2012 was an encouraging year for the mobile gaming industry: total revenues swelled to $4.5 billion, the number of iOS devices ever sold reached approximately half a billion, and two studios proved that the free-to-play business model is not only sound, but that it can generate absurd amounts of money.
So what about 2013? Broadly, I believe the industry will continue moving in the same direction; with the number of games-capable smartphones and tablets increasing at a steady clip – and plenty of markets left to be penetrated – the industry fundamentals simply don’t point to a shift in momentum.
And, in fact, I do believe some industry innovations will render developing – and, perhaps more importantly, marketing – games easier and more profitable. 2012 was a year of many development pain points; 2013 may alleviate some of those pain points and reveal a clearer path to robust monetization and retention.
Discovery will be disrupted in 2013
It’s already happening. Facebook’s mobile sponsored stories and app ads already serve as a means for developers to diversify their advertising channels away from mobile ad networks, and the new frictionless app install process strengthens Facebook’s position as a distribution medium. Given that Facebook has announced that it will begin showing video ads in the mobile newsfeed in April and that targeting is much more precise on Facebook, the social network may become one of the largest advertising channels for mobile developers in 2013.
New advertising formats are also opening up new channels for exploration. For instance, Applifier’s new video product, Everyplay, allows users to record videos of their in-game exploits and post them to the internet, not only opening YouTube up as an advertising channel but creating an entirely new virality mechanic to drive installs.
Discovery has been ripe for disruption for the past year; mobile ad networks had an unsustainably singular control over what I call the “secondary market” for users. Discovery disruption will lead to eCPA prices converging around some natural clearing price once the new channels reach scale. Discovery disruption also means that, to compete and survive, the mobile ad networks will have to increase the value of their products, probably through stronger analytics and increased tracking capabilities.
Attribution will be (mostly) fixed in 2013
Apple’s new advertising ID in iOS 6 renders attribution almost completely solved on that platform, and companies like HasOffers and Kochava offer products that address the problem through a number of approaches. I think digital fingerprinting will improve to a point in 2013 that will, combined with the advertising ID, solve attribution for all but a very small portion of users.
Attribution is actually a fairly simple problem to solve with existing technology, but it’s also something of a false problem: the quality of a user purchased on any network at any time is essentially random. Improved attribution won’t make optimizing ad spend any easier – in fact, I believe it will inflict even more headaches upon mobile marketers, because they’ll realize that the only way to optimize acquisition spend is to very carefully measure LCV and engagement.
The only way to see a positive ROI on acquisition spend is to buy a user for less than he is worth; there is no magic ad network that will be revealed to consistently and economically deliver exceptionally high-quality users. Exorbitant mobile user acquisition costs can only be attenuated with analytics, not with network optimization.
Mobile Analytics-as-a-Service will become commonplace in 2013
Given the cost and expertise requirements of building an analytics system, and the fact that many companies will bring cloud-based mobile analytics systems to market in the next few months, I think 2013 will mark the end of the in-house analytics system for all but the largest developers.
An analytics system is a question of value: as a cost center, an analytics system only justifies its existence if it saves more money through in-game optimization than it costs to operate and maintain. Without a dedicated team of server engineers to administer it and data scientists to exploit its output, an analytics system provides no value.
Analytics-as-a-service will fill the gap between the very most basic analytics provided by mobile ad networks and an in-house system, providing predictive as well as descriptive statistics about user behavior that can be used to improve gameplay mechanics and extract additional value from players.
The debate around free-to-play will end in 2013
At least, the debate as engaged in by serious people will end. “Debating” whether free-to-play works at this point is like “debating” whether the Earth is flat or whether the Sun is at the center of the solar system; sure, some people still aren’t convinced, but no one really cares about what those people have to say.
The proof is in the pudding: the free-to-play model can generate mind-boggling amounts of money through entertaining, engaging gameplay when it is implemented correctly. I see certain elements of free-to-play emerging as best practices, which means the “science” of free-to-play is catching up with the “art” and that more massively-successful free-to-play titles can be expected in 2013.
The popularity of gambling games / “social casinos” will continue to increase in 2013
Again, this is already happening. This presentation gives a fairly thorough overview of the current state of the mobile gambling landscape with some (in my opinion, very modest) projections for future growth through 2015. But the genie is out of the bottle in terms of regulation in the US, and the market can only increase in size.
Given the massive lifetime customer values these games enjoy, I expect increased competition in the casino gaming market will likely drive up CPA prices for all mobile developers in 2013.
Fewer small studios will raise money in 2013
2010 was a record-breaking year for investment in gaming companies, in terms of both deal volume and average round size. But much of that investment was driven by enthusiasm for the “Zynga model” and the aspirational nature of the newly-codified (at the time) free-to-play business model. But Zynga sank, and the gaming industry now realizes that free-to-play, while incredibly lucrative when implemented correctly, requires a deeper understanding of freemium economics than most studios possess.
Contextualizing the realization that free-to-play is hard to get right against the current Series A crunch, I think upstart studios will have a comparatively harder time raising money in 2013 than they had in 2012 unless they’re introducing something truly innovative. In 2010, building a free-to-play game was an innovation unto itself; in 2013, free-to-play is assumed, and developing a game that isn’t derivative and can achieve success without a massive marketing budget will require a team with a character and quantity of operational experience that is almost impossible to assemble.
Studios will increasingly consolidate and mobile gaming M&A will pick up in 2013
Following from the point above, I believe acquisitions and acqui-hires will fill the void left by decreased VC financing in 2013. Many small studios are one less-than-stellar release away from the bread line; these studios are perfect acquisition targets for larger companies with established portfolios of successful games.
The war for talent in gaming has only just started to heat up, and fundamentally vital roles in server engineering, art, and analytics are difficult to fill. Paying a premium to acqui-hire a code-ready team to begin developing a new game track makes sense when the alternative is considered: a multi-role headcount hunt that could drag out for months.
Since many large studios are already leveraging their user bases as publishing services for small studios, acquiring those small studios is the next logical step. A publishing arrangement generally falls somewhere along a 50/50 revenue split – for a large studio with a readily-deployable user base, that 50% revenue split over the course of a year or two (the lifetime of a title) more than makes up for the up-front cost of an acquisition. The economics favor acquisitions, not publishing arrangements, and I suspect that many studios will act on this through increased M&A activity in 2013.