing capital.

One query that has reverberated throughout the buyer tech area just lately is whether or not macroeconomic forces — which is to say, perilously excessive and chronic inflation, particularly in Europe — are literally weakening client demand and thus miserable the marketplace for digital promoting. Within the early weeks of COVID I wrote a publish titled What occurs to free-to-play cellular gaming throughout a recession? wherein I supposed {that a} recession can be detrimental to the free-to-play gaming market as a result of in-app purchases may be labeled as a luxurious good, and luxurious items typically expertise demand destruction throughout a recession. From the piece:

However what about cellular video games? Cell video games are principally free: they’re the last word low cost leisure. However my perception is that, whereas free-to-play video games might also function a substitute good — to all types of leisure, together with conventional console video video games — the digital merchandise bought through IAPs in free-to-play video games must be labeled independently from the video games wherein they exist. The choice a client makes to obtain a free sport is completely separate from the choice they make to buy a digital good in that sport. Placing apart design components (“pay to win,” and many others.), it’s tautologically true that free-to-play video games may be performed totally free, and so IAPs must be seen as luxurious items: characterised by need and comfort, with demand monitoring earnings.

The CEO of Take Two, one other public gaming firm that operates a cross-platform portfolio and which just lately accomplished its acquisition of cellular gaming developer Zynga, made the same level within the firm’s most up-to-date earnings name:

There’s a distinction between consumer acquisition and retention and conversion. And on consumer acquisition, I believe we and everybody else is simply going to be a bit extra selective to drive effectivity. And when it comes to retention and conversion, that’s a mirrored image of individuals simply not having to spend cellular. You may get pleasure from a title with out spending in-game. 90-plus p.c of shoppers don’t spend in-game.

And so at instances when shoppers are feeling the stress of upper costs for gas and meals, for instance, they could be much less more likely to spend cash on leisure, particularly when you’ll be able to have the expertise anyhow. So when it comes to our expectations, I believe that is — it’s a second the place we are going to, actually, tune up our UA spend to grow to be extra environment friendly. That’s a superb factor.

As I state within the three-part Cell Advertising Winter sequence, the present turmoil dealing with cellular advertisers — however particularly cellular video games advertisers — can principally be attributed to a few components:

Parsing aside the person impacts of those components from the composite is unimaginable, and the person impacts are largely irrelevant; the confluence of all three on the identical time underscores why this explicit second is so difficult for cellular advertisers (and cellular promoting platforms). However I’ve argued that sure advert platforms (specifically: those dealing with excessive influence from ATT within the above-linked article about winners and losers) are exaggerating the influence of “macro” components, as a result of these macro components will sooner or later subside, whereas ATT is systemic and everlasting.

Thus, the query of ATT’s burden on cellular video games returns to the query of why Playtika would see contrasting efficiency between its social on line casino and informal portfolio. If macro forces are making a drag on the cellular free-to-play gaming market, wouldn’t that drag apply universally and never selectively? I’d contend that the bifurcation in efficiency throughout Playtika’s portfolio is defined by ATT and never macro forces, which can be supported by the truth that the informal portion of Playtika’s portfolio truly grew impressively by 14%.

Teasing aside the person results of the three components described above is troublesome if not unimaginable, but it surely’s additionally solely actually even related if one believes that an precise recessionary economic system might additional degrade working circumstances inside the cellular gaming market sooner or later. Sadly, the consolidation described above limits the info that can be utilized to even make an try at this train: only a few pure-play, publicly-listed cellular gaming corporations exist at this level, with the current acquisitions of Glu by EA, Zynga by Take Two, and Subsequent Video games by Netflix. Trying on the quarterly income efficiency for Applovin’s video games portfolio and Playtika depicts a COVID surge and a subsequent decline:

However demarcating the introduction of ATT muddies the image. The peaks for each of those income curves appear to coincide pretty tightly with Apple’s rollout of ATT, which reached a majority scale of iOS gadgets in Q3 2021:

Once more: there’s no strategy to dissociate the mixed results of the three components I define within the Cell Advertising Winter sequence. However I consider — and have made the case, repeatedly — that ATT has established a everlasting headwind on all companies depending on cellular promoting for progress. It appears cheap, if not merely prudent, to imagine that ATT is liable for some vital proportion of the impairment levied upon these companies and to set course accordingly.

Beneath, I’ll define three elementary adjustments that I consider will take form inside the cellular free-to-play gaming ecosystem and clarify how builders can accommodate these adjustments of their working fashions.

Supremacy of centralized publishing providers

One of many highly effective industrial improvements that the app retailer mannequin instantiated was giving builders direct entry to publishing applied sciences that would attain hundreds of thousands — now billions — of shoppers. This was actually a marvel in 2008, when the App Retailer first launched: builders might construct a software program product and distribute it, at no marginal price, by way of a digital storefront with out the necessity to work with a writer tasked with negotiating distribution agreements with stores.

