King, the developer of the popular Candy Crush mobile game, has seen substantial growth of its business and profit margins thanks to a fresh look at how to monetise gaming apps. And some of the lessons of its success can be applied to more conventional businesses.
Despite many mobile apps relying on advertising, King announced in 2013 that they were looking at moving away from advertising within their mobile titles.
The mobile advertising business remains strong with Gartner forecasting that global spend will reach $18bn in 2014, up from the estimated $13.1bn in 2013. Facebook's latest Q4 2013 revenue numbers also show that mobile now makes up more than 50% of their advertising revenue.
But King decided to focus on its freemium model and offer small but frequent in-app purchases to users to progress through the game. By bucking the trend and working out what business model worked for best for them, King was able to dominate the download charts with the Candy Crush game.
"One area where King is quite interesting is that it generally offers lower value in-app purchases, so it gets people to keep coming back into the game and get people spending more frequently than with other titles, which may offer higher value items," Jack Kent, principal analyst at IHS Technology told CBR.
"It depends on the game and the audience. If you are a game publisher and can justify why people want to spend their money with you, you can generate revenue in that way. So it's really about using the right business model for the content that you have."
By changing its business strategy to focus on what worked for them, King was able to life its revenue from $71m in Q4 2012 to $632m just one year later. It is now looking to float on the New York Stock Exchange in a bid to raise $500m for further expansion.
By engaging its active user base, King was able to maintain more users on the Candy Crush game, which was the secret to its business success.
"When you've shifted to a more service-based model, you are expected to have a more active relationship with your active user base. But with that you have the opportunity for continued revenue streams," said Kent. "With the in-app purchase and freemium model you've got the power to continue opportunity for monetisation.
"The important thing to remember is to think in terms of content, which can be expanded to other businesses. Freemium isn't a one size fits all business model: it does need to be adapted to the service you are offering, which the gaming apps industry have done well."