Does paid marketing make sense in scaling your game? In a talk at Casual Connect Asia, Martin Macmillan (CEO of Pollen Velocity Capital) called How to Scale Your Game: Understanding the Metrics and How to Act on Them, Martin explained exactly that. He advised, “Here is a bit of marketing 101: unless you have figured out a way to spend profitably, you shouldn’t spend at all because mathematically you’re setting out to lose money.” First and foremost, possessing a good understanding of LTV is a must. Then you need to understand if the unit economics work in order to use paid UA as a viable marketing channel. To learn more about what your game’s metrics can tell you and how to finance growth, tune in to Martin’s full session below.
Martin Macmillan is the CEO of Pollen Velocity Capital. He previously worked at UBS, where he explored the arena of early ecommerce.
“That the intersection of technology and financial markets fascinated me, and by the time I left my fixed income trading position in 2000, it seemed obvious how tech was going to disrupt financial services,” said Martin. “That was when I left to start my first company in financial technology.”
Martin feels that Lifetime Value (LTV) can be a more important statistic that the more often cited cost per install (CPI). Ultimately, though, he says it is important to understand both.
“Unit economics in mobile acquisition boils down to a very simple question – how much does it cost you to acquire a user for your game, and how much revenue to expect to make from that user over time,” he said. “Install costs (CPI) are readily available as it’s what an ad network will charge you to buy an install. Lifetime Value (LTV) is much harder to calculate, especially for freemium games, is much harder to model out the numbers – you have to step back and look at a cohort of acquired users and see how they behave over time. Unless both CPI and LTV are understood, its impossible to know whether a paid user acquisition strategy can work or not, so it’s critical that developers spend time to understand LTV.”
App Store Payment Delay
Martin says he started Pollen Velocity Capital to solve the problem he faced as a developer trying to grow his casual music game. He felt constrained by app stores and the payment delay he suffered, despite a good launch.
“I needed to unlock the capital trapped in the revenue I was earning, but had not yet been paid out, in order to fund my UA spend as my credit cards were maxed out buying ads,” said Martin. “Banks could not understand how digital marketplaces operate so I used my own knowledge of the financial markets as well as my experience as a developer to create the business.”
“I love helping developers scale their businesses without having to raise external capital,” he said. “It’s great to see small bootstrapped teams achieve real success on the app stores without having to raise money from venture capital firms or external investors.”
“I was proud that I was able to figure out that I knew how to marry my knowledge of financial markets with an understanding of the app space to create a business that could be genuinely helpful to the mobile ecosystem,” said Martin, noting he would probably be developing apps if he wasn’t working this job. “Every week I have a new app idea, and I’d love to have the time to bring them to life one day…”
Metrics are the lifeblood for mobile games, but not being able to analyze it correctly is a huge problem. Martin says that it’s a consistent issue for mobile developers not being able to calculate LTV because of the modeling work required.
“There are many ways to look at LTV of a freemium game, but essentially it comes down to a function of retention – how long will users stay in my game, revenue – how much am I making each day from my daily active user base, and virality – for every user I buy, how many free (organic) users should I expect to acquire,” said Martin.
As to whether paid advertising makes sense, Martin says it’s a matter of pure economics. “If LTV > CPI then UA can be achieved profitably, then it makes sense,” said Martin. “The question is then a financing one – how does this spend get financed, what is the economic payback period, and what is the most efficient form of capital to use to fuel the spend.”
He was particularly proud of what he helped build at https://ltvcalculator.pollen.vc. “We built and LTV Calculator and financial forecasting tool to help developers figure out LTV and potential for their business to scale using paid UA,” he said, adding, “It was a challenge creating an LTV calculator and financial forecaster that was simple enough to be accessible but sophisticated enough to be relevant was challenging, but we had lots of developer input along the way which helped us shape the proposition.”
Because of this, Pollen Velocity Capital doesn’t have to worry about competitors tools in the same way. “We have a different position to most – we created the tools not to sell, but mainly to help developers discover if a paid UA strategy makes sense for their business,” detailed Martin. “Our business model is in the provision of capital.”
Monetizing New Channels
On the technology side, Martin sees the underlying payments infrastructure of apps stores is fairly static. “We are continually evolving our own platform to support accelerating not only app store payouts, but also high quality ad networks like Facebook Audience Network and Admob, so that developers monetizing via ads can also access our services,” notes Martin.
Martin foresees the role of publishers in the gaming industry changing. “There will always be some for which a traditional publishing relationship makes sense, but many developers are now incorporating UA specialists into their team. Publishers are more focused than ever on metrics and only likely to publish games that are complete and exhibit good traction. If a game is already such metrics there are other alternatives for funding of UA that don’t involve the traditional revenue share agreement with a publisher. Also, the larger publishers are increasingly becoming acquirers of games, choosing to perhaps equity fund a promising studio early on, with a view to potentially acquiring the studio down the line – this model appears to align interest better.”
Going forward, Martin says there is an increasing trend of developers monetizing new channels alongside the app stores. “If IAP and Ads are not generating a high enough LTV, we have seen cutting edge developers introduce ‘real world’ monetization options alongside, such as earning real life travel rewards, or generating affiliate income through ticket purchases etc.”
“We think this trend will continue as developers see to extend their LTVs to balance out the high cost of user acquisition,” Martin concluded.
David Radd is a staff writer for GameSauce.biz. David loves playing video games about as much as he enjoys writing about them, martial arts and composing his own novels.