In this episode of The Mobile GameDev Playbook, we discuss the common struggles game developers face when monetizing their games and provide some top tips to ensure optimal ROI on mobile gaming ad monetization. We also take a deep dive into the current mobile app monetization strategy and how it might change post IDFA. Will high IAP monetization games survive the change?
Kolibri Games brings their expertise to the panel today, as a games publisher, with their most notable mobile titles, including “Idle Miner Tycoon” and “Idle Factory Tycoon,” with the former reaching over 100 million downloads worldwide. This episode also takes us through Kolibri’s humble beginnings, from being founded in a student dorm to building a 120 strong team based out of Berlin.
Host Jon Jordan is joined by GameRefinery’s Head of Product & Ad Intelligence Lauri Heikkinen and special guest Nathaniel Barker, Director of Business Development at Kolibri Games.
We’re available on all major podcast platforms – if you enjoy the episode remember to hit subscribe!
Topics we will cover in this episode:
- What is ad monetization and how it works?
- Ensuring optimal ROI on mobile gaming ad monetization
- Mobile app monetization strategies in a post-IDFA world
Jon Jordan: Hello, and welcome to the Mobile GameDev Playbook. Thanks for tuning in for another episode. This is the podcast that provides insights into what makes a great mobile game. What is and isn’t working for mobile game designers and all the latest trends.
I’m your host Jon Jordan. Joining me this week is Lauri Heikkinen from GameRefinery. You’re head of product and intelligence and metadata, which sounds very, very smart. How’s it going, Lauri?
Lauri Heikkinen: Not too bad. Thanks a lot, it’s good to be back. It’s my second podcast. I am again talking about the ad stuff but from a different angle this time. It’s good to be here.
Jon: Yes. It’s going to be a good one. Joining us as our guest this week is Nate Barker, Director of Business Development at Kolibri Games based out of Berlin, recently acquired by Ubisoft. Lots of cool things going on there. How’s it going, Nate?
Nate Barker: It’s going great. Thanks for having me on this week. We are pretty excited; there’s a lot of fun stuff that’s going on at Kolibri that we’re happy to talk about. Glad to join you guys to discuss everything.
Jon: Cool. As Lauri suggested, this podcast is going to focus mainly on ad monetization. Before we get there, let’s have a bit of time for Nate to tell us what’s going on with Kolibri. As you’ve said, you’ve started the year pretty well. Can you give us a bit of pointed history into what you guys do and the games you make?
Nate: Yes, absolutely. Kolibri was founded about four years ago in Karlsruhe, which is a little college town in southwestern Germany. Founded by a few students in student apartments that I actually slept in when I was first hired, my CEO advised me to tell everyone that was not a mandatory part of the hiring process. It was totally voluntary.
We started there as a small team, with a game called Idle Miner Tycoon. Idle Miner Tycoon is an idle game, where the principle behind it is that you are mining. As with any idle game, it’s a game that you cannot lose; you can only adjust the acceleration of your gameplay experience; either you’re mining more, or you are mining a bit slower. We continued focusing on Idle Miner Tycoon.
We eventually added another game to our portfolio, Idle Factory Tycoon, and moved to Berlin from Karlsruhe. We are now at around 120 people all from around the world, which is really exciting. Obviously, I’m from the States. I moved out here; we have folks from everywhere.
We also started expanding a little bit. We opened up a Bucharest studio that focuses on the traditional Idle Miner Tycoon type games. There’s a bunch of different types of idle games I can go on about. There are clicker games, there are merge games, which are in the idle sphere. Idle Miner Tycoon, I think, is maybe generation one or two. We want to continue to make those since they are very popular.
We also decided to branch out into more 3D games or 2.5D games. Games that have a little bit more realism to them. We started working on those titles as well. We have an Idle Pirate Tycoon, and an Idle Farm Tycoon, and an Idle Restaurant Tycoon. Perhaps picking up on a trend of our naming schema and genre, and a few more titles in the pipeline.
Along the way, we were also acquired about this time last year by Ubisoft, which has been pretty cool. We’ve had the opportunity to work on some crossovers. We just finished a Just Dance Mine in Idle Miner Tycoon. We have a bunch of more stuff planned, which we’re really excited about.
