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G5 Entertainment: User acquisition costs on the rise

Fiksu reports that user acquisition costs for mobile games and apps rose again in September, according to mobile marketing firm Fiksu. That means that life will continue to be hard for small app makers who don’t have highly viral apps and games.

Fiksu said that the cost per loyal user index (which measures the cost to acquire users who open an app rose to $4.14 in September, up 2 percent from August and up 84 percent from a year ago.

But app download volume fell 21 percent from August to 6.4 million, Fiksu said. That decline will likely be short-lived, as holiday demand picks up. Fiksu said that its App Store Competitive Index, which tracks the average aggregate daily downloads of the top 200 free iOS apps, had the lowest volume on iOS since September of last year.

Fiksu said the biggest reason was anticipation of the new iPhone 6S and 6S Plus that arrived at the end of the month. Fiksu said that users who planned to upgrade in just days or weeks had no interest in adding new apps to an old device.

Another contributing factor was the strong uptake of iOS 9. Due to the strong adoption rate, Fiksu said that many app developers were quick to upgrade their apps to require the new operating system. Users about to replace their phones are less likely to bother upgrading the operating system, so fewer downloads of these apps were recorded in September. The drop in downloads was also seasonal, as Labor Day fell late this year.

One challenge that Venture Beat highlights in a report on mobile user acquisition is that brand dollars are currently flooding mobile marketing in the run-up to the Christmas shopping season, reducing the availability of premium inventory.

The Cost Per Install Index (CPI) increased 16 percent on iOS to $1.53, a rise of 26 percent year-over-year. On Android, CPI fell 2 percent to $1.88, an increase of 65 percent since last year.

For both marketers and users, we saw evidence of less engagement and activity across the landscape in September,” said Fiksu CEO Micah Adler in a statement. “However, this is about to change dramatically as the impact of the 6S and 6S Plus is felt in October’s indexes and the countdown to the holidays begins. In this most competitive time of the year, both costs and volume will rise, so it’s imperative to be smart about spending, and that means targeting the right audiences to capture new loyal users.

This is the latest piece of information which confirms us in our opinion that the glory days of the mobile gaming industry are behind us. This is also the reason why we have changed our view on the likes of G5 Entertainment and Glu Mobile. User acquisition costs have become a big cost item for developers, which reduces profitability significantly. Without intensive user acquisition campaigns, games drop down the rankings, which in turn reduces the probability that new players will start playing a game. With a constant flow of new games and industry giants like Supercell, King etc that have big financial muscles to spend on marketing, it is very tough for a smaller company to both attract new players and keep them in the game, and at the same time earn double-digit margins on that business. Reducing user acquisition costs for a quarter or two might improve margins short-term, however, mid-to longterm it jeopardises the game as such as it is likely to drop in rankings, unless the company starts spending big bucks for marketing again.

Nordic Investor

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