Game Apps – Virtual Currency and the Freemium Model

Game Apps – Virtual Currency and the Freemium Model

A few weeks ago, we reported on Distimo’s recent finding that game apps comfortably dominate the mobile app market.  (This seemed obvious enough that some bloggers had some fun with the result.)  In this month’s report, Distimo analyzes the ways in which developers are cashing in on that popularity through the use of freemium models and virtual currency.

What is virtual currency?  In essence, it’s anything that can be used – whether it’s gold, lindens, or smurfberries – to purchase items and upgrades within the economy of a given game.  If you’re not familiar with the gaming community, these currencies are not to be taken lightly:  there are exchange rates for virtual currencies and you can do prison time for stealing virtual currency.  Also, it seems as though the computer network will soon be replacing the sewing machine in the sweatshop of the future.  And if you’re still not convinced, consider the fact that there are only about a trillion American dollars currently in circulation, which means that most of the money in your bank account is virtual as well. [For more on the “virtualness” of your money, check out this podcast from This American Life on The Invention of Money.]

Despite the fiction that is money, all is not lost.  According to the latest Distimo report, game app developers are exploiting the freemium model to translate the virtual currency of game apps into real (as in not virtual) profits, profits that are growing at an exponential rate.  The freemium model itself, which allows consumers to download games for free and purchase virtual currency once they’ve started playing, now generates ten times more profit than it did this time last year.

The in-app purchase mechanism of the freemium model is thus clearly becoming the most effective money-maker in the mobile app industry.  Tap Pet Hotel, a game that allows the user to create something as frivolous as a dog kennel, was the highest-grossing game on the market last month and generated all its revenue from the sale of its two virtual currencies, “treats” and “coins.”

Game apps are exploiting this trend to great effect, but other types of mobile apps can benefit from the freemium model as well.  If you have an innovative idea for a freemium app, send me an e-mail and we can help get you started.

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