In 2017, the addictive and bite-sized games stormed into the app stores with record numbers. In 2020, we witnessed countless market consolidations in this arena, and hyper-casual titles accounting for nearly 31% of all installs. With Apple’s privacy changes enforced – many in the industry predict a doomsday scenario for hyper-casual. Owing to the genre’s heavy reliance on ad monetization and losing precise user-level data, it’s understandable.
However, taking a deeper dive into the economics of hyper-casual games, their dedicated ad formats, and the business model it follows, we see a different story that provides a glimpse into how hyper-casual can adapt to the changes quickly and transition easier than other mobile gaming genres.
The Hyper-Casual Success Triangle
User Acquisition for Hyper-Casual is Based on Categories
With user-level data expected to become scarce, hyper-targeting capabilities driving user acquisition (UA) campaigns will slip away. Yet, this shouldn’t greatly concern hyper-casual developers, because, the genre’s nature of mass appeal, in-app ads (IAA), and high volumes of downloads, position it as less reliant on identifying and targeting specific users. For comparison, hard/midcore or casual game genres carry a heavier dependence on precision, personalization and in-app purchases to monetize whales.
Let’s face it, users tend to stick to the same kind of games, which makes category and contextual-based targeting the new go-to for effective UA. By adding layers to traditional categories and user personas, it’s possible to extract more data. For example, sports games can be broken down into basketball, golf, football etc. When we break down these traditional categories and focus on what users enjoy playing, it allows publishers to move their users around similar category-based apps and in this way acquire more users and achieve higher LTV, without having to rely on IDFAs.
In-app Monetization Will Require a New Pair of Lens
How does UA impact your monetization strategies? Attracting high volumes of users to download your game, in turn, increases the volume of in-app ads and maximizes your revenue. When analyzing iOS, we determined what the impact would be on each ad format – banners, interstitials and rewarded video – utilizing the metric RPM (at Fyber we refer to RPM as the revenue divided by the number of a million ad requests).
Across the industry, RPMs have been low by 10-15% simply because there was little demand – most ad requests were not getting filled. However, we’re seeing the number of buyers actively buying LAT traffic steadily increasing by more than 60% since June 2020.
Since the beginning of the year, LAT traffic for interstitials and rewarded video generated higher RPM as compared to IDFA traffic.
The number of buyers actively buying LAT traffic impressions has rocketed and RPMs are now increasing as the fill rate subsequently surged.
With buyers scaling their activity and spend on LAT traffic, increased competition is driving a rise in RPMs, as well as the number of LAT impressions being bought, indicating the ability of advertisers to be able to generate positive ROAS on LAT traffic in hyper-casual games.
Hyper-casual is powered by IAA, and full-screen is responsible for at least 75% of their revenue. With the IDFA deprecation, there will be financial implications with a drop in ad revenue – but it will slowly bounce back as the transition period is over and the market stabilizes.
Balancing the Equilibrium with Game Output Will Set the Winners Apart
This hyper-competitive genre is releasing new titles at a high-speed rate. The low production costs allow developers to roll out new marketable and snackable games within weeks and keeps up with the brief LTV cycles of the gamers.
User retention and LTV cycles go hand-in-hand with monetization and UA models. Therefore, cross-promotion (hyper-casual advertisers running campaigns on hyper-casual supply) plays a critical role in sustaining the genre’s ecosystem – proving itself a strong and consistent revenue stream for developers. The beauty behind an effective cross-promotion campaign lies in the beneficial feedback loop of sharing gamer traffic and trading engaged players within this economy. By using the IDFV signal to understand your own audience you [developers] gain an edge in better positioning yourselves to cross-promote your audience around your studio-owned games, and extend user LTV cycles at the portfolio level.
It’s important to note that increasing the volume of cross-promo ads can come at the expense of the paid ads that you generate revenue from. Therefore, publishers will need to define a new point of symmetry between cross-promotion and ad monetization. If you push cross-promotion too hard and monetization takes a hit from IDFA changes – it may hinder profitability because the cost of UA may not decline as quickly as inventory prices are going down.
Looking Ahead, it Doesn’t Look All Bad
The IDFA changes are going to be more challenging for publishers who focus on niche and high-paying audiences.
Will the IDFA deprecation kill the hyper-casual market? No, it won’t. The mass appeal, low acquisition costs and large audience of hyper-casual games keep this genre resilient.
Although we do not yet know what the full effect of what SKAdNetwork and ATT will be, these preliminary insights can not reflect the full impact of the impending change, but they do provide a snapshot of the current readiness of hyper-casual games to weather the storm and prepare to adapt to the new reality in the short-to-mid term. Apple’s move will no doubt have its impact, but we’re not looking at a doomsday scenario.