Over the past year, the gaming industry has witnessed the transformation of the iPhone into a full-blown gaming platform. In many respects, it mirrored what’s been happening on Facebook and other web-based social networks. And just this past week, Apple allowed developers to incorporate virtual goods into their free-to-play apps, allowing them to come one step closer to the flourishing business model on the web.
By the looks of things, iPhone games developer ngmoco — creator of the social platform Plus+ — is wasting no time in taking advantage of the announcement. Shortly after Apple’s commentary, company chief executive Neil Young confirmed, through Twitter, that its upcoming multiplayer-only first person shooter, Eliminate(slated to release later this month) would be free-to-play. Furthermore, the app will incorporate in-app purchases. Though we don’t have all of the details yet, ngmoco has said that the virtual items in question will be what is called “energy packs.”
These packs will allow players to earn additional credits that are used to upgrade equipment as well as level up. As one might assume, the more you play, the more said energy is consumed; working much like stats such as stamina in role-playing games on Facebook. Like such stats, however, energy slowly replenishes over time. In effect, this prevents players from playing continuously – unless, of course, they wish to spend a little extra cash.
What is most interesting about this announcement, however, is that Eliminate is one of the first apps to test a virtual goods business model on the iPhone. Back in March, Grey Yardley, CEO of Pinch Media (a company that tracks stats for iPhone apps) noted that only about 20% of users continued to use an app after the first day, and after 30 days, less than 5%. Granted, that was a little over seven months ago, and those numbers have changed, but the overall market for the iPhone has not (at least not that drastically).
According to Yardley, the average app sold for approximately $0.70 with the average number of plays for a free app being around 80. Primarily, free apps garnered their revenue from advertisement, meaning that with one ad per game session, a developer needed a CPM of $8.75 to make any serious money. That’s a difficult task due to decreased advertising spending (because of the overall economic recession), and as such, the conclusion — then — was that it was better to charge a small fee for an app rather than rely on advertising revenue alone.
Unfortunately for developers, the next month brought new refund policies from Apple, which allowed users up to 90 days to “return” any application purchases. Under the policy, developers had to not only return the cost of the app, but Apple’s 30% commission as well.
Suffice to say, monetization on the iPhone, while possible and lucrative, has been quite difficult. However, with the virtual goods market predicted to be worth around $1 billion in the USalone by the end of 2009, this latest move by ngmoco may prove to be one of the boldest ones we have seen yet, but in turn, may yield a rather high pay-off — for them and for the social space.
To dig deeper into the virtual goods market, check out our new report: Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010.