After all, this mannequin incurred frictions from nearly the very starting, particularly because the freemium mannequin rose to prominence and free-to-play gaming grew to become ubiquitous on smartphones. “Entry to shoppers” isn’t distribution. The businesses right this moment which can be the most important suppliers of elementary advertising and marketing infrastructure for cellular sport builders — corporations like Applovin (2012), Unity Advertisements (Applifier, 2008), ironSource (2010), Appsflyer (2011), and many others. — had been all roughly based simply because the free-to-play mannequin was starting to achieve traction on cellular. I don’t see it as a coincidence that what I’ve referred to as the “2012 classic” of profitable, top-charting video games, a few of which nonetheless adorn the High Downloaded chart to this present day, had been launched concurrently the infrastructure wanted to distribute them.

I spoke of the winner-takes-all nature of the app economic system as early as 2014: as smartphone penetration elevated, so did the scale of the free-to-play cellular gaming market, and competitors for that market was mirrored in the fee and complexity of selling video games by way of direct response consumer acquisition by way of the aforementioned channels — and, critically, Fb (now Meta) and Google.

Consumer acquisition economics in free-to-play are pushed by the public sale methods on which the assorted direct response advert channels rely. I present an outline of the completely different lessons of advert channels for cellular app set up promoting campaigns throughout Self-Attributed Networks (SANs) and “Dealer Networks” in this Quantmar thread, and this Cell Dev Memo podcast episode walks by way of the mechanics of promoting auctions. However basically: sport monetization determines the cost-per-install worth a developer is ready to pay for installs for numerous viewers segments.

As Google and Meta improved their capability to goal particular person gamers on the foundation of particular behavioral patterns, these corporations took huge share of the marketplace for app installs and unlocked an unbelievable quantity of worth for free-to-play sport builders, which had been capable of finding related audiences pretty frictionlessly by way of their self-service advert platforms. Monetization and mass enchantment dictated consumer economics, and builders who might both construct sturdy in-game economies, enchantment to very massive and various audiences, or each, might effectively scale their video games by way of consumer acquisition efforts. Whereas these efforts required infrastructure, it was attainable for builders to scale funding into that infrastructure with advert spend: a small studio might launch and achieve traction with off-the-shelf attribution and analytics instruments by way of the ability of those direct response promoting instruments. Proving product-market match and exhibiting the potential to generate significant income could possibly be completed with a small advertising and marketing staff and little or no proprietary promoting infrastructure.

This adjustments with ATT. Not solely has the distribution energy of the Self-Attributing Networks like Meta, Google, and Snap been diminished by way of the disruption of user-level behavioral profiling, however the Dealer Advert networks additionally face attribution frictions due to the inprecision of SKAdNetwork (which shall be exacerbated when or if machine fingerprinting is policed by Apple). Scaling a sport to preliminary traction is not so simple as turning on app promoting spend on Meta, Google, and different channels and counting on numerous SaaS instruments to offer perception into effectivity and profitability. Promoting efficiency measurement now requires probabilistic instruments that not solely principally don’t presently exist as SaaS options however won’t be capable to exist as SaaS options given the bespoke nature of their implementation. Constructing these instruments is out of scope for small, start-up studios, and due to this fact reaching preliminary scale probably requires a associate that may present not solely these instruments however the experience wanted to make use of them and interpret their output.

This dynamic clearly advantages bigger organizations with the assets to workers centralized publishing groups. ATT has engendered a considerable barrier to entry for the cellular free-to-play gaming market: specialised expertise which can be completely unrelated to constructing video games are wanted to realize provable traction and minimal scale, and the price of that experience is probably going prohibitive for sport studios with small portfolios, not to mention single-title start-ups. And constructing video games into billion-dollar companies is rather more troublesome (if not unimaginable) to realize now by way of direct-response promoting channels alone: cross-media advertising and marketing gives a extra life like pathway to participating a big viewers, which necessitates a bigger staff with extra various capabilities along with extra subtle promoting measurement options.

Significance of personalization for in-game content material and variety of participant journeys

As one thing of a corrolary to the above: as a result of Self-Attributing Networks like Meta and Google had been so adept at constructing a suggestions loop between in-game actions and promoting campaigns, cellular sport builders had been in a position to assume that the site visitors they acquired from these channels was optimally focused to their video games on the idea of participant behavioral historical past. For that cause, cellular free-to-play studios merely needed to focus content material growth on a singular sport expertise: “the sport” that the stream of curated, filtered cohorts of acquired customers would play.

This adjustments within the post-ATT surroundings as a result of the customers being acquired into video games can’t be assumed to be curated or filtered on the idea of previous in-game behaviors. Cell sport builders can’t make assumptions in regards to the customers which can be being sourced to them by Self-Attributing Networks in the identical manner that they beforehand might: gamers should be vetted for curiosity and enthusiasm inside the sport itself, ideally by way of early in-game behaviors.

