Ever wondered how seemingly free games make money from giving it away for free? Even those games that feature no in-app monetization (or purchases)? And why are games that are free abandoned while others remain updated for years to come? All this and more in this week’s editorial article on how free mobile games earn money.
Your answer up front:
Free mobile games earn money by selling in-game content via in-app purchases or through displaying ads to the players. How much they earn depends on how much money they spend in user acquisition in order to bring players into their own game. When releasing a free game on the market publishers and developers look at how expensive it is to bring users into their game and then analyze their own game and decide if it’s worth to continue development.
Got your answer? Great! You can continue reading to understand why this is the case, how we got here and how it can be done better. Besides, if you’re curious how much money a game with 1 Million downloads make, we have that example for you.
Why did games switch to a free model?
In the early days of the gaming industry most games were sold for a flat fee. You wanted a copy of Thief I in 1998? You would pay $60, get the game in a box and go home. As far as the publisher or game shop was concerned – that was the end of the transaction. So why not continue down this route? Certainly a paid games should earn more money than a free one.
Not exactly. The gaming industry has grown since the early 1990’s. More and more people got access to computers and then smartphones and tablets. When your target market (that is, the number of people willing to buy your product) is small you have to charge more. Let’s say I spent $10 to make a game. Now In order to make a profit I have to make the $10 back + something else. Let’s say I am happy with a 10% return of my investment. I have to make back $11.
For that to happen I would have to sell:
- 1 copy of the game at $11
- 5 copies of the game at a price of $2.2
- 10 copies of the game at $1.1 in price
- 100 copies of the game at a price of $0.11
There is a key takeaway from the list above: If the pool of people interested in buying my game is small, I have to sell the game at a higher price to make my money back. Now think about how many people owned dedicated gaming computers in the 90’s. Now think about how many people own a smartphone nowadays.
How many people own a smartphone in 2021?
According to Statista, in 2021 there were 6.3 Billion smartphone owners. You can see how the pool of people who can purchase your game is large. Huge even.
Going by the logic in the list above, in order to make my money back from a extremely large pool of possible buyers, I can sell the game at a really deep discount. More people are going to be willing to buy a game at a lower price than a higher price so that’s also important to factor in.
Alright, so we understand that the more possible customers there are out there, the bigger the chance I can recoup my investment for a lower price. Customers pay less and I get to make a profit. But this entire thing falls on its head when game developers are giving the game away for free, right? If I sell 1 billion copies of my game for $0 I’d make 0 * 1 Billion = $0. No amount of huge pool of customers can help in that situation, right? Read on.
How do free games make money?
When you have a large audience of potential customers you don’t focus on the amount of copies you have to sell to make a huge profit. You focus on lowering the barrier to entry for those customers. If Jack and Jill are first time smartphone owners and they never played a game before – will they spend $10 on my game to get it? Or will Jack and Jill prefer to get it for free to check it out?
That was the entire reasoning behind the first generation of free smartphone games. When the iPhone came out it opened up a brand new market for game (and app) developers. Suddenly, you weren’t getting the same old computer enthusiast audience that could build a PC from scratch using duct tape, microprocessors and wires. You would get average people who never played a game before.
So, games began experimenting with 0 entry fees, a re-badge of previous Shareware, Trial and Demo-like approaches. An early example of this is Gameloft and their Starfront Collision series, a space RTS for mobile phones (MacWorld still has an article on the game from 2011). The game is long gone but I distinctly remember the internal conversations around the game’s development (I was working for Gameloft back then as a QA Engineer). A lot of QA testers were using an iPhone for the first time and trying out the game that said “it’s cool that I can see if I like it and play it”.
But a game still costs money to make and Gameloft had to earn the development budget back (and then some). In-App purchases were the first thing to be added.
How do In-App Purchases work?
It’s 2011 and you download a free mobile game from the App Store. The game costs $0 and you have access to 3 of the 12 available levels. You play through the 3 levels over and over again and you discover that you like it so you pay a $9.99 fee and you unlock the rest of the content. But that sounds a lot like the previous premium model. Take Starfront, for example. You could download the game for free. But what if you wanted to install it on more than 1 device? That’s right, in-app purchase it again!
For a little while, things worked just as they previously did, with the purchase stage moved after downloading the game. A bit like “buy now and pay later“. But what if you could re-buy the game a few more times? Not just to install it on multiple devices? Instead of paying for content, why not give that away free and pay for consumables? Players get the game for free and can play all the levels for free. But from level 6 onwards you’d have to spend a lot of time in the game to pass it. What if you could pay to reduce the grind? What if you’d get 4 health potions every 6 hours (this can make you come back to the game) but you could also get 50 of them for $2.99?
Soon enough, a lot of games went down that route, with in-app purchases being a “Players pay for the time saving and convenience” excuse that all middle level executives used to say in front of the press. This model of in-app purchases lives on today in most of the top grossing games on the platform. To sum it up:
Free games with In-App Purchases make money from repeated purchase of consumables, content or subscriptions for the game. The game has a $0 fee to download and a close-to-infinity fee in upkeep. If you want to, that is.
