Cashing in on the Smartphone Gaming Boom

Digital Commerce Everywhere.

Cashing in on the Smartphone Gaming Boom
A consumer research study by Elastic Path Software Inc.

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“Set to reach $1.5 billion in just a few years, mobile gaming has
hit the mainstream. To cash in on the smartphone gaming boom,
traditional gaming companies must be pro-active in adapting to this
emerging platform or watch newer or more nimble market entrants
like Rovio and Glu Mobile crowd them out.”

Survey Background

This 2012 online study polled 503 US adults over the age of 18 who play games on their smartphones at least a few
times a month. The survey was developed to examine consumer attitudes and behaviors towards mobile gaming.

Executive Summary

The widespread adoption of iOS and Android devices has led to massive changes in the retail portable game
category. According to Mintel’s, “The US Mobile Gaming Market - May 2011”, U.S. mobile phone and tablet gaming
sales hit $898 million in 2010, doubling 2005 figures.

With smartphone and tablet sales on the rise, games being the leading category in the App Store and Android
Market, and cloud gaming poised to take off, the future of mobile gaming looks very rosy indeed. Both Mintel and
eMarketer are forecasting revenues to top $1.5 billion by 2014-15.

The study found that better handsets with improved gameplay capabilities are leading to more frequent mobile
gaming. Further, smartphone gamers no longer just play on the go; a large chunk of smartphone game time is spent
at home, suggesting that mobile has now become a viable alternative or complement to traditional console and PC
gaming.

To profit from the mobile gaming boom, Elastic Path offers a number of recommendations aimed at app stores and
game publishers. These include broadening portfolios to appeal to diverse audiences, improving title discovery,
integrating robust social features, continuing to innovate with freemium games, and working with advertisers to
promote products in-game.

2

Key Findings:

Over half of smartphone gamers play daily.

Of the gamers surveyed, 60% play mobile phone games daily, 26% play weekly, and 14% play monthly
[Figure 1]. While mobile gamers come from diverse backgrounds, daily gamers are slightly more likely to be
younger, male, and university-educated than those who play less often.
[Figure 1 – Tables 4]

In order to compare the behavior of frequent gamers with more casual users, those who play daily will be
classified as avid smartphone gamers for the duration of this report. The remaining gamers who play a few
times a week or month will be called casual smartphone gamers.

On average, how frequently do you play games on
your smartphone?

Avid smartphone gamers Casual smartphone gamers

14%
A few times
a month
35%
Several times
per day
26%
A few times
per week

25%
Once or twice
per day

Base: 503 smartphone gamers [Figure 1]

3

Avid gamers frequently access other digital content on their phones.

Avid gamers are more likely than casual players to access other forms of digital content on their mobile phones
and much more often. While only 15% of casual gamers listen to music on their phones multiple times a day,
39% of avid gamers do so [Figure 2]. In addition, 26% of avid gamers watch mobile video several times each
day, almost triple the rate of casual gamers (9%).

Avid gamers are also nearly twice as likely as casual gamers to access social networking sites like Facebook
on [Figure 2 – Table 2-3,5-8] multiple times a day (58% vs. 32%), and tend to surf the web, text, and call more
their smartphones
frequently too.

Percentages who do the following activities on their
smartphone several times a day.


80%
Make and receive calls
65%

79%
Send and receive texts
58%

64%
Surf the web
35%

Access social networking sites 58%
(e.g., Facebook, Bebo, Myspace) 32%

39%
Listen to music
15%

26%
Watch TV / video
9%

0% 20% 40% 60% 80% 100%

Base: 503 smartphone gamers [Figure 2]

4

Google Android is the most popular smartphone platform amongst mobile gamers.
Amongst all mobile gamers, Android is the leading platform with 42% of avid gamers and 49% of casual gamers
[Figure 3]. Fewer gamers in general own Apple iPhones; however a disproportionate percentage of iOS users are avid
gamers (41%).

