Brace yourself for the mobile user acquisition bloodbath this holiday season

The holiday spending spree starts this week. Different this year is the marketing spend by mobile game companies, hoping to gobble up users at the close of the year. Early estimates suggest the cost of user acquisition will reach new heights this year. For 2013, we forecast the total mobile game market in the US at just over $3 billion, an increase from $2.4 billion a year earlier. But marketing spend is largely outpacing consumer spend. And for 99% of mobile game companies, that’s a problem.

To anyone active in mobile gaming, it is no surprise that mobile user acquisition costs have gone up. Over the course of 2012, the cost per install on iOS increased 22% from the beginning to the end of the year. In some categories, we even recorded a tripling of the cost for an average mobile gamer. This is, of course, no surprise: marketing expenses generally increase when a market matures. But during the summer the average CPI broke the $2 barrier, and it’s been growing since. Specifically, in the first half of 2013, the cost of a new user is on par with average spending, but begins to diverge in late-summer.

mobile user acquisition

Let’s say that you’ve just acquired a cohort of 100 brand new users at an average CPI of $2.25 USD. The average conversion rate (from a non-spending to a spending user) in October was 4.68%. Each of these players spends $21.45 (average revenue per paying user for mobile in the US). That gives you (4.68x$21.45 =) $100.39 in monthly earnings. With $225 in cost, you’ll need to make sure you keep those users engaged for at least two months before you start making a profit. And two months is an eon in mobile game time.

Musical chairs for Apple’s chart freeze

Traditionally, Apple sells the bulk of its yearly iPhone volume in the period from October to December. And with the recent update of the 5C and 5S and release of the iPad Mini, this year will be no exception. One of the very first things all those excited owners of a brand new phone will do on Christmas morning is go look for games to play. Put differently, the holiday season is a key moment during the life-cycle of a gamer when s/he is actively looking for new content. Having your title at the top of the rankings means getting a slew of new users in a single swoop.

Yes. But what about Android?

It’s true that many find it difficult to ignore the lower CPI on Android. And herein lies the trouble: it costs less in term of marketing dollars, but more on the development side. For one, there are many more configurations compared to iOS. And Google Play regularly suffers from hiccups when it comes to completing transactions. Especially big spenders tend to get flagged, forcing the developer to decide whether to wait and see, or to just give the player what they asked for and hope the transaction clears. Neither of which are ideal. But most importantly, the secret’s been out for a while. It’s only a matter of time before the Androind market, too, becomes saturated.

So what’s a VP of marketing to do?

One school of thought is to ignore the holiday season all together, rather than spending several months of marketing budget at the end of the year. The idea of outspending others to get picked up by millions of proud new handset owners is, according to some, a fantasy. Better to spend your money after the holidays.

Of course, if enough game companies decide to pull out, CPIs might, in fact, come down. But that’s unlikely as the big guys simply can’t afford to not spend. So this holiday season, expect $7 to $8 CPIs.

Beyond this year’s holiday season, this increase poses a few critical questions for anyone active in mobile gaming. Will marketing spend cool off again? Is this the beginning of the end for mobile games?  Will only mobile game companies with deep enough pockets survive? Is this start an irreversible cycle toward more conservative financial decisions and, ultimately, less innovative game design? If you see him, maybe ask Santa about what he plans on bringing in 2014.

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