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How do free games without in-app purchases make money?
Alright I hear you say – I can see how free games with in-app purchases make money. But what about games with no in-app purchases? I see a lot of games on the App Store that are completely free. Remember the “lower the barrier to entry” for people topic from earlier? What if you could lower it for good? People don’t have to pay anything, you really cannot lower it much than that. But how can you turn a profit from them getting your game for free and never having to shell out their credit card?
I mean, they would not be taking out their credit card and end up using it in your game. But they could do that for other games and you, as the developer or publisher, would get a commission from that. Instead of offsetting the cost of purchase to later (like in the in-app model) what if you off-set it to another game or product?
Why are there ads in games?
What is one thing advertisers are looking for? A big Big BIG audience to advertise too! A game made available for free to an audience of about 6 billion people by 2021 is the biggest dream of an advertiser since the invention of printed media (paper and ink).
Free games with no in-app purchases make money by trying to keep the player engaged in the game as long as possible in order to display as many ads as it makes sense for them. For every ad the player views, clicks on and downloads the product of, the game devs or publishers receive money from the creator of that advertisment.
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And things would have been fine and dandy if industry was fair and good and cared about their target audience. However, the games industry looked to optimize their profits. This meant that games started to be designed around maximizing the amount of revenue we would get per user.
How does advertising influence mobile game design?
I’ll give you an example. Let’s say you are playing Strike Counter: Ultra Mobile Warzone HD, a team based shooting game (loosely based on Counter-Strike) that was a paid game on the store. The regular rules, rounds, teams and loadouts from Counter Strike still apply. But let’s say the game switched to a completely FREE (with ads) model. What would change?
Well, ads would appear in the game, of course. Let’s say you display an ad every single time the player died. A round of game would last until all but one players dies. And let’s say the average time for a round is 5 minutes. So in a 5 minute session you would display, at best, 9 ads (two teams of five players, the last surviving player doesn’t see the ad). That’s not bad. But you’re a game publisher and you’re greedy.
What if, instead of having the round last 5 minutes on average you would increase the damage of the weapons and double it? You’d kill faster, players would die faster and the round would end faster. Let’s say it’s a linear increase and applies everywhere. Now, in a span of about 5 minutes, you would go from displaying 9 ads to 18. Double the views, double the profits, right?
Let’s be even more evil. Let’s halve the amount of money you win in a round. But if you watch 1 extra ad before the next round you’ll get double the rewards from killing a player.
Want to get the KA-42? You need to unlock the menu option for next round, watch an ad right now.
And we can go on and on with this kind of shenanigans. It’s a good example of how games become more geared towards showing ads rather than player fun. And it’s not just for shooting games. Take Crash Delivery for iOS as an example. That’s an example of a game designed with ad monetization in mind. It has 4.5 stars because it’s a decent game (and because people figured out you can play it without ads by turning on Airplane Mode) but ads make sense there (and are presented in a way in which they make you want to use ads).
Now, a beautiful thing happened to the game’s industry. As more and more developers moved towards a free+ model (+ being either in-Apps or Ads) the player’s attention span received a lot more competition.
If Jill and Jack want to try a game now they have a lot of free options. A ton of them. So developers had to become advertisers in their own sense. We’ll talk more about this later in the article.
How much do mobile ads pay?
According to IronSource, an app monetisation platform that’s widely used, the average ad revenue per impression (number of times the ad was viewed) is $0.02. A completed ad interstitial video viewed from start to finish? $0.16 and for an offerwall that’s accepted expect around $2.50.
Let’s take our Counter-Strike mobile clone example from earlier. We took the game from 9 full interstitial ads every 5 minutes to 18 ads every 5 minute by messing with the weapon’s damage. That’s about $2.88 from the two rounds.
I mentioned earlier that due to wild competition between free+ games on the mobile gaming market, developers have turned to using ads themselves, in order to lure players in. What gives, how can they make money from ads when they themselves are making ads?
Welcome to the economics of free+ play. Ever wondered why so many new games launch every week on the smartphone app stores and then get abandoned?
How do free mobile games make a profit?
The way free mobile games that recruit users via advertisements make money is through advertisement. They just have to make sure the amount of money they receive for a user that’s watching ads is larger than what they paid for the user.
Look at the previous example with the offerwall. Let’s say Game Developer A pays $10 to Developer B if a player from Developer B’s game joins Developers A game. Now, Developer A has to make at least $10.1 to make a profit on that transaction. So what does Developer A have to do?
With an average interstitial ad view at 0.16$ and banner ad at the bottom of the screen at $0.02, game Developer A has to make sure the player is engaged with the game long enough to earn their money back. Here’s an actual example from one of the past games I worked on (I’m sadly not allowed to mention the actual game or link to it due that being covered by the NDA, but no one can stop me from talking about my experience).
