2023 predictions for mobile gaming

I began writing predictions for the mobile gaming market in 2013. For a full catalog of historical predictions, see the following: 2013, 2014, 2015, 2016, 2017, 2018, 2022. I don’t remember my justification for pausing the practice between 2019 and 2021, but I did, which makes this 2023 prediction post my 8th in the series.

Prediction posts are often ridiculed. Predictions are criticized for being overly vague, or for being very specific and incorrect; they are criticized for being self-serving; they are criticized for being suppressed and forgotten when they are wrong; they are criticized for being obsessively celebrated when they are right; they are criticized for capturing current trends and thus not being sufficiently forward-looking.

All of these things can be true. And yet, I still find the practice of writing predictions to be incredibly valuable, to myself as an analytical exercise and, hopefully, to the reader as a suggestion of how the market might evolve in the near term. I’m not overly concerned about getting predictions “right.” If it helps the reader to establish realistic expectations, I’ll declare that every one of my predictions below about the mobile gaming market in 2023 will be wrong. And yet, I’d argue that going through the process of thinking about the next year in the mobile gaming space was a worthwhile use of my time and that the same is true of the 15 minutes or so required to read them.

Back in November, I published Mapping the post-ATT future of mobile free-to-play gaming, in which I outlined several dynamics that I believe will take root within the mobile gaming category as a result of Apple’s App Tracking Transparency (ATT) privacy policy and the sundry other privacy restrictions that will soon moderate activity on mobile and more broadly in the digital sphere. ATT indisputably has created operational frictions within the mobile gaming space: Newzoo estimates that the mobile gaming market, which comprises the majority of the overall digital / interactive gaming market, contracted by 6% in 2022 relative to 2021. I attribute some of that decline to changing consumer preferences related to a return to post-COVID behavioral norms — stay tuned for a longer post on the topic next week. But ATT has clearly disturbed the status quo for mobile gaming and it will continue to influence the development of the category in the coming years. ATT has highlighted the degree to which frictions in advertising and, more broadly, distribution dictate commercial outcomes within the mobile gaming space.

Below I present a handful of pithy predictions for the mobile gaming market in 2023, grouped by theme.

Market dynamics

  1. Mobile gaming will experience a systemic “move to the middle” that will lead to a resurgence of casual gameplay mechanics. I described this potential outcome in How iOS14 might change consumer behavior on mobile, and it is already happening to some extent, but I think the shift in development focus to casual game mechanics will become pronounced in 2023.
  2. Larger companies will abandon user acquisition and look to M&A for DAU growth. Acquiring adjacent games will be seen as a growth strategy that is economically superior to user acquisition for larger studios. Games-only acquisitions will become more common as the post-ATT direct-response advertising reality is absorbed and acknowledged broadly.
  3. Hybrid monetization strategies will proliferate. Subscriptions will become significantly more common, especially for legacy games. While I don’t see off-platform monetization gaining material traction in 2023, I do think more studios will look to shift monetization away from one-off IAPs into higher-value subscriptions to drive ARPPU increases. This will become imperative as the market increasingly eschews loot boxes; Supercell, for instance, removed loot boxes from Brawl Stars last month.
  4. Brand spend will reach a material (10%+) proportion of in-game ads monetization. Brands will begin advertising in mobile games in earnest as a result of not being crowded out by mid-core / hard-core game advertisers. New tools will come to market to enable brand measurement, advertising transparency, and brand-content suitability.
  5. User-level personalization will create a competitive advantage and overtake user acquisition in terms of resourcing and internal studio infrastructure. Somewhat as a corollary to #1 above, studios will understand that attracting a broad, diverse audience and retaining it through user-level, in-game personalization is critical to success in the post-ATT environment. As a result, studios will drive investment into personalization infrastructure that will eclipse what is invested into user acquisition tools and technology. Studios will realize that the path to reaching “casual acquisition, core monetization” economics is through user-level personalization related to special offers, content pathways / journeys, difficulty scoring, cross-promotion, behaviorally-relevant bundles and content packages (perhaps even empowered by generative AI!), etc. This will become much more straightforward as a result of Apple dramatically expanding the number of possible IAP price points last month.
  6. The mobile gaming market will be roughly flat or slightly up in 2023 relative to 2022. I don’t believe that the mobile gaming market will contract in 2023 — I think content and operational adaptations, coupled with the new measurement capabilities unlocked by SKAdNetwork 4.0 that will come to market in the second half of next year, will result in the mobile gaming market growing by between 0-5% in 2023.
  7. The hypercasual category as it exists today goes extinct. I predicted back in July that Google’s new restrictions on ad placements and formats — what it calls its “Better Ads Experiences policy” — would kill the hypercasual category. Google recently began enforcing these restrictions and I believe that the hypercasual category, which was already facing substantial friction on iOS as a result of ATT, will cease to exist in its current state as a result. This chart depicts every game launched on Android in 2022 that A. has a rating of less than 3 and B. reached a Top 100 Downloaded (overall) position. These games are what I call “feeders”: they rocket up the Top Downloaded chart because their invasive, obnoxious ads (evidenced by the <3 rating) create enough ads monetization substance to support sizable user acquisition spend. As these apps scale DAU through user acquisition, other hypercasual game developers purchase installs from them. When “feeder apps” are no longer able to monetize with invasive ads per the new Google policy and are thus no longer able to acquire users, the spigot of new users within the hypercasual category will be shut off.

Early-stage operational considerations and fundraising

  1. 60% Day One retention becomes the new bar to clear for traction-based fundraising. Games with low early-stage retention that stabilizes quickly (eg. 30% Day One, 10% Day 30) will struggle to raise funding; post-ATT acquisition economics simply don’t favor this retention profile. Games will need to showcase “casual acquisition, core monetization” unit economics to raise funding. Investors will coalesce around 60% Day One retention as a success benchmark (note: I don’t necessarily agree with this overly simplistic approach to assessing viability!).
  2. Talent will repatriate to mobile games from web3 gaming. The fallout from FTX and the chill of the broader crypto winter will attract talent that had previously decamped from mobile gaming to web3 gaming. A non-trivial percentage of companies that raised funding to build web3 games in 2021-2022 will pivot to mobile gaming. Note that I don’t necessarily think this is mutually exclusive with the idea that a new web3 “hit” may emerge in 2023 — it’s possible! — but I don’t believe the great preponderance of pre-product start-ups that raised money to build web3 games in 2021-2022 will stay committed to that mission.

Punts / specific predictions

  1. Microsoft’s acquisition of Activision will be allowed, and King will become an important part of Microsoft’s advertising growth story. The FTC’s arguments against Microsoft’s acquisition of Activision seem flimsy, insubstantial, and unlikely to block the transaction. I believe that the acquisition will be completed in 2023 (the deal was originally targeted to close by June 30, 2023) and that King will play a critical role in Microsoft’s flourishing advertising business and growth ambitions.
  2. Netflix will publish a free-to-play mobile game that is accessible outside of a Netflix subscription. I believe that Netflix’s gaming strategy will expand in 2023 beyond account gating to a more broadly-accessible publishing approach, with at least one game being released as an open install (vs. the existing games, which are only accessible with an active Netflix account). Publishing a game as an open install would expand Netflix’s reach with its advertising product, the purpose of which is ostensibly to grow DAU. Note that Netflix was unable to fulfill the demand for inventory from its advertiser clients because of a lack of ad-tier subscribers: expanding its supply through an open-install mobile game would address that.