I should also add that we are actively hiring. If you are interested in making idle games with us, we want to be the number one player-driven idle games company globally. We spend a lot of time focusing on our players, listening to their feedback, implementing that directly into our product pipeline. If you are doing marketing, HR, game design, product management, arts, analysis, or an engineer, of course. We would love to have you join the team. Just check out our website.
Jon: Good history. This just shows the mobile games sector’s velocity that a few students can set up something in their bedroom four years ago. Now, they’ve got over 100 people and bought by Ubisoft and set up a second studio.
Nate: It’s been crazy how much it’s grown. I would emphasise that we stand on the shoulders of giants and those who have come before us. We look up to developers like Hyper Hippo, who did AdVenture Capitalist with Kongregate. Game Hive, who did Tap Titans one and two. Those were foundational idle games for us that we are grateful for and have been awesome about sharing their experiences with us as we were growing.
Things took off about two years ago, or maybe about three years ago, when we started growing. I’m sure you’ve had some other folks on who could maybe speak a little more to the game industry’s frothiness right now when it comes to acquisitions and other fun, exciting stuff. It’s been pretty wild.
What is ad monetization and how it works?
Jon: Good. Let’s talk a little bit strictly about ad monetization. Lauri, do you want to give us a definition of what we think ad monetization is. I’m going to guess that probably most people listening to the podcast probably know what it is, but some people won’t, and you have some insight into that. How does ad monetization work? What is it for mobile games?
Lauri: Ad monetization is basically the other monetization method in adjunct with the IAP monetization where people buy some products. With ad monetization, you watch ads; either they are forced on you, or you’re incentivised to watch them. Then usually, you get something a little extra in the game.
When it comes to idle games, it’s mostly about incentivized ads. Whereas in hyper-casual games, for example, there are many forced interstitials, there could be some banners, especially when looking at top-grossing games, which have been monetizing with the IAPs more traditionally. They’ve also been bringing some ad monetization in there. Then it’s a lot about the implementation. How do you make it so that it’s good for the user? So it doesn’t badly affect the actual gaming experience, and how does it add something to the IAPs, as well. There are lots of things to consider from the user experience perspective, as well as from the game economy and so forth.
Jon: It is a good point because we’ve seen in-app purchase economies; there’s a wide range of how you can implement that, from very light to incredibly deep. I think we’ve certainly seen it over the last five years, and I suppose that the same thing has happened with ad monetization. Still, I guess because there are such bad examples of ad monetization, a certain group of people who think any game with an ad in is not a proper game because there’s some sort of advert in there.
With mobile, and particularly with the games like Kolibri are making, which is an idle type of game that only really exists on mobile. They may be games you do spend hours a day playing, but you don’t spend hours consistently in a block of time playing them. Ads actually fit in quite well to the gameplay. Actually, what you find or what I’ve found is a well-implemented ad strategy. Particularly with, as you say, incentivised ads where you watch an ad and get some gems or get a speed up or something. What you find is users actually really love those and want more of them rather less than which shows how far the industry has progressed in a few years.
Ensuring optimal ROI on mobile gaming ad monetization
Jon: Nate, you talk about being a player-centric company. I’m sure some people who play your games don’t like ads very much. In general, how do you find the attitude to ads?
Nate: It’s definitely a balance. We try to focus as a player-driven games company to make sure that all of the ads are always delivering value. I think advertising in general on mobile, there’s a lot of advantages and disadvantages, especially when it comes to monetization.
In the very, very early days, it was all banners, and it was all offer walls and things like that. That was essentially the only type of monetization you could do. We went through a deeper arc that included interstitials and interstitial video before we landed on the rewarded video. Rewarded video ads are a really good pairing for idle games, as you were just mentioning. The primary reason is that an idle game has two levers that you can manipulate. There are money and time; that’s really all there is. There’s no accuracy, you’re not getting better at tactics or strategy, or you’re not getting better at just memorizing keyboard commands if you’re playing some real-time strategies or something like that. Really, it’s only money and time because you can’t lose.
“Rewarded video ads are a really good pairing for idle games. The primary reason is that an idle game has two levers that you can manipulate. There are money and time. That’s really all there is.”Nate on the best type of mobile advertising for idle games.