My goal was to make a game that’s fun, with simple controls and simple mechanics to be released on both app stores. My focus was to make the game to look and feel like it’s good. Not for the player but in order to make it look good in the video we would use for User Acquisition (aka in our own ads). I’d pump a game like that out every 3 or 4 days.
The first thing a publisher would do with my game is record some videos with the gameplay and put them up on Facebook via their advertising service. The ads wouldn’t lead to a store page or anything. Just a random website. But they would track the Conversion Rate.
What my publisher was looking for is the CPI, or how much it would cost them to pay for a user to install the game.
My game’s goal wasn’t to be great, win awards, invent new mechanics or cure cancer. It just had to have a CPI value lower than 0.2 cents (as an example). Why? Because we knew we would make the 0.2 cents back in a day of showing ads to the user. The lower the CPI, the easier would be to recoup our ad budget.
Examples from the market and the mobile gaming industry
Take a look at this video from RisingHigh Academy, especially in the beginning. It’s titled “How to Launch a Hit Hyper Casual Game in Less Than 2 Weeks”. I laughed a bit while watching it, especially when they get to the “Mechanics need to be innovative” part.
When, especially mobile, publishers say that a “Game needs to be innovative” they don’t actually mean it. Ask me how many publishers wanted to publish my 4 hands, two player + voice game prototype? None, because it would be hard to market the game in a 15 second ad on Facebook. It’s not innovation what they’re looking for it’s – “Something To Stand Out And Make The Viewer Click The Ad”. Go back to the first list in this article. The one with “the less a game costs the more potential audience it has”. It’s the same with ads. Lots of people clicking on your game and the easier it is to acquire them? The lower the Cost Per Install.
The video is great and I recommend non-game devs to watch it. They present some good ideas and concepts behind the hypercasual gold rush that took control of today’s market
Steps mobile game developers take before deciding to continue working on a free game
So, in order to make money with a free game with ads after purchasing users via ads we need the following:
- A low Cost Per Install for the game. Gamers, especially casual gamers, need to want to click it. The more the merrier.
- If the CPI is too high, the game is dropped and abandoned. It would require too much work to earn our money back.
- If the CPI is low enough then we calculate the following:
- What is the average time the player spends inside a game in a single session?
- What is the average number of times the player stats a session in a single day?
Let’s add some example data to it. Let’s say the CPI is 0.21 cents (right on the mark). And we see that our users play the game 3 times per day with an average session length of 10 minutes. That’s 30 minutes of playing our game per day.
In order to make our 0.21c back from that user, we would have to display two interstitials to make sure we made our money back from him. That’s great right?
How do we calculate if a free game is worth developing further?
What if the CPI is $1.5? That’s a lot of money. This means we’d have to display about 9 interstitials. It doesn’t sound like much but that’s the case if we go by 1 user. Let’s say our campaign brought in 10.000 users. Which means, at an average $1.5 we paid $1.5 * 10.000 = $15,000. We would have to display 93.750 interstitials to recoup our ad budget. Again, still seems doable right? Well, imagine that there’s a 70% drop off rate. How many times did you install a game and never played it? Or you went to the app store page and never installed it?
Not all of our 10.000 acquired users will actually play long enough to see all the ads an interstitials. So for those that stick with the game, we have to make sure they do.
If a game has a decent CPI but has really low retention, then the game is dropped. Imagine trying to acquire 1 million users at $1.5 per user and having 80% of them stop playing the game after the first 30 seconds. Better take out a 3rd mortgage.
How much does a free mobile game with ads make with 1 million downloads?
Let’s assume you are talking about a game that reached the 1 million downloads mark with 800.000 of those downloads being organic (that means the players found the game on the app store instead of using ads). That means that 200.000 downloads were acquired via the user acquisition methods mentioned above.
An average CPI for 2021 for iOS games is around $3.6 (United States). That means $720.000 are spent to acquire the users. Now, let’s assume there’s a 30% day 1 retention rate and in the first day and the game displays 15 interstitials. That means that 30% out of the 1.000.000 managed to see the 15 interstitials (at $0.16 average). Which results in 30.000 users earning us a total of $2.4 * 330.000 = $792.000 dollars in ad revenue. If we deduct the initial amount spent for user acquisition we end up with a profit of 72.000 dollars.
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TL;DR: How do free mobile games earn money?
Free mobile games earn money by selling in-game content via in-app purchases or through displaying ads to the players. How much they earn depends on how much money they spend in user acquisition in order to bring players into their own game. When releasing a free game on the market publishers and developers look at how expensive it is to bring users into their game and then analyze their own game and decide if it’s worth to continue development.
Congrats, you made it to the end of the article and learned how do free mobile games earn money. I hope it was beneficial to you. It’s also beneficial to us to have you stick around the blog more. We have more articles that could be of use, such as this one, which teaches you how to run iOS or iPad OS games on a Mac.
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