What’s the real value of web-based payments for mobile games?

The ruling in the Epic Games v. Apple lawsuit is the most substantive of the dominoes to fall as mobile platforms lurch, inch by inch, towards an ineluctable future of allowing alternative payments. In the ruling, Judge Yvonne Gonzalez Rogers issued a permanent injunction which compels Apple to allow app developers to link to alternative payments platforms within their apps. Purchases made through alternative payments processors are not subject to Apple’s 30% platform fee.

(Note that Google Play currently does not allow developers to link to alternative payments processors from within their apps. Presumably this directive this will apply, via some legal mechanism, to Google Play at some point, too.)

As I’ve articulated previously, I don’t expect out-of-app alternative payments processors to meaningfully steal revenue from in-app payments processors. There are a number of reasons for this, and I expand upon them in Is app store regulation too little, too late?. But briefly:

  • Native payments processors are easy to use: one-click purchasing has an immense advantage over any purchasing process that requires being redirected to an external website, especially if that process requires the input of a credit card number;
  • Apple enjoys enormous consumer trust that very few app developers can match. Consumers broadly understand that platforms provide mechanisms for eg. refunds and subscription cancellations. Will consumers readily make purchases on alternative payments processors without that intuitive comfort?

But there exists another reason that the injunction from the Epic Games v. Apple case may not create a windfall for mobile game developers, and it relates to the notion that the App Store is actually the Games Store, with mobile games representing the majority of revenue generated from the App Store. Revenue for free-to-play games is, generally speaking, contributed by a very small percentage of users, with the overwhelming majority of users spending nothing. The players that a game developer cares about — the ones that drive almost all of a game’s revenue — might make up one or two percent of the total user base. All other players are simply cannon fodder.

And a dirty secret within mobile gaming is that many successful games are already routing players through alternative payments processors — without linking to them from within the app. Supercell, for instance, runs a very public game store that allows Clash of Clans players to buy Gold Passes and Gold Pass Bundles on the web for redemption in the mobile game. And many other developers of so-called “core” games, 4X strategy games, card-based roleplaying games, etc. run stores much more surreptitiously, passing links to “VIPs” and members of guilds through dedicated Slack channels, Discord servers, and even WhatsApp groups. A meaningful percentage of the most engaged and highest-monetizing mobile gamers are already purchasing in-app currencies and products via alternative payments processors. These players don’t represent an incremental opportunity for the developers of those games as a result of the injunction.

The ability to link to alternative payments processors may not appreciably increase the number of players that monetize through them, given the friction involved and the fact that many highly-engaged players are already monetizing this way. But these web-based stores create an opportunity to do something very important that isn’t available in the App Store: to optimize for conversion. The App Store is absolutely inadequate as a storefront management tool: it offers very few features that developers can use to personalize offers to users based on their preferences, or to test price points, or to dynamically build purchasable products related to in-app events or competitive seasons.

Currently, developers can only make use of fewer than 100 price points for in-app purchases within their apps, and these purchases need to be registered with iTunes. While this number is increasing to 500 as a result of Apple’s recent settlement with a class-action lawsuit, this is still insufficient for doing dynamic testing or price personalization at the player level. And Apple will only introduce A/B testing — the most basic form of conversion optimization for a storefront — to the App Store this year. The App Store is a coarse, primitive storefront management tool compared to products like Shopify. And as a result of this lack of functionality, developers are forced to push all testing into their apps, which means changes require app updates and are thus mostly not manageable dynamically, in real time.

Compare this to the possibilities available in a web storefront. Web storefronts aren’t constrained by any catalog limitations, and so developers can create — dynamically or manually — any number of items to sell to users that will propagate to their in-app accounts. This creates limitless scope to personalize products to users’ tastes and behaviors: to dynamically and procedurally produce bespoke bundles of products for a player, informed by their gameplay habits and preferences. Instead of offering the same catalogue of products, all of which must be registered in iTunes and cannot be dynamically created, to all players, these web-based storefronts can offer an innumerable number of permutations of products to users, tailored specifically to them.

Moreover, because these storefronts will require some sort of authentication for account verification and synchronization purposes, offers can apply to a developer’s entire product portfolio and not merely a single title. Users might be offered a bundle that includes multiple soft and hard currencies and special products for multiple games in a web storefront, whereas this is explicitly forbidden by current App Store developer guidelines. This kind of cross-portfolio harmonization will allow developers to more seamlessly effectuate player cross-promotion.

The promise of alternative payments processors is not to route existing revenue through a storefront in order to save some portion of the 30% platform fee — it seems unlikely that a great proportion of users that aren’t already monetizing this way will suddenly do so as a result of a link inside an app. The real value of these web-based alternative payments processors is that they can be bolted onto web-based storefronts that offer much more flexibility and dynamic curation than does the App Store. Developers should see this possibility as an opportunity to increase per-player conversion, or Average Order Value, through product personalization and dynamic offers. This isn’t possible in the much more rigid and inflexible platform stores, and it is the true potential power of alternative payments processors.