Is it just a closed loop of game companies paying eachother or are they getting money from somewhere else?
In: Economics
Free mobile games make money primarily in three different ways:
(1) offering in-app purchases usually used by their ‘whales’ (i.e – 20% of their customers who spend a significant amount of money on the game and keep it alive for the rest of the non paying users).
Edit: Just wanted to clarify that the 20% isn’t supposed to be an exact figure, it’s a reference to the [Pareto principle](https://betterexplained.com/articles/understanding-the-pareto-principle-the-8020-rule/) also known as the law of the vital few. I’m aware that the actual amount of users who pay can be significantly fewer.
(2) Is by running ads, usually bought as a advertising package (meaning you don’t have to you choose a specific game to advertise on you can just specify which customers you aim to target and how much your company is willing to spend on it and it is accordingly shown to such users. Alternatively, if your game if quite similar to another one in the App Store, you can specifically target that app as you might find a lot of users with the same interest all conveniently in one place) and shown to you based on your past user data and preferences from the App Store. They always make sure to give you the option to remove ads with a small fee – which appeals to our human need to remove a ‘pain point’ (an inbuilt aspect in many free to play mobile games that slows down the player or tries to push them towards making paid purchases – these include things like in-game wait timers).
(3) That other major way they make money is buy selling your user data to other third parties (businesses) as user data is an extremely powerful tool for companies to have because it allows them to understand you and how to market and target you as a customer.
In game purchases are the primary income stream for that kind of game. Advertising is a thing too – last quarter [Zynga reported 18% of revenue in advertising](https://investor.zynga.com/financial-information/quarterly-results) – but it’s not what the business is built on.
It’s worth remembering that a large portion of the income in this kind of in game purchase comes from a small portion of the player base, which is often [directly targeted with addictive mechanisms](https://www.youtube.com/watch?v=7S-DGTBZU14).
I started my career in online marketing monetizing games. I have a longer career in tech and business. When I first began monetizing games was when Zynga was big and Facebook was trying to figure out how to make money.
The way we monetized games was either ads or purchases. Purchases can be micro-transactions, subscriptions, virtual currency transactions if the game uses a VC… Ads are driven by ad networks. The games don’t know what ads are showing on their games a lot of the time. They just have a spot for the ads to run and whatever runs runs. Some games will specifically forbid other game adverts. It’s not a simple and straightforward thing as everyone has a different set of policies. That said, around 12% of a game’s user base will monetize with some sort of transaction. The rest are monetized by sending traffic to whatever ad is shown, display fees for whatever ad is shown, download or other actions for whatever ad is shown…
Someone mentioned that games harvest and sell your data. I don’t know of any game publisher doing that. Facebook and Google know what you like and what you are browsing and they sell your data to advertisers (or help advertisers target you if you like what they are sellling). Game publishers are the buyers, not the sellers… They are buying traffic from the ad networks and the traffic they are selling to the ad networks is not nearly as specific as the traffic that FB or Google is selling. That’s not to say that no game companies harvest and sell data. Some, I’m sure, do. But your typical publisher is not that sophisticated and just wants to monetize their game however they can.
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They get money in various ways. Running ads of other games earns them ad revenue paid by the other game companies. The more popular a game gets the more likely people are to subscribe to them, get membership or premium features, which gets em even more income. And then there’s other in-app purchases like currency to buy in-game items, to speed up in-game progress, unlock access to new areas or items or quests or characters, etc.
What about games that only monetize with Ads ?
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They get paid to host a bunch of third party SDKs on the backend and hidden away from users. There’s an interesting article from the POV of a small-time app dev [here](https://www.cyberpunks.com/small-app-developer/)
Even if this were the only way they could make money (it isn’t), the vast majority of game “companies” lose money buying ads for their games. They’re actively pumping money into the ecosystem while the top maybe 1% actually make money.
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