Think Like a Game Creator: App Economics
This article is part 3 in a series of 5 on how Gamification can improve your app.
Dustin Bruzenak and Chip Pedersen have learned hard lessons on app economics through their experience working in the game industry. They shared these tips in their recent webinar series with Lighter Capital. Read on and learn how their lessons about app economics can apply to your own projects.
Marketing & Content Creation Matter
Chip shared an experience working on a mobile buck-hunting game:
“We saw people putting quarters into Big Buck Hunters at arcades and bars. We thought people would want to do it on their phones all the time after paying $5 once. We put the game out, and we did the first marketing campaign- it broke our servers! Our IT department thought we were under a DDOS attack, but it was just customers coming to our website to download the app. We went #1 that day. We thought we’d be buying Ferrari’s. We were so excited!”
Unfortunately, Chip’s story doesn’t have such a happy ending…
“…Within a week, we started to decline. The marketing campaign ended. We found out that it costs too much to create content. We tried to switch to a freemium model, and people just played for free.”
A huge marketing push needs follow up.
The lesson: Ask yourself early: What is your marketing campaign? Do you have money for it to be sustainable? Is it costing too much to create content? Create a simple system that is easy to use and reuse.
Don’t Limit Your Imagination
Game creators and gambling companies share three terms: minnows, dolphins, and whales. Minnows are the majority of users who use a few apps and pay a dollar here and there. Dolphins pay a middling amount. The sought-after minorities are the whales: those who spend the most.
“Freemium” games aim to draw in all three types. When creating freemium apps, don’t put a cap on what users will give you. Create packs ranging in price from $5 to $100 to $500 and beyond. You may be skeptical that people will spend for the highest amount- but people will inevitably buy it. The “Unlimited” or “Premium” version of an app might make a great holiday present for a family.
This principle can apply to B2B apps as well. Have tiers that give both your minnows and your best customer ways to pay you. Big corporations will pay 10x more for site licenses without blinking. Adding one pay tier can double your revenue in one day.
You may also want to experiment with a subscription model. It takes someone 3 months on average to cancel a subscription. Who else got Disney+ just to watch Hamilton on the Fourth of July and are still paying for it?
Identify Finance Fundamentals
How a user gives you money is fundamental. What does each dollar going into the app become? You need to identify the answer to that question before you can scale the business. That knowledge should come before acquiring more capital.
One of the most important tasks is to find the right customer. If you do a shotgun approach, you waste money. What is the cost required per user? $5 is a lot of money. If you can get that down to $.25, it will help you.
This is especially difficult for new apps competing with established apps. For example, with social networks, the cost of acquisition per customer is often $50 each. Or, if you’re trying to get college students onto dating apps, that’s a pool everyone is pulling from. This drives your cost acquisition way up, and those big apps can pay more for your desired demographic than you are capable of.
Get a finance expert that can help you if you don’t understand the gross profit margin of any individual type of customer. They will help you identify which customers you’re spending money on that don’t return value.