After two years since landing on the gaming market, Netflix records its first big success with the Grand Theft Auto trilogy.
In a letter to shareholders at the start of 2024, Netflix stated that this debut “has become our most successful launch to date in terms of installs and engagement, with some consumers clearly signing up simply to play these games.”
This huge boost in popularity may very well push Netflix towards introducing IAAs and IAPs in their games, which for now are free to play. Rumors of such a discussion first came to the surface in April 2023, being promptly shut down, but, recently, such rumors seem to have reappeared.
According to a report from The Wall Street Journal, there’s been internal strategizing at Netflix for months now on how to monetize the platform’s games. But why is the streaming giant looking into in-app advertising and purchase as solutions? And what are they? Let’s find out.
What are IAAs and IAPs
In-app advertising (IAA) and in-app purchase (IAP) are two different models of app monetization.
With IAA, developers monetize their apps by selling ad space inside the app to marketers, allowing them to display their ads.
IAPs on the other hand, are post-install actions made by users that pay for a good inside an app, like power-ups or coins.
In app purchase vs advertising
The two monetization models have different characteristics and are therefore employed in separate categories of games.
While IAA is very common in hyper-casual games, IAP optimizes ROI the best for strategy, simulation, role-play and hybrid-casual games. This greatly depends on the users that populate these apps: hyper-casual gamers aren’t very likely to engage in in-app buying, given that they come to the apps to enjoy some stress-free time.
Whereas games that monetize through IAPs tend to have more high-LTV users, who spend greater amounts of time on your apps and are therefore willing to spend money on them. In this exchange, users are charged by app owners for a service or a content provided inside that app, which is usually necessary to advance levels in the game, making it even more engaging and retaining more users.
In-app purchases optimization for games
The two monetization models measure metrics in different ways: when relying on IAA, CPI is lower because the main goal is achieving great volumes of traffic. IAP games, on the other hand, are more complex and need a set of steps to be optimized. Let’s take a look at what they are!
- Price setting. Finding the ideal pricing point for your game has been proven to increase LTV, but it’s not as easy as it seems. Through A/B testing in the early stages, you can compare the conversion rates of different pricings, until you find the one that brings the highest ROI. Your app should also include a diverse selection of price points, in order to cater to all sorts of users and provide them with the possibility to choose how much money they want to spend. Nevertheless, no price should be set below $2, which has been identified as the threshold to get a positive ARPDAU.
- Personalized offers. Segmenting your user base into groups will help you engage with the right group at the right time. There’s no point in offering premium upgrades to new players, it will just result in a waste of time and money. By getting to know your users and their behavior towards your game, tailoring your offers to their spending habits becomes an easy feat. Analytics tools can help you gather your users’ data and personalize your offers as much as you can, according to the player’s demographic and preferences.
- Bundles and discounts. Selling more items as a single package appeals greatly to users, since they’re going to be paying less than what they would by buying the items separately. This encourages users to spend more money than they would normally. Another way to lure in paying users is via discounts, especially ones that come with a limited-time offer. These time-sensitive discounts will instill the idea in the users’ mind that they’re being faced with a once-in-a-lifetime offer, making them more prone to impulse buy.
- Catching mobile game whales. IAP games need users willing to spend a lot of money in their app to survive: this group of users is referred to as mobile game whales. Generally, a user who spends $100 or more during their time on the game belongs to this category. Targeting whales, instead of focusing on install volumes, can prove effective to your user acquisition campaigns by growing your IAP profit. But, because attracting this type of users has become more complex with the exponential growth of mobile games, spotting them among your existing user base can be easier.
- Avoiding user fatigue. Finding the right equilibrium between engaging your users and just plainly annoying them is crucial to the optimization of your IAP game. In fact, ads are only ever useful when they’re relevant to the user. Timing is also of importance here: when and with which frequency you decide to contact your users plays a big part in their course of action: bombarding users with offers can result in a boomerang effect, even making them uninstall your app.
Pros and Cons to IAAs and IAPs
We’ve then seen how optimizing IAPs brings in revenue for your game, but there is no rose without thorns, and even in-app purchases come with their set of pros and cons.
IAPs in particular are certainly convenient for:
- Monetization. Low-risk and low-friction.
- Scalability. No physical stock required.
- User engagement. Access to exclusive content and features.
But they don’t perform as well in terms of:
- Cost. Negative user experience or unwillingness to buy.
- Complexity. Additional effort required in terms of development and maintenance.
- Dependency. Relying too heavily on the IAP model can prove counterproductive.
Even if we’ve focused more on the IAP model and how to employ it to optimize your mobile games for ROI up until now, IAAs play a paramount role in this process. In the next paragraph, we’ll look more into hybrid monetization and how to combine the two monetization methods in order to get the highest revenue possible.
But before we do that, you have to know that IAAs have their own benefits and drawbacks too.
Amongst the first we can count:
- Flexibility. Type, format, frequency, and placement of ads are customizable.
- Cost-effectiveness. Constant stream of revenue, especially beneficial for free apps
- Cross-marketing. Possibilities for collaborations with other apps, products or partners.
On the other hand, some of the challenges to in-app advertising are:
- Ad fatigue. Risk of annoying users with too many ads.
- Privacy issues. Collecting data for ad targeting can be risky in terms of users’ privacy.
- Uncertainty. Success depends on a series of factors like the ad network and ad quality.
Maximize your IAP games’ revenue: hybrid monetization
Now that we know how IAPs and IAAs work on their own, it’s time to ask ourselves how they can mix together. Pretty well it seems, since hybrid monetization is considered to be one of the best strategies to maximize revenue for IAA games.
In fact, why choose between the IAP and the IAA model, when one can simply combine them? Users are then presented with a vast choice of actions that can be taken in the app, resulting in better user experience.
Employing ads in IAP games as a complementary source of monetization, has been proven to increase the level of in-app purchases as well! This is because ads like rewarded videos can give users a taste of what they would get by making an IAP in your game, catching their interest and making them more willing to buy.
In this hybrid monetization model, the pros listed in the previous paragraph add up, and some of the cons like the dependency of the IAP method and the uncertainty of the IAA method are just a memory of the past.
Conclusion
After reading this article, you certainly have a clearer understanding of how IAAs and IAPs work and why even a colossus like Netflix isn’t immune to their appeal.
We’ll look out for Netflix’s next move and keep you updated on how the situation unfolds, but in the meantime why not think of a similar solution for your app? Contact us now at Mapendo!
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