We make sure that any ad we’re doing directly impacts one of those two things for the better. For instance, ads have to speed up the time it takes to build a new upgrade, or they need to decrease the costs, and that’s a money one, or they need to increase the payouts, that’s another money one. The focus for us is to really make sure that those two levers are always what’s being manipulated, and that it’s always optional, so it never really feels like a grind, and that they happen at natural breaks, like when players are about to leave the game, or when they’re entering the game and before they get into the mindset.
We’re not like a platformer, where you would expect to see an ad every time you die. No, that doesn’t make sense in an idle game where there’s no death. It has to be where it feels like it’s normal for the player to take a break or before they get into the game to engage with an ad.
Jon: That’s very good. Having the optionality of allowing people to do something or not do something really stops a lot of the negative side of things. It actually reinforces the positive side. I don’t know if you can say this being a privately owned company. What percentage of your revenue do you get from ads? Is that something you can say?
Nate: I can say. I’ve done one or two interviews in the past. Before we were a public company, we typically cited the figure around 50% of revenue coming from ads. I would say that that is still a fairly accurate number of how much of our revenue comes from ads.
“Before we were a public company, we typically cited the figure around 50% of revenue coming from ads. I would say that that is still a fairly accurate number of how much of our revenue comes from ads.”Nate on the percentage of revenue made from ads.
Jon: More generally, it’s an interesting thing that when people talk about how big the mobile games industry is, you get these figures floated around, $70 billion was the last one I saw. Often, that is pretty much all in-app purchases. The fact that billions of dollars can be generated through ads isn’t put into that figure, and the reason this is because it’s very difficult to work that out. It did seem to be that even.
For the public companies, you can see; generally, it’s 10% to 15%—a lot of these big companies like Zynga and Glu. Ads are not as much as you guys because you have a particular genre of game you’re playing. Even in these other big companies, it’s a fairly substantial amount. Really, you’d only sustain that if the audience enjoys it and is participating in the ads. The quickest way to kill a product is to stop putting ads that you can’t skip into them.
Nate: We’re sitting at an interesting middle ground or keystone position in the bridge between the hyper-casual and the hardcore games. We’re like this funnel because hyper-casual games spend a lot of time just advertising to themselves because they have to keep players churning back and forth between these experiences. We can acquire many players from these hyper-casual games that then basically get funneled into the more hardcore games where they’re monetized with IAP. Unlike the hyper-casual games, we can still monetize many of these players using in-app purchases. The key difference is the ceiling for how much a whale will spend in our game is still going to be far below what it’s going to be in some of the more aggressive hardcore games—knowing that we just have to build our monetization strategy around it.
Mobile app monetization strategies in a post-IDFA world
Lauri: It’s interesting to see how the IDFA will affect the whales. For example, that so-called hyper-casual at whales, and how that will affect the whole hyper-casual industry and the very IAP focused whale games such as 4X strategy games or some of the casino games. Do you have any thoughts on that?
Nate: I’m glad you brought it up because that’s the IDFA apocalypse that is upon us. I’m probably more bearish when it comes to how this will play out. I’m definitely pretty pessimistic. I think that hyper-casual games will probably be the most negatively impacted.
“Regarding the IDFA apocalypse that is upon us…I think that hyper-casual games will probably be the most negatively impacted.”Nate on IDFA regulations and how it will affect games.
For the most part, I think the user acquisition that they are doing themselves is not the most sophisticated because the games are so simple anyway. That’s the one challenge they’re going to face, which is getting new players that will help them monetize better.
First, what they say, like garbage in, garbage out. You have players that aren’t very good that you’re acquiring as a hyper-casual developer, and it’s going to be much more difficult to monetize them. Then from there, it’s going to be difficult for us to target those players. It’s going to be difficult for hardcore games to target those players. The massive publishers will probably survive based on brand and another three things, maybe more. They’ll have brands, they’ll have the more sophisticated tech, and then they’ll have a boatload of money they can throw at this. When conversions go down, because your targeting isn’t so great, and the CPMs go up if you have an unlimited budget you can accommodate that if money is not a problem. It will be a challenge for us in the middle, and we’re looking at some solutions around that. I think a big part of it will be– Well, actually, there are a few things. First of all, the whole way we choose, which ads will show when will probably have to adjust. Things like our waterfalls and bidding strategies on the monetization side we’re going to have to be careful about. Beyond that, we’re going to need to diversify the total inventory that we’re showing probably.
