published Tuesday, December 10th, 2013

Wild Wild Web: Smartphone app developers experiment with premium, 'freemium' business models

CONSOLE QUALITY

Since 2011, many games from PC and video game consoles have been translated into premium-priced smartphone and tablet apps, including:

• "Baldur's Gate: Enhanced Edition" ($9.99, iOS)

• "The Bard's Tale" ($2.99, iOS/Android)

• "Bastion" ($4.99, iOS)

• "Castle of Illusion Starring Mickey Mouse" ($9.99, iOS)

• "Final Fantasy III"/"IV"/"IV: After Years"/"V" ($15.99, iOS/Android)

• "Final Fantasy Tactics: War of the Lion" ($17.99, iOS/Android)

• "Grand Theft Auto III"/"Vice City" ($4.99, iOS/Android)

• "Lunar Silver Star Story Touch" ($6.99, iOS)

• "Shadowrun Returns" ($9.99, iOS/Android)

• "Soul Calibur" ($14.99, iOS)

• "Star Wars: Knights of the Old Republic" ($9.99, iOS)

• "Terraria" ($4.99, iOS/Android)

• "XCOM: Enemy Unknown" ($19.99, iOS)

In the 1850s, California was the site of a mad scrabble to pull a fortune from the ground with a pickax, a metal pan and maybe a donkey or two. The last five years have seen an equivalent to that frenzy, but instead of Sutter's Mill and the Sierra Nevada, the 21st-century gold rush is taking place online on Google Play and the App Store.

According to technology researcher Gartner, global smartphone and tablet users generated more than $26 billion this year by downloading 102 billion apps. By 2017, the researcher predicts, annual app downloads could more than double to 268 billion.

The richest digital vein to be mined by far is games, which represent 15 percent and 22 percent of the offerings on the App Store and Google Play, respectively.

Like the gold fever of the 19th-century, gaming apps are developed and released at a furious pace into an ever-changing market where only a lucky few such as "Angry Birds" and "Cut the Rope" have managed to strike it rich. Developers continue to explore different means of delivering content to gamers, but consumers and analysts agree that the ideal solution is yet to come.

A RACE TO THE BOTTOM

Historically, gaming apps have been created with smaller budgets and lower production values than their full-fledged cousins on Microsoft, Nintendo and Sony game consoles. As a result, most titles, even overwhelmingly popular ones such as "Tiny Wings" and "Temple Run," sell for less than $2, if they cost anything at all.

"Some games might seem OK to pay more than $2 for, [but] most are better to get free," says mobile gamer Gary Cretors Jr. of Cleveland, Tenn. "A lot of the free games are better than the ones you have to pay for. I downloaded a game that is based on the new 'Thor' movie, and it's free and pretty good. Others I would not pay a penny for."

According to mobile statistics from 148Apps.com, 88 percent of games on the App Store cost less than $1.99, and 62 percent are free. Depending on the genre, 81 percent to 88 percent of games on Google Play are free, and the average price for paid titles is between $1.54 and $2.45. As a result, some analysts have described pricing games (or other apps) for these markets as a "race to the bottom."

Prices on the App Store and Google Play are rarely static. Some games enter the App Store at premium prices but see frequent deep discounts during holiday and developer-specific sales. Occasionally, the price drops are permanent. Sega's "Super Monkey Ball," one of the first 500 apps that was available when the App Store opened in 2008, initially sold for $9.99. Currently, it is 99 cents.

WORTH THE PRICE

Recently, the free and minimally priced tide has shown signs of shifting, thanks to a growing number of developers who are pouring money into higher-budget apps with top-quality production values and -- for the mobile market, at least -- heftier price tags. Some major console game developers, including Namco Bandai, Square Enix, Electronic Arts and 2K Games, have founded specialized studios specifically for the development of mobile titles.

FREEMIUM

In a growing trend, smartphone and tablet app developers are releasing "freemium" games that cost nothing to download but restrict some activities or hinder player progress without paying for necessary items. Here are the Top 10, according to ThinkGaming.com:

• 1. "Candy Crush Saga" ($892,712/day)

• 2. "Clash of Clans" ($706,116/day)

• 3. "Game of War -- Fire Age" ($456,947/day)

• 4. "Pet Rescue Saga" ($216,604/day)

• 5. "MARVEL War of Heroes" ($170,939/day)

• 6. "The Hobbit: Kingdoms of Middle-earth" ($143,404/day)

• 7. "Hay Day" ($120,226/day)

• 8. "Slotomania" ($101,409/day)

• 9. "Deer Hunter 2014" ($86,951/day)

• 10. "The Simpsons: Tapped Out" ($66,912/day)

Gamers are showing their support for these premium offerings by opening their wallets. As of Dec. 4, 56 and 48 of the top 100 for-pay iPad and Android games, respectively, carried a price tag of $2.99 or more.