It’s difficult to say for certain whether iPhones attract more frequent gamers or create them. As yet, the number and quality
of mobile games available for Android don’t come close to those available on iOS. Android phones’ varying screen sizes
and processor speeds, combined with a chaotic Android market, have made some game developers slow to commit to
the platform.

Overall, our survey numbers closely resemble the percentages for Android and iOS platform market share. According to
comScore’s December 2011 press release, Android is gaining ground in the smartphone market. Of the 84.5 million U.S.
smartphone owners, almost 47% have Android phones and nearly 28.7% have iPhones. RIM is a distant third at 16.6%.
[Figure 3 – Table 1]

What type of smartphone do you primarily use?


Android smartphone 42%
(e.g., Thunderbolt, Droid, EVO, Samsung Galaxy) 49%

41%
Apple iPhone
27%

12%
BlackBerry smartphone / PDA
15%

5%
Other smartphone
9%

0% 20% 40% 60% 80% 100%

Base: 503 US adult smartphone gamers [Figure 3]

5

A fifth of avid gamers have six or more paid games installed.

Free-to-play mobile games have witnessed some serious growth over the last couple of years. According to mobile
analytics company Flurry, freemium games with in-app purchase options represented 39% of Apple App Store games
revenue January, 2011 and that number had risen to 65% by June, 2011.

With an ante of effectively zero, there is no downside to trying an unlimited number of ad-supported and freemium games.
Almost a third of avid gamers (31%) claim to have 6 to 10 free games currently installed on their smartphones [Figure 4a].
Another quarter (25%) has 11 or more. Even one in three casual gamers (35%) has 6 plus free games installed.

When it comes to paid games, it’s no surprise that avid gamers are heavier consumers. A fifth (20%) have 6 or more paid
games currently installed, compared to just 6% of casual players [Figure 4b].

[Figure 4b – Table 10]

Approximately how many free games do you currently have
installed on your smartphone?


11%
21+
7%

14%
11-20
4%

31%
6-10
24%

41%
1-5
60%

3%
0
6%

0% 20% 40% 60% 80% 100%

Base: 503 US adult smartphone gamers [Figure 4a]

6


Approximately how many paid games do you currently have
installed on your smartphone?


5%
21+
1%

3%
11-20
1%

12%
6-10
4%

34%
1-5
29%

45%
0
66%

0% 20% 40% 60% 80% 100%

Base: 503 US adult smartphone gamers [Figure 4b]

7

Many mobile gamers play at home while multi-tasking.

With smartphones so easy to take on the go, consumers are playing mobile games anytime anywhere. Four in
five gamers of both types said they play while waiting, with almost half gaming during their commute [Figure 5].

Mobile games aren’t just played in brief bursts while on the go, however; a large chunk of mobile game time
is spent at home. Avid gamers are much more likely to indulge in mobile games in the living room or bedroom;
44% play while watching TV and 43% play in bed, compared to 26% and 25% respectively of casual players.

For many then, mobile is clearly a viable alternative or complement to traditional console and PC gaming. The
fact that people are gaming on their smartphones at home, often sitting next to their TV, proves that mobile is
capable of getting and maintaining their interest.

When do you typically play smartphone games?


When I am waiting for someone 80%
or something 85%

When I am traveling or commuting 47%
(e.g., on the bus, in the car) 52%

44%
When I am watching TV
26%

43%
When I am in bed
25%

15%
When I am eating
7%

6%
When I am in meetings at work
3%

4%
When I am in class
1%

3%
Other
3%

0% 20% 40% 60% 80% 100%


8

Half of avid smartphone gamers played more in 2011 over 2010.

Mobile gaming is emerging as a popular form of everyday entertainment for an increasing number of
consumers. One third of casual gamers (32%) claimed they played more in 2011 than in 2010, with 51%
playing about the same amount of time, and just 17% playing less [Figure 6]. Amongst avid gamers, over half
(53%) claimed to be playing more on their handsets in 2011 than 2010, with 38% playing about the same

amount, and only 9% playing less.

Compared to 2010, did you spend more or less time playing
games on your smartphone in 2011?