“The massive publishers will probably survive based on brand. They’ll have brands, they’ll have more sophisticated tech, and then they’ll just have a boatload of money that they can throw at this.”Nate on how big brands will survive IDFA regulations.
Right now, 90% of our revenue, if not more, is coming from games advertising and other games; if it is harder for app developers and game developers to do because they can’t do granular targeting, that might mean that we need to be looking at other sources, maybe some e-commerce that can weather the storm. That’s all stuff that we’re actively investigating or integrating. We just integrated brand partners to deliver ads, in the case that app ad networks cannot.
Lauri: I would continue a little bit from the last thing you touched, ad placements. You mentioned that natural breaks, whether it’s the start of the session or then at the end of the session, are really important. One thing that I’ve noticed, which is quite peculiar, is that, for example, some Match3 games prompt you to watch a video to get an extra life or get a few extra moves. To me, it seems odd to offer an ad because, most likely, they immediately would like to go back to the game and finish whatever they had going on rather than clicking the ad. So I’m just wondering, how much of an impact does the placement have?
Then on another note, we at GameRefinery have been working on contextual signals. If we can provide some data back to the ad networks about the placement context and if that would affect the performance. Let’s say there is a specific placement that is only for players that are in guilds. In that sense, you could say that these are socializing players that you are targeting in these particular placements.
Nate: It’s interesting that you’re working on that actually because there are definitely placements that we have that are more appealing to advertisers that we have not configured for them to be. We don’t really care as much about how they’re, labeled for instance, in the way that we set up our current ad flow when players are entering the game. The first thing players can do when they come back to the game is double their revenue from when they weren’t playing. This is by far the best performing ad we have because players are confronted with it as soon as they get into the game. It has an enormous impact because they’ve probably not been playing for 9 or 10 hours. They are motivated to play, and they want to increase their revenue. It’s an idle game, so you’re generating cash when you’re not there. They want to make the most out of that. Otherwise, it’s almost a waste of nine hours. That’s always the first, but for us, when we set up our waterfalls, we don’t ally care so much about labeling those things because that’s not a signal that’s necessarily ever going to make its way back to the advertisers. If it is something that we could begin to optimize on, I think it would probably be extremely interesting to them.
Likewise, with other ad placements in games that are really specific to hardcore players like, we have some of these placements. Those might be really interesting. For instance, we have some placements that players will just watch a bunch of times because they get a stacking bonus. We’ll add number one, and the very last ad there is probably the most relevant. The ones in the middle they’re just cycling through, so those are less interesting. We experiment a lot with different placements. I think we found that some just won’t convert very well. It usually comes down to the trade-off between how much value we’re giving versus the time it takes to watch a 30-second ad. Things like where we offer a little bit of soft currency or even a little bit of hard currency tend not to convert very well because players are smart enough to know that that’s not a lot of value and can get those other ways.
It might be interesting to begin to have more of a conversation between ourselves and the advertisers about what those placements are and how we can work better to make sure they’re shown at the right place and right time.
Lauri: I researched some of the SSPs and ad networks to see if they provide a framework. I found only one of them that had pre-named placements. The rest of them didn’t do anything like that. As I mentioned, from a contextual data point of view, I think it’ll become increasingly important now that IDFA changes are coming. Perhaps there’s something that could be done there.
First of all, the advertisers need to redo their strategy from a contextual signals point of view. Which types of games they want to advertise in? Whether it is through sub-genre or art style or whatever other data points there are. The same thing again goes to publishers. You can limit and allow games that could be a good fit for you. At the same time, a new contextual signal could be the placement and the data that is passed on with that. Then there’s the ad networks and other players there who need to use that data. I think there’s something that we’ll see in the next few months now that the IDFA is coming about.
Nate: I think you guys are probably in a better position than us, or even the ad networks, to figure out how to standardize all of that. Ads for business simulators that only show up on first impressions, like the ones I just described. If there’s a way to standardize that so it’s legible to marketers, I think it would be pretty impactful. Right now, they can target based on the app ID. They have kind of an idea of, “Oh, okay. Here’s a whole list of pretty good apps and some that are alright and some that are pretty terrible, and they can change their bids.” That’s really standardized.