As with the instruments required for promoting measurement, the necessity for in-game personalization locations a brand new burden on sport builders. But it surely additionally unlocks an immense quantity of upside alternative: the earlier sport growth mannequin noticed builders constructing singular experiences that appealed to potential audiences in a binary manner, and cellular sport builders successfully outsourced all personalization efforts to their promoting companions.

For the explanations outlined above, cellular sport builders can’t try this any longer. Internalizing this personalization train will increase the operational complexity of growing a sport, but it surely additionally obviates the binary relevance requirement that beforehand dictated how video games had been distributed through advert channels. If sport builders aren’t compelled to construct singular experiences that adhere strictly to the discrete viewers segments that advert channels can goal, then they’re free to construct broad, dynamic experiences that may service many segments in parallel by way of various participant journeys supported by personalised content material.

This, after all, expands the scope of content material that should be developed for any sport, even when superficially by way of aesthetics (artwork manufacturing) or easy parts of sport design like stage issue. However new instruments constructed on generative AI can help with content material manufacturing: the true problem with personalization is constructing the infrastructure wanted to optimize sport experiences based mostly on participant suggestions and behaviors. Once more: growing this infrastructure is expensive and requires experience that’s not straight associated and even instantly adjoining to sport design (see a case research right here). Whereas I consider that personalization can extra simply be achieved by way of generalized SaaS platforms and off-the-shelf instruments than can cross-media promoting measurement, implementing these instruments efficiently does require in-house knowledge science experience.

However personalization doesn’t merely characterize an added price on constructing and sustaining video games: it additionally presents upside when it comes to income alternative. As I element in Freemium Economics, dynamic content material experiences type the muse of the freemium mannequin, which, at its finest, eliminates client surplus by availing every particular person consumer with an optimally gratifying product expertise. Personalization is the framework that gives for this. Previous to ATT, personalization was primarily the remit of advert channels, which instituted it in a constrained method. Within the post-ATT period, cellular sport builders have the latitude (and burden) of implementing it themselves, to a a lot higher potential income profit.

Deal with multi-LTV participant economics

Because the unit economics associated to consumer acquisition grow to be more difficult, reaching workable CAC/LTV math requires lowering acquisition prices, bettering LTV, or each. Constructing merchandise for bigger and broader audiences can doubtlessly obtain the previous however may also lead to impaired monetization; personalization can obtain each however requires specialised applied sciences and experience, and it doesn’t essentially shut the hole. One technique of bettering unit economics is to ship multiple product LTV with the acquisition of any consumer: to handle a consumer’s journey by way of a number of merchandise with systematic cross-promotion throughout a portfolio of video games.

Many builders employed a monetization calculus previous to ATT that’s essentially much like multi-LTV economics by way of persistent, “always-on” re-engagement and re-targeting. Re-engagement permits sport builders to keep away from the sunk acquisition price of churn through the use of the info generated from consumer acquisition (the machine identifier) to profitably lengthen consumer LTV by way of focused promoting to identified gamers. When this works (ie. is economical), it could actually create a recurring income cycle from identified cohorts that surfaces new alternatives to realize worthwhile CAC/LTV alternatives from an present pool of customers.

Re-engagement (additionally known as re-marketing) is troublesome on iOS within the post-ATT period given restricted entry to the IDFA. Different consumer identifiers, corresponding to e-mail addresses, can be utilized to speak with churned gamers to realize re-engagement, however amassing emails in cellular video games may be troublesome, e-mail addresses may be imprecise communication touchpoints, and the conversion funnel from e-mail to app obtain is difficult.

Cross-promotion permits a sport developer to accumulate a consumer as soon as and doubtlessly set up a relationship with them throughout a number of titles, however it’s predicated on numerous circumstances. The primary and most evident (and troublesome to realize) is a sport portfolio that incorporates sufficient homogenous content material to assist shifting customers from one title to a different. That is no small feat: again in 2015, I wrote about Ketchapp’s capability to do that, however Ketchapp was a hypercasual sport writer within the nascent period of in-game advertisements monetization. Within the 2-3 years main as much as ATT, only a few builders might justify shifting a consumer from considered one of their apps to a different given an absence of capability to precisely predict churn, inadequate portfolio dimension, and the skewed economics of “promoting” a consumer to a high-ARPU sport relative to the anticipated worth of shifting that consumer to a different sport in their very own portfolio.

This adjustments within the ATT period. I’ve written extensively in regards to the potential for cross-promotion in years previous, and the follow has solely minimally been adopted inside cellular gaming, however this time actually is completely different. Cross-promotion sits on the core of the Content material Fortress idea, which isn’t particular to gaming: pairing promoting infrastructure with a broad content material portfolio permits corporations to shift customers throughout contexts utilizing first-party knowledge.

Cross-promotion clearly requires some minimal stage of scale to be possible, however given the consolidation that has already taken place inside cellular gaming, there actually exist numerous studios that would capably deploy it. My perception is that cross-promotion not solely turns into a motivating issue for M&A by bigger, diversified studios, however, relatedly, it evokes new studio formation as an exit path.

Picture by Pawel Kadysz on Unsplash

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