“The present has no ribbon / Your gift keeps on giving / What is this I'm feeling? / If you want to leave, I'm wit' it.” – Pharrell
If you haven't heard this song, prepare yourself. It's extremely hard to listen to just once:
It's pretty great. It's catchy, it's fun, and it leaves you wanting more. It begs to be played on repeat a few times. You want to share it with your friends. It just feels good!
A little background – Daft Punk is a band that's had some really big hits in the past. They have a signature “robot” look where they act like they're from space and come down to Earth to make music. It's actually pretty amazing that they've pulled it off so well, turning their weirdness into a scarcity. It's like the less they're around the more popular they get.
For the past few months, they've been hyping up a new album launch. There's been an enormous amount of buzz about this album, kicked off by an early release of this track. It crushed it – flew to #1 on iTunes minutes after it was released and stayed there for almost a week. It was on the radio, YouTube, Facebook – everywhere. People were freaking out, playing it over and over. And over. And over.
I personally dig this song. I listened to it a bunch of times and never pressed skip when it came on my playlist. But I started to notice something really interesting, something that illustrated the most important point in user monetization that a lot of people don't realize.
A vast majority heard this song on the radio for free, said “cool” and that was it.
A smaller population sought this music out on free channels to play it over and over.
A smaller population than that actually went out and bought the song for $0.99 and played it a handful of times.
Then, there was this tiny population of people that were OBSESSED with this song, bought it for $0.99, and played it probably 1,000 times.
Do I have any data to back this up? Not really. It's just my experience with lots of different people in different groups. But I bet I'm not too far off. The reason I lay out those four sections is because, in terms of digital goods like music or apps, these represent the four “target” groups that you need to know about for monetization.
1. Non-Paying users with little to no retention
2. Non-Paying users with great retention
3. Paying users with little retention
4. Paying users with great retention
Herein lies the most important lesson in buyer psychology I can possibly impart on you – Group 4 will almost always account for an overwhelming majority of your In-App Purchase revenue….and account for about 5% of your total user base.
Using Get Lucky as an example, I want to show you how you should be marketing to your customers (users) and why the companies making millions of dollars a day on apps are doing the exact same thing.
She's up all night to have fun, I'm up all night get some, we're up all night to MAKE MONEY.
When I worked at a startup, I learned a lot about e-commerce and buyer spending. I was lucky to spend some time with a super smart, albeit super rigid CFO who single handedly turned the balance sheet from millions in the red to being net positive in a relatively quick amount of time. How did he do it? Buyer targeting.
Let me quickly touch on the four groups I talked about before.
1. Non-Paying Customers with no retention
These are people that downloaded your game for various reasons but didn't have any intention of getting into it. For one reason or another, they downloaded it but jumped ship. Maybe they liked the screenshot. Maybe it was an accident! Who knows. The point is that these people came in, saw what they saw, then left. Chances are they deleted the app as well.
These people are a lost cause. It's NOT a good way to spend your time. These are the people who heard Get Lucky on the radio and didn't think twice, these are the people that aren't interested in voting in elections. For one reason or another, it's going to require a disproportionate amount of energy to “convert” them to giving a shit about your app, at which point you don't even know if they'll make you money.
Spending your time trying to convince people that your app is awesome is a mistake. Forget about them.
2. Non-Paying Customers with great retention
With apps, I bet we're all guilty of this. We find an app or a game we like and we go to great lengths to never pay for anything. Maybe you play Clash of Clans and are totally happy waiting the extra few hours to build something instead of buying the $3.99 coin package that will speed it up. You get to level 30 without ever paying. You like the game – a lot, actually – but you're just not the kind of person who likes to spend money.
These are the people who hear Get Lucky and download a bootleg MP3. They'll give you 5 star reviews, but won't give you a dollar. They're awesome users, but CHEAP users. Chances are it takes a crowbar to get these people to spend money in other parts of their lives as well.
These types of users are the ones you want to monetize with ads. They have great retention, so they'll come back, but you need to find a way to monetize them without processing payments. Have them download another app that's just like yours and you just made the equivalent of a $1.99 in-app purchase from them without them feeling jaded.
In complex games, ads are typically reserved for these customers once it has been established that they're not going to spend any money.
3. Paying Customers with little retention
This is definitely the hardest nut to crack. They've shown that they are willing to spend money with their initial purchase, but aren't interested once they enter your app. Their psychology has changed for some reason – maybe the initial payment was emotional or maybe they just don't like what they see.
These people bought the Get Lucky single on iTunes but it's questionable whether or not they'll buy the full album. There's definitely something to be said about the value placed on apps when an initial payment is made. Often the reviews are better and the retention is better than free apps. Uninstall rates are lower. But for some reason there is a large section of people that still don't invest time or more money into these apps.
The #1 goal with these types of users is to get them into the repeat mentality. Move away from a one time purchase and towards the idea that money unlocks a better experience, not just new experiences (like buying other apps). The apps on the top grossing charts that are paid apps are the ones that figured out how to do this. A majority of their revenue probably isn't coming from the paid app sales, it's coming from in-app purchases.
It comes from moving these customers to the 4th group.
