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Premium vs. Freemium: How Mobile Games Make Money

As a user, when you go to the App Store looking for a new app to use or mobile game to play, there are two main categories: Paid or Free. (In Mobile Development terms: Premium and Freemium.) And as a game developer, deciding which type of app to create needs to be thought about very early in the planning process.

"How you're going to generate revenue is something you want to think about from the get go, because you're going to want to build that into your game mechanics," says Bear Trickey, the Mobile Business and Marketing Course Director in Full Sail's Mobile Development program. Bear co-owns his own game studio, Winning Blimp, and their latest puzzle game, Mosaique, just won the Director's Choice award at the Casual Connect gaming conference in San Francisco.

We asked Bear to explain the basic ways mobile game apps can generate revenue. Check them out below.

Premium Games.

The most traditional model, premium games are apps that are sold at a specific price point. The developer takes 70% of the sales and the Apple store takes the other 30%. Most premium apps don't get as many downloads as freemium apps, but Bear says many companies will promote their app by making it free for a day. "You'll get 50,000 more downloads that day," Bear says, "Then maybe your app will raise up in the ranking charts. Then more people will see you and will start buying your app for a dollar."

Bear – whose own Mosaique app is premium – says you only get one shot when releasing a premium app: "A big initial release is important. You have to make sure your game is really, really good. It's best to do closed beta testing with your own internal testers and invest in a marketing campaign."

Freemium Games: In-App Purchases.

When you give away your game for free, there has to be a way within the game to make money. This is where in-app purchases enter the picture.

"Basically, this is digital content inside the game that's worth a certain amount of money," says Bear. One of the most common ways is character customization, or being able to pay for more advanced stages in a particular game. For example, in Farmville you can buy a hat for your avatar, and in Jetpack Joyride, you can buy additional packs of coins on top of the coins you already earn for free.

Developers who release freemium apps pay close attention to the ARPU, or Average Revenue per User. It's important to keep this number high. "To run a really good free-to-play game, you have to put a lot of work into analytics," says Bear. "You have to tweak the mechanics of the game to make sure people are engaged."

Freemium Games: Ad Displays

If a mobile game is free and doesn't offer in-app purchases, it's probably making its money via advertisements.

"There are all sorts of ad networks that will pay you to put ads in your game," says Bear. Mobile game advertising is very similar to web advertising, where the developer is paid different rates depending on if the user sees the ad, clicks on the add, or actually installs the app featured in the ad. (In Mobile Development terms that's Cost-per-Impression, Cost-per-Click, and Cost-per-Install.) Ads are very easy to add into games – many advertisers provide software libraries to display them.

"There are a lot of traditional developers who are against advertising in general," says Bear. "But I would say a majority of the apps on the market now are free to download and then they earn their revenue through ads."

What makes this so popular is the various ways a developer can insert an ad into the game. Some will place a small banner at the bottom, some use interstitial ads, which means placing them between stages of a game, and some create a splash screen, where an ad appears only when you first boot up the game. According to Bear, developers are moving more in the direction of, "How do we make the ads more engaging and fun?" People are trying to make ads more interactive, including a new virtual scratch-off ad, where users have to "scratch" at the screen to reveal an ad. There's also a company called Everplay that records gameplay from other apps and then uses it in video advertisements within various games.

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