Understanding mobile games market saturation

It’s very difficult to measure the exact impact mobile gaming has had on the video games industry. 

For one, it has changed the notion of what a gamer is – if that’s even a thing anymore – by making the audience for games more diverse than ever. It is perhaps a bit easier to express its impact in terms of revenue, as mobile gaming totalled around $21bn in 2014 and is well on its way to reach $28bn by the end of next year. This makes it the largest games category and accounts for roughly a third of the $75bn worldwide market for interactive entertainment.

Unsurprisingly, the dominant narrative surrounding mobile games has focused largely on the ridiculous millions that successful and quasi-successful titles have earned. Initially, it was the ragtag generation of unemployed designers who suddenly found themselves printing money. Early apps like iSteam and Trism provided the evidence necessary for a growing number of people to quit their day jobs and focus exclusively on mobile game development.

Since then, the mobile games market has changed dramatically. Following the success of small devs, larger publishers like EA, Activision and Take-Two entered the market. At the same time, this new platform presented a unique opportunity for a host of social games developers, allowing a company like King to build on its experience and success. The entry of all these big players has changed the competitive environment: audiences expect higher quality games and marketing budgets have started to balloon.

Initially, it was the ragtag generation of unemployed designers who suddenly found themselves printing money. Early apps like iSteam and Trism provided the evidence necessary for people to quit their day jobs and focus exclusively on mobile. Since then, the market has changed dramatically.

So far, consumer demand has been healthy: in January the average paying mobile gamer in the UK spent £18.25 for a total of £56.4m. Now here’s the important part: Between 2013 and 2014, the mobile games market in the UK grew around 12 per cent, from £487m to £546m. 

But since then we have seen early signs of consumer spending reaching a plateau. More specifically, the average amount that people spend on mobile games is falling behind on the cost of production. This makes sense, since disposable income is not infinite and mobile games compete for attention and wallet share with other platforms, such as the new home consoles and various other forms of entertainment.

This raises the question: is the mobile games market showing signs of saturation?

SIZING UP YOUR AUDIENCE

Economists use the term ‘market saturation’ to describe a situation in which a product has become so common that most people who will buy it already have.

When looking at smartphone shipments, we see that the two major platforms – Android and iOS – are having record sales in terms of volume. But this is largely the result of Apple offering a more affordable version of the iPhone and the growing market share of Google’s relatively cheap smartphone offerings. 

In tandem, the sales of tablets have dropped from double digits year-over-year to a single digit forecast by industry watcher Garnet. This tells us that the bulk of people who would buy a mobile gaming device already has by now. 

With hardware reaching saturation, it is important to note that these additional consumers are not the same as the high-spending early adopters from before. Now that mobile gaming has become a mainstream pastime, it is unreasonable to expect above-average spending.

Saturation, however, is not a bad thing. 

In fact, it indicates a change in market conditions. In response, mobile game firms will have to become more creative and spend more capital on building audiences. Now that the novelty has worn off for a lot of consumers, real competition begins. 

Now that mobile gaming has become a mainstream pastime, it is unreasonable to expect above-average spending.

Already the leaders in the space have raised the stakes with Supercell and Machine Zone spending big bucks on supermodels and SuperBowl ads. Companies that lack such budgets will, instead, look for more specific audiences and try to carve out a particular niche.

Finally, to stay with the market momentum a lot of mobile publishers have moved operations to Asia and, specifically, China. But entering this market is so easy. Consider this: currently one of the world’s biggest publishers (Activision) is releasing one of the largest and most popular franchises (Call of Duty) in China, but it can’t do so without the help of China’s biggest distributor, Tencent. Even the big boys can’t just roll in and claim market share. 

Now that the mobile games market is maturing and starting to show signs of saturation, the stakes are raised. As competition intensifies and budgets balloon, the real question mobile devs confront is: what makes you think that you can be successful? The answer is and should be: let’s find out.

Joost van Dreunen is co-founder and CEO of SuperData Research, provider of relevant market data and insight on digital games and playable media.
www.superdataresearch.com