When Pokémon GO was released in the US in 2016, it took it less than a day to make more money than every other app in Google and Apple’s app stores. In less than a week, it had made $14 million. And all that money came from optional in-app purchases.
The ‘freemium’ app is a business model that has more or less wiped out the market for paid mobile games. It generates almost all its revenue from in-app purchases, which it achieves through employing lessons learnt from behavioural psychology.
First, the app sets up a virtual currency, which is perhaps many levels removed from the dollars or pounds the user is actually paying in. For example, if 5 incense sticks cost 17 diamonds, and a set of 50 diamonds costs $4.99… then how much does incense cost?
It’s also a fact that people find it easier to spend money on card than with cash, as there is no physical indicator of a decrease in wealth, like that when coins leave your hand. The in-app purchasing system is set up so it is fundamentally easy to use. The app store already has your credit card details, so virtual riches are just one click away.
But all this money is made from a tiny percentage of users. Marketing firm Swerve has estimated that almost half of the revenue of mobile games is generated by less than half a percentage point of players. These players are known as whales: people who spend hundreds, if not thousands of dollars to achieve optimal gameplay.
If you’re curious about the freemium model, find out more at Vox.