Many of the most successful titles released in the last two years are translations of full-fledged console titles such as action-roleplaying game "Bastion" ($4.99, iOS), sandbox action game "Grand Theft Auto III" ($4.99, iOS/Android) and last year's hit strategy title "XCOM: Enemy Unknown" ($19.99, iOS). Most of the smartphone and tablet ports of Square Enix's popular fantasy roleplaying series "Final Fantasy" sell for $15.99.

Critics have responded well to these titles, despite their higher price. More than three quarters of the 33 games released this year that received average review scores of 85 or higher on Metacritic.com cost $3 or more.

That more expensive gaming apps are well-received comes as no surprise to Brad Spirrison, managing editor of app review site Appolicious.com.

"There are hundreds of thousands of games on iOS and other platforms, and the vast majority of them ... are worthless or niche," he says. "Even if an app is free, if it's a completely wasted experience and there's no quality to it, there's still a cost involved in the time to download it, the space it occupies on your device and the feeling that you got burned.

"There's a segment of the population that's willing to pay anything for an app, and if they're going to pay 99 cents for something that's crappy, I think they would rather pay $3 or $5 for something that they can get a few hours of meaningful entertainment out of."

FREEMIUM

Seeing more expensive games on the App Store is nothing new, but the continuing release of games at a higher price point runs contrary to an even more popular trend toward low- or no-cost games.

With no or a minimal cost to download, developers of 99-cent and free gaming apps typically earn money by selling in-game content for real money or by displaying in-game advertising, which can be removed by paying a small fee or.

Most of the former, so-called "freemium" titles, purport to offer a complete game experience to players without the need to pay, but opting not to shell out often can be an exercise in frustration. In many of these titles, lengthy timers have to expire before certain actions can be repeated, and astronomical amounts of in-game currency are required to purchase some necessary items.

Faced with waiting hours to continue playing or battling through the same levels over and over to earn enough money to continue, many gamers have turned to their credit cards. In a study released in February of the sources of revenue from smartphone apps, analysis firm Distimo found that less than a quarter came from one-time-purchase apps. Almost three-quarters (71 percent) came from in-app purchases in otherwise "free" titles. The remaining 5 percent went to purchases made in apps that were pay-to-download.

Some gamers and critics have expressed frustration with this trend. In a review of the puzzle game "Candy Crush Saga" -- currently topping the list as Apple's highest-grossing game on the App Store -- CNET.com praises it as "incredibly addictive" but lamented that "in-game upgrades are expensive."

In some freemium games, the in-game currency necessary to complete many tasks is for sale in varying amounts, from just enough to get through a particularly frustrating level to digital hordes that can unlock all the game's content. Some of the most-expensive in-game fortunes can cost a small one in the real world to acquire -- as much as $100 in some titles.

"Paying for crystals or coins or whatever is ridiculous," Cretors says. "You should be able to continue to unlock those items, not have to pay out real, hard-earned money for a digital item."

Yet plenty of people are paying to take the digital shortcut. According to an earnings analysis on ThinkGaming.com, "Candy Crush Saga" (free, iOS/Android) is generating an estimated $892,712 every day. Collectively, the Top 10 highest-earning freemium apps sell about $123,000 of in-game content every hour.

ROOM FOR BOTH

That games are being released on either end of the spectrum -- high-price, single purchases and freemium -- speaks to the fluctuating nature of app development and the relative youth of the apps as a commodity, Spirrison says.

Smartphones now are nestled comfortably in 64 percent of American pockets, according to researcher Nielsen, and with that kind of penetration, it can be hard to remember that the smartphone as a mainstream device has existed since only 2007.

Like the Wild West, app stores are still largely a frontier, and developers are settlers seeking an ordered equilibrium. For the moment, at least, there's room for several approaches to coexist, Spirrison says.

"We're less than five and a half years into the app ecosystem, and we've seen things kind of bounce from one extreme to another. I think we'll still be in an era for the next couple of years where developers, particularly game developers, will continue to experiment with different business models."

Contact Casey Phillips at cphillips@timesfreepress.com or 423-757-6205. Follow him on Twitter at @PhillipsCTFP.

about Casey Phillips...

Casey Phillips has worked as a features reporter in the Life department since May 2007. He writes about entertainment, consumer technology, animals and news of the weird. Casey hails from Knoxville and earned a bachelor of science degree in journalism and a bachelor of arts in German from Middle Tennessee State University, where he worked as the features editor for the student newspaper, Sidelines. Casey's writing has earned numerous accolades, including first and second place ...

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