Coming up with a uniform language to communicate what those experiences are when they’re happening is going to be huge. I think that’s something that we could borrow from other advertising industries. I’d assume that, like television or radio, have figured out how to say, “Oh yes, this is the prime ad spots that are right before the cliffhanger, so you want to buy those.” There might already be a path that’s at least vaguely laid out that we could adapt.
Jon: That’s fascinating stuff because I’ll just put a bit of context in for people who don’t know that the IDFA has been mentioned a few times. Apple is basically changing the ways in which adverts and users can be tracked through downloads and across different apps that were announced last year and then caused a big controversy. Then Apple said, we’re going to kind of push it back, and so we’re expecting it really at any moment now. No one seems to be quite sure exactly what the impact is going to be. It ranges from the spectrum of some people who think everything is going to be fine. To some apocalyptic people who think everything will be a disaster, which I guess that’s across anything in life.
It’s interesting that change is coming, and it’s definitely going to affect how monetization and user acquisition, marketing works in the short term. Obviously, Apple devices are the most lucrative, but people are expecting Android to make similar changes at some point as well. The discussion you’ve had shows how the industry moves towards building a new ad monetization tracking system. This isn’t necessarily looking at individual users, but it is looking at how gamers interact and the games they interact with, and the way they interact with them. Which is more probabilistic, I suppose, in mathematical terms.
Equally, you can imagine in a few years, that would be the basis of which ad monetization is going to be operating. Specifically, do we think that ad monetization in the next few months, do you expect the revenue to be generated to be substantially hit, or is it impossible to say? Nate.
Nate: I think it’s going to be pretty substantially hit. We’ve spoken to a number of colleagues across the industry. A bunch of us have all done tests. We’ve done tests where we as a collective group of ad monetization folks looking at what the change is– Basically first what’s opt-in. How many people, when presented with the option to share their data, actually share their data? The percent of those who actually do is pretty low.
“How many people, when presented with the option to share their data, actually share their data? The percentage of who actually does is pretty low.”Nate on the opt-in data share change which will be coming with IDFA.
Then we start building waterfalls for the majority, the ones who are not sharing their data. The CPMs from those are the– I guess if you’re unfamiliar with the term, basically how much money we make per ad drops precipitously when we do not give advertisers the option to do targeting. It’s I think, greater than 30% at least. Some of this I think is possibly because the entire industry has not yet shifted. In 90% of cases today, advertisers are still getting all of the IDFA signals they need and not really paying that much attention to optimizing the other 10% of signals they’re getting or lack of signals. That might explain some of the decreases in revenue, but I think that overall it’s going to be a pretty big hit to revenue. It will probably last considerably long until people figure out how to work around it, but we don’t know exactly what it’s going to look like yet. I think I think some folks are also trying like more creative ways to try to get around some of the problems they’re facing.
“How much money we make per ad drops tremendously when we do not give advertisers the option to do targeting. It’s, I think, greater than 30% at least. Some of this, I think, is possibly because the entire industry has not yet shifted.”Nate on advertisers’ view of IDFA.
I’ve heard a lot of chatter about cross-promotion solutions so that they can share IDFVs. IDFV is maybe the less useful cousin of the IDFA that’s specifically for vendors but it can be used within an organization. If I own six games, in my app store account I can share IDFV for all of those games so that I can do better cross-promo. So there are some people who are looking at this stuff to get around it but that’s not going to really impact the whole ad monetizers.
Jon: Obviously, different sorts of mobile games use ads in different ways. We have the hardcore who don’t have any ads at all, so it doesn’t really impact them. Obviously it impacts them on the marketing, on the UA side of it, but doesn’t impact their revenue. On the hyper-casual side, that’s where all revenue comes from so it might be quite significant for them. For you guys who sit in the 50-50. Does this mean that for the next six months next year, in terms of the gains you’re currently operating and how their economies work.
There’s a shift towards, “Right, we’ve got to make in-app purchases work better.” You have that flexibility to go, “This is going to work so well; we’re going to move on to this.” Obviously, there’s only so much you can do within the survival genre, but I’m sure there’s lots of cool things that you could do in that, given the opportunities. Is that something you’re actively looking to do?
