Since the onset of privacy-first marketing, endless games industry discussions have focused on the difficulty of user acquisition and how to fix it. It’s not just difficult; UA is now exceptionally costly, too. None of this is untrue. Mobile gaming is in a tough spot and hasn’t fully adjusted to the days of easy-come, easy-go UA.
It’s also still true that if ARPU > CPI, you will make money. Some companies have certainly figured out how to thrive in the current market, particularly large publishers that had titles with large audiences already in the market when the changes took place.
Very few, though, have figured out these companies have a huge competitive advantage due to what’s sometimes described as the “miracle” of compound interest.
By slowing the revolving door of users and keeping them in the game for longer, profits can be reinvested into UA that is additive, rather than constantly spending to replace churning users like-for-like, thus resulting in a self-accelerating process.
It’s my view, then, that most games should be talking about their retention strategies before investing significantly (more) in UA. This article explains why the power of compounding makes retention rather than acquisition the real win for mobile game devs.
Coming back for more
Customer loyalty and retention are vital in most industries. Imagine a new restaurant opening in a crowded market, spending tens of thousands on slick marketing, campaigns, and decor, and successfully encouraging potential customers to try something new.
If the marketing is more effective than the core product – the food and atmosphere – the restaurant will constantly need to reinvest in marketing to replace diners who walk out the door with stomachs churning, never to return.
Or take a look at a heavily VC-funded market such as rapid grocery delivery. With little obvious difference in value proposition between companies and expensive user acquisition costs, there are certainly parallels with mobile gaming. Most of these startups have failed to retain hard-won users and may have had to withdraw from key markets or consolidate with other brands.
Mobile games aren’t so different… Players need to enjoy the game at first bite (or tap), and there must also be reasons for them to return rather than jumping ship at the next shiny offer.
It’s costly to get gamers “through the door”, so the focus is to keep them engaged. To borrow a phrase from US grocery stores, “the customer is king”, and mobile games can learn from this approach.
The miracle of compounding interest
Everyone understands that retention is important, but not everyone understands just how important it can be due to the power of compounding. Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it earns it… he who doesn’t… pays it.”
Thankfully, you don’t need to be Einstein to see how the miracle of compounding can apply to gaming, too.
Retaining a user beyond month 1 provides a compounding snowball effect in months 2 and 3, where the continuous player spending can be reinvested back in the game – attracting new users without having to replace the player who is helping fuel your UA budget.
These profits can also be spent on content for the game itself, appealing to the player and keeping them within the engagement loop. This also means the power of compounding goes beyond the purely financial, with new and “old” users alike also more likely to stick around to enjoy buzzing social features and busy lobbies.
A competitive advantage
Mobile games can no longer burn fast and bright as they did in the hyper-casual era. Launching new games is incredibly tough, which is why charts are dominated by legacy titles and mega publishers.
More complex, live service games with a constant flow of new content are required – and this requires deeper, data-backed insights about what appeals to players and response to their interests in order to boost retention.
Effective retention optimization using sophisticated machine learning is, therefore, a huge competitive advantage that isn’t yet fully understood in mobile gaming. We are entering the age of customer relationship management (CRM) in the mobile gaming world, and it will be a slim, data-based CRM where the power of compounding interest is clear, and the customer is king.
Eberhard Dürrschmid, CEO of Golden Whale
Golden Whale Productions specializes in machine-learning solutions for the gaming industry.
Under Eberhard’s leadership, Golden Whale focuses on enhancing player retention and optimizing live operations through data-driven strategies.
