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$54bn mobile gaming market driven by non-gamers

September 20, 2018

Mobile is the fastest growing sector of the global video games market and this year $54 billion (€46.1bn) will be spent on buying games, downloading additional content (DLC) and subscriptions, accoridng to Futuresource Analysts. What is most surprising about mobile gaming is that in 2018 it will account for 42 per cent of total worldwide video gaming spend, higher than both consoles and PC, but is driven by a consumer base that in the most part wouldn’t classify themselves as a gamer.

So, how has this market managed to capture the time and resources of a wide demographic who ‘don’t play video games’? The answer is in part the widespread adoption of the smartphone, but more importantly underpinned using psychology and microtransactions.

At the end of 2017, there were 4.1 billion smartphones in use around the world offering an enormous addressable market. Furthermore, global tastes in terms of gaming preference is converging, therefore content no longer needs to cater specifically for one market, country or cultural group. Take Candy Crush Saga, launched in November 2012 it remains in the top 5 grossing apps each month for the US, UK, Australia, Germany and many others. It is also in the top 100 grossing apps for leading APAC markets South Korea, Singapore, China and Japan; countries with vastly different cultures to the western markets the game was launched in.

As well as enormous reach, the mobile handset is now a powerful gaming device, with current, top end smartphones now achieving more than double the graphics performance compared to the last console generation of the PS3 and Xbox 360. However, this is peak performance and very few mobile games are developed to max out these high-end phones. Mobile games publishers need to serve a wide range of devices of various capabilities, as well as consider battery constraints and overheating.

Mobile games are typically free at the point of downloading, firstly increasing attractiveness to the consumer, but also an excellent method of preventing games from being pirated. The secret sauce of monetisation for publishers lies in many (many) small transactions, driving significant revenue from a large scale installed base. Nowhere has this been more successful than Japan. In 2017, Japanese smartphone owners spent an average of 6,000 Yen on mobile gaming, equivalent to $54.

On a global level, in-game purchasing is targeted at the more avid gamer with a higher propensity to spend, less than half of one per cent of gamers account for half of all revenue generated, which is why there are such significant discounts for spending. Taking global phenomenon Fortnite as a typical example, you get 35 per cent more in game currency per dollar by buying the largest amount of V-Bucks possible, ($99.99) compared to the smallest ($9.99). The psychology behind microtransactions is certainly interesting and the plethora of different techniques have arisen, backed by scientific research. The three most common are explained below.

In game currency is the backbone to all microtransactions providing an additional layer of isolation from real world money. This prevents mobile gamers being able to easily put a value on the items they are buying in the game and places a disconnect between in-game purchases spending real money.

Loot boxes or random chance purchases are a more recent initiative. They are particularly effective as it has been proven that sense of reward from receiving an item via a chance is higher than purchasing the same item with in game currency.

Loss aversion, when a gamer is in a stressful situation such as having lost all their lives, or not completed a daily challenge, using in game currency to prevent ‘losing’ is a highly successful and powerful tool. Furthermore, having spent to prevent a loss once, there is a greater incentive to continue spending as an escalation of commitment, also known as the sunk cost fallacy.

With the global smartphone installed base expected to exceed 5 billion by 2020 and therefore a greater number of gaming ready devices, global mobile gaming spend is expected to reach $71 billion in 2022. A key market driver will be the increasing penetration of smartphones in developing countries such as India and Indonesia. With these countries, and many others adopting a mobile-first mentality, tapping into these markets and understanding their cultural norms and idiosyncrasies, could be the key to devising the next revolution of microtransactions and driving mobile gaming to an even higher level.


Categories: APPS, Articles, Consumer Behaviour, Games, Markets, Mobile, Research