Nate: Yes, we’re doing a few things. We’ve put many resources into live ops, so we’re spending a lot of time optimizing which in-app purchase promotions we show. We’ve actually done an increasing number of successful experiments on stuff like basically– How do I put this? It’s like a no ads offer. We’ve done a ton of experimenting to see what we can offer to people, so they don’t have to show ads, or they don’t have to see ads. Because we still have ads, and we’ll probably still have ads even afterwards. But if they’re less and less interesting to users, then we want to give them an alternative. Things like, no ads offer, so pay a one-off fee and then you get a permanent boost for whatever it was that you would have received. How do you use it with rewarded video? I think that stuff is probably going to make a huge comeback. We saw that maybe in the early days, like six, seven years ago, in many games. That’s back when they experienced that people were getting interstitials and banners, and it was annoying, so now you just pay for a premium version that didn’t have any of that stuff. Well, now, with rewarded video, we have to change the formula a little bit.
The challenge, there is always going to be pricing because it’s hard to set just like a flat price based on what you want to sell this to a player for because CPM’s are changing. What’s the equivalent? What’s the margin you want to make on this? But I think that’s where things are headed. Then we’re spending a lot of time just focusing on optimizing the player experience and figuring out precisely which IAP’s limited-time offers will work. We have events in our game, so it makes it a bit easier. But I think that’s also going to be a strategy for us with this IDFA change.
Jon: Yes, Lauri, more generally across the mobile games space. Do you think we’re going to see this as a shift where designers and operators are going, “Let’s really double down on in-app purchases and let the ad network sort out what’s going to go on on the ad side” Is this going to be a bigger trend than Nate has just described with Kolibri and those games?
Lauri: As I mentioned before, so for example, very high IAP monetization games will be in trouble because they will have a hard time finding the whales. I would suppose there will be an overall shift towards hybrid monetization. Where you monetize with both the IAP’s and maybe go broader with the types of IAPs. One good example here is Clash Royale. They’ve revamped their whole monetization when they introduced the season pass. They now have lower price points, but most probably conversion is a little bit higher. They don’t have ads yet but that hybrid approach could be something that the games will be leaning towards.
“Very high IAP monetization games will be in trouble because they will have a hard time finding the whales. I would suppose there will be an overall shift towards hybrid monetization. Where you monetize both with the IAP’s and maybe go broader with the types of IAPs. One good example here is Clash Royale. They’ve revamped their whole monetization when they introduced the season pass.”Lauri potential new monetization techniques and examples.
Jon: I guess it will be interesting just in terms of the mix of games as well. That it could actually provide a disruption that developers who have specialized in a certain type of game might go, “Well, this is the time to try a different game that’s going to allow us to monetize in a different way.” Maybe that’s a bit more speculative as a trend on my part. I don’t know.
Lauri: They are always a flavor of the months, Game of War used to be the biggest monetizing game; it’s still a big one, but not even close to what it was in its glory days. The same thing goes for casual games; it used to be big with ad monetization implementations that were popular back then. The industry is evolving overall and there will be shifts in all types of directions. Who knows what will come after IDFA? So interesting times.
Jon: Good opportunity for students somewhere in their dorms thinking about starting a mobile games company, and we will see how enormous they’ve grown their company in four years’ time. That’s the cycle, isn’t it? Great, that’s been a really, in-depth good conversation. I’ve certainly learned a lot, which is not saying a lot because there are lots of things I need to know. I’m sure that you listeners as well have learned a lot. Thank you very much Lauri, and thank you very much, Nate for your time.
Nate: Thanks, Jonn.
Lauri: Yes, thank you so much for having us.
Jon: Of course, thanks to you, listeners, for listening. I hope you’ve enjoyed it; every month we are releasing podcasts about what’s going on in the world of mobile games, as you can see. It really is changing all the time; you think it’s becoming this massive mature industry but even within that, there are very strong disruptive trends that are happening, so I hope you find this stuff useful. Please subscribe; we are available through all the usual podcast channels. Thanks for listening, and come back next time.
If you liked this podcast episode, make sure to listen to our Mobile GameDev Playbook podcast’s episode 9, where we discuss IDFA and the future of the mobile gaming ad industry with AdColony.