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I recently delved into Mathew Ball’s insightful essay on the State of Gaming in 2024. It’s definitely worth a read and I think it’s worth reviewing some of his analysis around the mobile gaming landscape. The essay provides a comprehensive overview of the video game industry up to 2024, highlighting major forces, both micro and macro, shaping its trajectory. When it comes to mobile gaming, there are several unique factors at play, both advantageous and challenging, that deserve attention. Let’s begin by examining the tailwinds bolstering mobile gaming presently, as well as the headwinds that offer promise for its future.
Industries often undergo cycles, and we’re witnessing this phenomenon, particularly in the realm of mobile gaming. Mobile gaming experienced a golden era during the pandemic, as users found themselves in lockdown, they naturally turned to their devices to pass the time, with mobile games being a primary beneficiary. This windfall prompted many studios to increase their spending and pursue growth strategies mirroring those of leading tech companies.
But as with any great party, there’s usually an equally big (if not bigger) hangover, and this is where we currently find ourselves. Beyond the major macro forces of people now spending more time and money outside than inside their homes and on their devices, the mobile industry itself is undergoing a significant transformation due to seismic shifts like the introduction of Apple’s App Tracking Transparency framework in 2021. Apple’s ATT changes have led to increased costs of user acquisition, creating a vicious cycle of fewer installs, less playtime, and ultimately reduced in-game spending, leading to a sort of death spiral. The essence of mobile games lies in acquiring users from other games – close to 40% of US gaming spending is on mobile games.
The impact of ATT has not been equal across the board and has disproportionately affected smaller game and indie developers. The rationale behind this is that larger studios with extensive portfolios of games can somewhat mitigate the effects by leveraging their own robust user data sets and benefiting from a network effect to promote and market their games, a luxury that smaller indies cannot afford.
A prime example illustrating this is Monopoly Go, one of the standout mobile hits from last year. Interestingly, this game didn’t emerge from an independent studio; rather, it was developed by one of the biggest players in the mobile gaming scene, Scopely. Leveraging their extensive portfolio, which includes titles like Yahtzee, Scrabble Go, and Stumble Guys, Scopely facilitated the launch and growth of Monopoly Go. This demonstrates the power of having a robust lineup of games in navigating the challenges of the post-IDFA era.
Another distinctive factor in the mobile arena is the competition not only from other mobile games but also from other content offerings on devices, particularly video content. In this realm, the usual suspects include TikTok, Instagram Reels, and YouTube Shorts, all vying for attention, screen time, and dollars on mobile platforms. Both mobile gaming and video content experienced a boost during the pandemic, expanding their revenue streams and market share. However, in the post-COVID world, video content has sustained its strength, whereas mobile games have faced challenges.
In a post-COVID world, another significant macro force at play is inflation, where the costs of essential goods like food and shelter have risen as a percentage of income for many individuals. While games are beloved by many, they are largely discretionary expenses. Therefore, for mobile games, it’s been a double blow: ad revenue has contracted and in-app purchases (IAP) are also shrinking. For a casual gamer faced with the choice between purchasing extra lives or buying essential items, the reality is that the essential items will win.
Given the myriad forces at play and the harsh reality of dwindling revenue, studios are compelled to take drastic cost-cutting measures to stay afloat. One of the most noticeable responses has been a significant wave of layoffs across the gaming industry, affecting not only mobile game studios but also PC platform studios and even game tech companies like Unity. However, reducing headcount isn’t the sole strategy at play; some studios are relocating development to lower-cost regions, while others are exploring and leveraging generative AI to drive down expenses. These actions collectively contribute to a leaner mobile gaming landscape but unfortunately will result in the closure of some studios, particularly smaller ones.
The lifeblood of both small and some larger studios often comes from venture capital (VC) funding to keep the lights on. During the pandemic, VC funding reached a peak. These days, however, VC funding in North America has decreased by more than half. This drastic reduction has made raising funds for next month’s payroll a significant challenge. Gone are the days of appetites for large investments with uncertain outcomes. This creates a very challenging situation for many studios who have been relying on these fundings.
This has fostered a risk-averse environment in which the emergence of brand new titles will be rare. Instead, we can anticipate a focus on doubling down on “known titles,” with sequels and spin-offs being much more prevalent. Consequently, this environment strengthens the position of established incumbents, making it exceedingly challenging for new games to make a breakthrough. Many of the top titles are several years old and belong to highly established genres. In such a climate, studios are more inclined to invest in their biggest hits, enhancing them with additional meta and engagement events, rather than launching entirely new titles from scratch.
Despite these challenges, there are still some positive forces at play that can benefit the mobile gaming space. New business models, such as subscriptions, are on the rise. While these deals typically favor distributors by expanding their game libraries with limited upside for developers, they still represent a new revenue source. Moreover, subscriptions can be leveraged to re-introduce an aging or well-established franchise to a fresh user base. For developers, this model can aid in building a following, paving the way for the launch of subsequent sequels or spin-off games in the future.
Another significant development, once again related to Apple, is the opening of the App Store to alternative payment methods. This is already unfolding in Europe, and potentially presents developers with opportunities to bypass the standard 30% platform fee and retain more revenue. Undoubtedly, developers may need to offer discounts to incentivize users to opt for direct payments through an alternative pathway rather than the convenient in-app purchase. Nevertheless, developers stand to benefit from providing users with more choices for making purchases.
Overall, there are numerous forces influencing mobile gaming today, encompassing both positive and negative aspects, with some likely to have enduring effects while others may be transient. Despite the challenges, I remain optimistic about the future of mobile gaming and believe that the industry will persist in evolving and innovating. I have no doubt that the industry will weather these challenges and emerge even stronger on the other side.
