Casual Mobile Gaming is Ad Tech’s Future

By Steven Rahman

At the close of the summer of 2016, there was no more perfect metaphor for user acquisition than the mobile game Pokémon Go by Nintendo. Users and their devices spent hours, if not whole days, hunting and collecting Pokémon. If you are still unfamiliar with Pokémon Go, well…welcome back from your lengthy sojourn in the desert!

The game itself aptly tapped into Millennial nostalgia. Millennials grew up playing Pokemon and the release of this game during a slow time of the year created an opportunity for many to re-connect to their youth. (Aside: Should we expect to see a similar game based on Fantastic Beasts and Where to Find Them? If anyone has an augmented reality (“AR”) idea for Quidditch, please write me.)

App store performance and user acquisition were impressive. In Japan, Pokémon Go reached 10 million downloads on its first day. In the United States, Pokémon Go reached 10 million downloads faster than any app ever and broke through Candy Crush’s high water mark of 20 million DAU (daily active users). This popularity quickly brought in revenue exceeding $100 million from in-game purchases. App Annie, the application analysts, estimated game revenue to be $10 million per day. To put this in context, Super Cell, the Finnish game maker, received on average around $6 million per day in 2015 across its whole portfolio of games including hit titles like Boom Beach and Clash of Clans.

Nintendo’s performance was extremely impressive. Especially so in the current climate where mobile device owners are suffering app fatigue. It is increasingly challenging for game developers to find new audience and persuade users to download. Complacency and habit has set in across the world as users are typically engaged with an ever-smaller number of apps and spending more time with them. Instagram, Facebook Messenger, What’s App, Google Maps, and Gmail – if those apps are not familiar to you then you are probably a visiting Alien and not a human living on Earth. Those apps are consistently among the top twenty downloads leaving little space for others and they are all owned by Google and Facebook. It should not be surprising that Facebook and Google attract over 80% of digital advertising spend.

Of the top paid and top grossing apps not owned by Google and Facebook, most are games. Aside from Netflix and Pandora, the app lists are dominated by mobile game titles. Aliens might conclude that we are a species that lives on entertainment.

Some expectations for 2017:

  1. We will continue to see consumers in the app store download little else other than the most popular casual mobile games: It is becoming increasingly difficult to offer non-game apps that demonstrate differentiated value. Walt Mossberg of Recode recently deleted half the apps on his phone and wrote, “just as there are too many confusing, often redundant choices on the breakfast cereal shelves at the grocery store, there are too many duplicative and puzzling choices in the Apple and Google app stores.”
  1. App fatigue is so extensive that it is encouraging companies seeking to roll-up the industry: In February 2017, TechCrunch profiled Maple Media, a new company backed by the Disney Family’s Shamrock Capital. Maple Media “is hoping to breathe new life into the app market with a consolidation play intended to roll up the best apps in the market and put more marketing and business development muscle behind them.”
  1. Brands seeking performance and ROI will eventually find games: If brands begin to seek audiences across mobile platforms where they can prove performance (and therefore ROI), mobile apps will benefit from the increased ad spend. Dan Munteanu, the Head of User Acquisition at games company Storm8, revealed in a 2016 interview with Vungle that “…mobile is attracting a huge influx of savvy advertisers that want to measure and prove with certainty that their dollars will have a measurable return…in the next few years we will continue to see increased brand marketing presence on mobile.”
  1. Premium inventory could become a thing of the past for mobile first audiences: The number of Internet users who are either mobile first or mobile only will grow from 40 million in 2017 to 47 million by 2019, according to eMarketer. “As smartphones and data plans become more affordable than ever, they are positioned to become the default device for Internet access,” said eMArketer’s Corey McNair. The implication for brands? If a brand seeks to reach a segment of New York Times readers on mobile devices, the brand should wait for that segment to open non-premium apps and then show the ad. This will improve efficiency and marketing ROI dramatically while delivering on reach and performance. The result will be a world in which brands pay for audience rather than inventory. And the high fees once charged by premium apps will be shared by all other app makers.
  1. In the mobile world, location data is incredibly important: Retailers have discovered the importance of user location. Urban Outfitters sought to leverage geolocation data over the 2016 Christmas season. They successfully “boosted customer conversions by 75 percent and increased related revenue by 146 percent” according to Geomarketing.com. An AR game like Pokémon Go captures this signal by encouraging users to explore the world and creates a very valuable data set of user location information. It is not hard to imagine how valuable it is to understand where an audience is, where they live, and what they do. Brands and agencies want such insights.
  1. Ad-blocking technologies are not inevitable: Ad-blocking undermines the freemium model, but most users do not implement ad-blocking technologies unless they have a bad experience. It is imperative, therefore, to deliver ads that are relevant to the user and to prevent the ad experience from being burdensome. Mobile game makers can ensure this by implementing ad tech that applies user insights.
 
  1. But users are more likely to block ads in developing economies: The higher price of data plans outside the United States creates incentives for users to implement ad-blocking technologies. But ad-blocking will not entirely stop mobile ads in emerging markets – if the ads can prove their relevance and usefulness which justifies the cost. Ad blocking in emerging economies will accelerate the end of low quality ads, poorly targeted ads, and ad platforms that do not prioritize delivering on-target messaging.

For the rest of the year, I think we can expect that brands will endorse the freemium model and create ad-fueled experiences for their audiences with plenty of opportunities for in-app purchases. Given the immense popularity of augmented reality features, it seems very likely that branded AR experiences will be regularly released within games throughout 2017. As a result, we are anticipating new data sets fill with geo-location information. App development like this is expensive so it will have to be supported by additional revenues which might include relevant and targeted ads served by sophisticated ad tech.

Importantly, in a mobile first world, it becomes increasingly less important for brands to target premium inventory. Rather, it is MUCH more important for bands to understand their audience and reach the right people regardless of they app or inventory they are using.

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