More time About the same Less time
amount of time

Avid smartphone gamers 53% 38% 9%

Casual smartphone gamers 32% 51% 17%

0% 20% 40% 60% 80% 100%

9

Better handsets are leading to more frequent mobile gameplay.
Of those who spent more time playing smartphone games in 2011, both avid and casual gamers said getting
a new phone with improved gameplay capabilities was the number one reason for their increased gameplay.
Casual players skewed heavily towards this reason (65%), citing the availability of more free games as a
secondary factor (41%) [Figure 7]. Improved gameplay quality (35%), reasonable pricing (23%), and increased
multiplayer opportunities (22%) were disproportionately bigger influencers for avid gamers.

As handsets have evolved to feature higher resolution displays and faster processors, game developers are
bringing out titles that rival home console offerings, such as Infinity Blade 2, but at a fraction of the price.
There is evidence to suggest that these advanced games and console clones are attracting core gamers—a
group accustomed to paying $60 a title for games with high production values and multiplayer options—to
mobile gaming. According to NPD Group, established console owners are spending more time playing mobile
games than the general population.

What has inﬂuenced the increase in your smartphone
game play?


New phone with more memory/better 49%
gameplay capabilities 65%

Quality of gameplay and 35%
graphics have improved 22%

34%
More free games or free trials available
41%

29%
More game titles available
14%

23%
More time available
(e.g., longer commute etc.) 17%

23%
Reasonably priced smartphone games
11%

22%
Friends to play with / against online
10%

3%
Other
3%

0% 20% 40% 60% 80% 100%

Base: 229 US adult smartphone gamers who [Figure 7]
increased their gameplay in 2011

10

Smartphone gaming spend is increasing at a fast clip.

Mobile gaming spend is growing from year to year, with avid gamers leading the way. While 54% of avid
players bought smartphone games or add-on content in 2010 [Figure 8a], 66% did so in 2011 [Figure 8b].
And across the board, gamers spent more last year, although only a small minority shelled out over $50.
Free-to-play titles have expanded the choices available and increased competition for consumers’ time.

[Figure 8a – Table 16]

Approximately how much did you spend on mobile games
and game content in 2010?


6%
More than $50
1%

8%
$26-50
3%

13%
$11-25
10%

24%
$1-10
20%

Nothing – I did not purchase any 46%
mobile games or game content 65%

3%
Not sure
2%

0% 20% 40% 60% 80% 100%

Base: 503 US adult smartphone gamers [Figure 8a]

11


Approximately how much did you spend on mobile games
and game content in 2011?


8%
More than $50
3%

12%
$26-50
4%

14%
$11-25
8%

30%
$1-10
23%

Nothing – I did not purchase any 34%
mobile games or game content 59%

2%
Not sure
3%

0% 20% 40% 60% 80% 100%

Base: 503 US adult smartphone gamers [Figure 8b]

12

Gamers are keen to recommend titles and play with friends.

Of those surveyed, 78% of avid players and 50% of casual gamers recommended a mobile game in 2011
[Figure 9]. Over half of daily gamers (57%), along with a quarter of casual players (25%), invited a friend to play
or accepted an invitation to play. Adding social features that let players recommend titles, and easily find/invite
their friends, can help app stores build audiences and engagement.

Many gamers exhibit signs of brand loyalty; 65% of avid gamers and 38% of casual gamers downloaded two
or more games from the same brand or publisher last year. Underscoring this finding, Distimo’s 2011 report,
“Mobile Gaming Trends: Popularity, Pricing and Monetization”, noted that just ten game publishers accounted
for more than half of all downloads of the top 300 iPhone paid games in June, 2011.

Gamers show willingness to pay once they have started engaging with a game. Half of avid gamers (51%) and
27% of casual gamers said they had upgraded a free game trial to a paid version in 2011. A third of heavier
gamers (34%) and 12% of casual gamers said they had paid for additional content for an originally free game
[Figure 9 –year 18] well.
last Table as

Percentages who did the following activities in 2011.


