Freemium wins worldwide as smaller publishers topple big boys with in-app purchases

by Kristen Nicole

Mobile gaming is putting a new spin on globalization, merging Asian and American market on several levels. DeNA and its American subsidiary Ngmoco are drivers in this emerging industry, launching their mobile social network in English-speaking territories around the globe. Named Mobage, the network sits on top of Android and creates a social portal for games. It’s a platform for developers to distribute games, cross-promote and generate more revenue. For DeNA and Ngmoco, expanding the Mobage network on an international scale means dipping into more lucrative markets.

Competing with Gree/OpenFeint, Apple’s (AAPL) own Game Center, PapayaMobile and EA’s Origin network, Mobage is an ambitious project that relies heavily on virtual currency and goods to support its third party marketplace. Alternative pricing models are being explored in mobile environments, especially with games. One trend that is really taking off in Asia is in-app purchases, where virtual goods reel in profits instead of up-front costs to play the game. It’s gainful for app developers and publishers, as it provides an ongoing stream of revenue as users get more involved in the game. In-app purchases are tactics that are still relatively new, but they’re already proving useful for game makers.

Freemium turns into big wins for Android games

A recent study by Flurry shows that in-app purchases are averaging $14 per player, which is a significant number for the small percentage of players that do buy items inside games. Over half (51%) of in-app purchase transactions come from the 13% of players spending $20 or more, outlining some interesting consumer behavior around mobile games. It’s a big opportunity for Android, as game revenue on the mobile OS has risen in the past few years. The mobile analytics form reports that the revenue share of portable games for iOS and Android has risen from just 1% in 2008 to 34% in 2010.

Another study by Ditsmo validates Flurry’s findings, reporting that freemium games now generate the majority of revenue of top-grossing games. Their use of virtual currency is one of the primary reasons for increased popularity, and the increased revenue. During the first 6 months of 2011, games with virtual currencies increased from 24% to 35%. It’s allowing smaller game publishers to topple the big boys, with new marketing and monetization models proving innovative in this rising market. But some of the top publishers are catching on. Gameloft is trying its hand at the freemium model, releasing a free version of GT Racing Motor Academy in the Android Market. You can then pay in-app to unlock everything and get the bonus XP.