Product Analytics Drives Freemium Conversions — in Mobile Gaming and Beyond
Segmenting and querying customer data will light the way toward increased monetization
A global pandemic has turned the entertainment world upside down, crippling Hollywood while platforms like Netflix rake in millions of new subscribers. Perhaps the most significant beneficiary of the socially distant entertainment world, though, has been the video game industry.
Revenues across the gaming world were expected to surge more than 20% last year, according to a January 2021 MarketWatch report, which would make the nearly $180 billion industry a bigger moneymaker than North American sports and the global movie business combined. Of note, mobile gaming grew faster in 2020 than the PC and console markets, even in a year with Microsoft and Sony platform releases and incredible demand for the Nintendo Switch.
Mobile gaming is everywhere. It’s on your Apple and Android phones, your tablet and your watch, and the maturity of the mobile app market has paved the way for many different avenues of monetization.
While many developers seek a diverse array of revenue streams, the freemium model — free to play with in-app purchases — has gained momentum. Yet the question remains: Why will gamers pay for elements of a game they can play for free?
The answer lies in the user data. Developers have millions of dollars on the line, and the data they gather to better understand what premium features users will pay for must be precise. Product teams must iterate and conduct worthwhile analysis of user behavior because within the user data is a map to a more successful app.
There is little room to not capitalize on your opportunities. Outside gaming, B2B and B2C software companies that operate freemium models can see less than 5% of users move from a free tier to the premium, full-priced product. A recent Liftoff report demonstrates that the numbers are even lower in the growing mobile gaming market. Only about 2% percent of mobile game users will spend money on in-game purchases.
This is a miniscule percentage of the overall user base, but these players are crucial to the financial success of the game itself. Developers have millions of dollars on the line, and the data they gather to answer questions like ‘Are the features in our freemium game encouraging users to engage?’ must be precise. Product teams must iterate and conduct worthwhile analysis of user behavior, because within the user data is a map to a more successful app.
Product Analytics: It’s in the Data
Data on user behavior helps developers, product managers and marketers glean valuable insights. A typical user acquisition funnel resembles an upside-down triangle, but in a freemium model, acquiring a new player is substantially less important than how that player behaves within the app.
Imagine two funnels that connect at a single point and flare out in opposite directions like the shape of an hourglass. The funnel on the top tracks all the actions that eventually drive a user to download an application and boot it up for the first time. This includes marketing and advertising for the game.
Out of billions of potential players, only a fraction will have their interest piqued by an ad or follow a link sent by a friend leading them to start their journey inside your game. The conversion doesn’t stop when new players are acquired, though. Once they open the app, they enter the second funnel — the funnel that tracks engagement, subscriptions and microtransactions.
A record of all user engagement, from the first download through multiple purchases, should be collected in a cloud data warehouse or data lake. Access to that information is critical for the decision-making process across every department, and querying the data is the best way to get reliable answers to questions about the quality of the user experience (UX) or the marketing channels that bring the best customers. Connecting a product analytics platform to your data warehouse ensures true democratization of user data and allows even nontechnical employees to track the success of new features or promotions. The lifecycle of a mobile game is never complete, and with every update user response reverberates through the data.
Turning Free Users Into Paid Users
Once the company is collecting data and making it available to the organization, rigorous analysis can begin. While it’s invariably true that only a small segment of freemium users will pay money to play the game, there are important nuances to consider. Within the conversion funnel, it’s incumbent upon product leaders and developers to assess what’s working and what isn’t.
If a game has 200,000 average monthly users and only 2% of those users will complete microtransactions or subscribe to an ad-free version of the game, then there’s a paying audience of only 4,000. But who are those 4,000 players? What channels brought them to download the game? What else do they share in common besides a proclivity to open their wallets?
Any expansion in the paid base of a freemium audience should start by identifying the successes and working to replicate them. The overall conversion rate from free to paid users might hover between 2% and 3%, but within the broader user base there are segments who convert at much higher rates. Those buying personas might convert at 5% or 10%, making them two to five times more valuable as a customer.
Understanding how to segment the user data is critical because each individual user contains many data identities. A given user downloaded the game by clicking an ad on a different mobile game. They also have an iOS device, prefer to play the game in 10-minute increments and primarily play in the evening. It’s up to product leads and developers to understand what elements of that user’s data are relevant and how commonalities can inform marketing and development strategies moving forward.
Updates and Iterations
Honing in on the paid player should lead naturally to product updates, tailoring the game to encourage engagement from the most critical players. When updating the game with new features or simply fixing bugs that harm the overall UX, check once again on the data. Changes to the product and the customer journey affect both conversion and retention. How are people engaging with the new features — and which features are they engaging with at all? You may find a game mode or cosmetic add-on that’s not being used.
A major consideration within a freemium model is the quality and features of the free tier when compared with the full product. The differences between the two experiences in a mobile game where microtransactions drive much of the premium tier may be smaller than with B2B software like Dropbox or Google Cloud, but in either case, developers must be intentional in structuring the product. Games must be fun — otherwise, we wouldn’t play them — but monitor free features with high utilization to ensure they are not disincentivizing players to convert to the paid product.
Yet if you aren’t attracting a mass of players to download your game, there is limited upside to efforts converting the existing user base. The analytics-inspired growth strategy for game developers is two-pronged: build a large audience of players so that even the small percentage of paying customers is a significant population, and use data to determine how best to tailor product and marketing efforts toward a community like your best customers.
The typical product-based analytics cycle is based on forming a hypothesis and implementing changes. There are an unlimited number of facets of this journey you can look into, but you have finite resources. The more well-reasoned your hypotheses, the more useful your tests will be.
Product analytics, as a process, is never complete. Test, measure, iterate and repeat. To become an even better product and development team, you need to be able to ask a hundred questions about what’s happening to customers during their journeys and get the answers fast. Your next big insight could come from something that’s happening with only a fraction of your users.
Freemium models work in gaming because that fraction of players, the real fans, deeply support products they care about. Growth in the industry shows it.