4. Paying Customers with great retention
As mentioned, this is probably 5% of your entire population. Probably closer t0 2% in most apps, actually. These are people who are spending ridiculous amounts of money in your app and continue to for months on end. Games like Candy Crush Saga and Clash of Clans have these people DIALED. I've heard that this group of “whales” will spend $1,000+ over their lifetime on in-app purchases, accounting for hundreds of hours of game play. They love your app and will purchase consumables as often as they can to keep that love alive.
The most successful games do everything they possibly can to move users into this group. Most of them come from Group 3, a few from Group 2, and rarely from Group 1. It's all about shifting people up the ladder into a higher ARPU (avg revenue per user) pool.
These are the people that bought Get Lucky and played it 500 times. They're going to buy the album. They'd probably buy tickets to every concert within a 2,000 mile radius if Daft Punk went on tour. They're LOOKING for ways to spend more money to extend this experience they get from that song. They want to be a part of it. It's a powerful, emotional connection.
I cannot stress how valuable these customers are. The metrics are far beyond any other cohort of your user base. Even for “simpler” games, you will see a handful of users like this who will start to spend a disproportionate amount of money.
Why You Should Care About This
Talking shop about marketing theory is great and all, but it only matters if it's practical to you. As I'm dealing with higher traffic numbers and bigger daily active user bases, it becomes highly critical to build these segmentation groups into your app economy.
Here is a quick list of how this monetization strategy will accelerate your upside.
1. You will build your games differently. When you realize that all users are not made equal, you'll start to understand why consumables (purchases you can make over and over) are so important. Furthermore (and much more importantly), you'll start to build CONTINUITY into your games. You'll see why the experience matters so much. When you are just thinking about the 5% of people that will bankroll you, you start thinking about how you can extend gameplay, add characters, and develop a story line for them. You realize that all the other people don't matter for this type of strategy.
NOTE: this is different than the typical model I discuss surrounding app flipping. This is for larger games that focus on IAP, not ads. Please keep that in mind with this analysis.
2. You will give a shit about customer service and reviews. Let's say you have 100,000 downloads. That means there are probably only 2,000 people that are going to spend any real money, and even fewer that spend huge money. When you see a review or get a support email from someone that says “I'm on level 73 and there's a bug, it's XXXX. I want to keep playing but blah blah” you'll stop being like “oh well” and actually start realizing that this person is worth HUNDREDS of dollars to you. There's probably tons of people just like them out there too. Hearing from deeply involved users will make you forget about the rest of the people that add nothing to your bottom line. Make your best customers happy.
3. The “Core Loop” Economy becomes a focus instead of a laundry list. I could probably write an entire blog post about this, but I'll try to summarize. The “core loop” is the psychological and game play process by which a user begins, gets in a situation that requires a purchase, makes the purchase, then repeats. It involves a lot of psychology, testing, and research. Often in games, in app purchases are listed off in terms of what would be cool or what's a standard power up or whatever. Even your coin amounts probably aren't highly calculated. Instead of simply placing a lot of options to user, you start to build games around the store in your app. Everything is focused on how to drive transactions. Buy more, unlock happiness.
If you want to read more about core loops, check out these epic blog posts.
4. You will start looking at your analytics report more than your revenue report. Each day you will be more excited to see what your DAU (daily active users) look like as opposed to your overall revenue. You will start to measure success on factors that actually have to do with users enjoying your game more. The revenue will follow.
It's OK To Market To People Who Love Your Product
Really, it is. Think about your absolute favorite product or brand – do you dislike it when they offer you new things to buy? Would you tell Apple to “take it easy” if they came out with a new awesome phone every year? I doubt it.
My point is that when you're focused on the people that love your app and are willing to spend money in it, you should realize that you are offering them value. You're allowing them to enjoy your game more. Granted, everyone has their own take on this sort of attitude, but I have to believe that on some level these people know what they're doing.
When people, especially developers talk about building great products, I think they fail to realize that this basic tiered structure is why great products work – they cultivate that upper echelon of users. The less great your app is, the smaller that premium population is. The PROBLEM is when people don't understand that a great product won't do this on it's own – it requires serious brain power, marketing, analytics, and user acquisition to make this a really viable model. Being able to create a platform where you will actually have a group 4 is on the developers' shoulders. Moving more people into group 4 is the marketers' role.
I have the utmost respect for developers because they create the sandbox that I can play in. Without developers, I would be nowhere. If nothing else, I urge you to respect the people who build your apps and work WITH them to create something great. Collaboration is an extremely powerful force in business. Realize that an inspired developer will give you a product that will allow you to reach farther and dream bigger. The bigger the apps you are building, the more you need to work with your developer in a way that empowers them.
I'm writing this post because I know a lot of you are starting to graduate to the “A” level apps. These are complex, more expensive, and more lucrative endeavors. They are also a huge amount of work. I hope that as you all begin to step into the next phase of your app journey, you are conscious of these monetization models. It's enormously fun and extremely satisfying to start to move users through these groups and monetize effectively.
I can also tell you that when you get this to point, the revenue numbers are staggering. It's unlike anything you ever thought possible. There's a reason why some of these game startups go from one game to $100M in revenue in under 2 years. Think about that type of growth.
Create top users and cater to them. Marketing, especially data driven marketing, is the most trickle down economic model I've ever seen. The top 2% will pay for everyone else's ride…and that's how it should be. Make it happen.