78%
Recommended a smartphone game to someone
50%

Downloaded more than one smartphone game 65%
by the same brand or publisher 38%

Invited a friend to play a smartphone game or accepted 57%
an invitation from a friend to play a smartphone game 25%

Upgraded a free game trial or free game 51%
app on your smartphone to a paid version 27%

44%
Clicked on an ad within a smartphone game
21%

Clicked on a link within a smartphone game 43%
to download a different mobile game 18%

Purchased any content for a smartphone game 34%
that you originally obtained for free
(e.g., power-ups, new levels/modes, etc.) 12%

Tweeted or shared high smartphone 33%
game scores on Facebook 15%

27%
Bought and gave a smartphone game app to someone
10%

0% 20% 40% 60% 80% 100%


13

Browsing beats search in game discovery.
When looking for a new game in an app store or website, avid gamers are most likely to browse bestsellers,
new releases and featured games (47%), while casual gamers browse game genres (33%) [Figure 10]. Search
is less commonly used as a starting point by frequent gamers; only 24% begin at the search box versus 30%
of casual gamers. Mobile game designers should take notice and seek visible app store distribution to reach
the most engaged users.

How do you most often ﬁnd new smartphone games you
want to download in an app store or website?


47%
Browse most popular or featured
smartphone games and new releases 32%

Browse categories 28%
(e.g., racing, arcade) 33%

Search for speciﬁc titles I heard about from friends 24%
(e.g., magazines, blogs, etc.)
30%

2%
Other
5%

0% 20% 40% 60% 80% 100%


14

In-game content is growing mobile gaming revenues.

When it comes to purchasing add-on content like extra levels for games, it’s not surprising that avid gamers
lead the way; 51% have bought in-game content in comparison to just 29% of casual gamers [Figure 11].
Access to new levels and features and performance enhancement are the most common reasons cited for
buying add-ons.

The freemium model can be extremely lucrative. The amount spent on in-game content for freemium titles
is relatively large when compared to the $0.99 to $4.99 sale price of a typical paid mobile game. Freemium
games remove the barrier to engagement but can earn greater revenue from a steady stream of in-app
purchases after the user is hooked. Mobile analytics firm Flurry found in 2011 that the average transaction
inside a free-to-play game is $14. Although this figure seems high, over 5% of all purchases are for amounts
larger than $50, rivaling the amount paid for console and PC games.

Which of the following, if any, describes why you have
purchased in-game content (e.g., virtual currency, weapons,
additional levels, etc.) for your smartphone?


36%
To access new features or levels
19%

To improve my performance or speed up 30%
my progress through the game 13%

To personalize or decorate my 21%
character / persona 12%

0%
Other
1%

I have never purchased any in-game 49%
content for my smartphone 71%

0% 20% 40% 60% 80% 100%


15

Gamers show interest in non-credit card payment methods.

Most game purchases are billed through a pre-registered account like iTunes, which is set up one time to allow
application store purchases. Fast and easy, payment through a pre-registered account appeals to the majority
of frequent players (84%) [Figure 12]. Casual gamers show slightly more interest in PayPal; three quarters of
these respondents (77%) find this payment method at least somewhat appealing.

Operator billing also holds promise; 68% of avid gamers and 61% of casual gamers would be willing to have
their game purchases added to their carrier bill at the end of the month. Many are also willing to buy game
content with virtual currencies like Facebook credits. Underlining the critical importance of this trend, according
to[Figure 12 – Table 30] of the 300 most popular iPhone games use some kind of virtual currency for monetization
Distimo, 35%
purposes.

Percentages who ﬁnd the following ways to pay for
smartphone games and in-game content at least
somewhat appealing

Pre-registered account 84%
(e.g., iTunes) 68%

75%
PayPal
77%

72%
Credit or debit card entry
63%

Using my phone number to pay and the charge 68%
will appear on my mobile phone bill 61%

56%
Facebook Credits or other virtual currency
45%

0% 20% 40% 60% 80% 100%

Base: 300 US adult smartphone gamers who paid for [Figure 12]
mobile games or in-game content in 2010 and/or 2011

16

Key Takeaways
With US mobile gaming revenues forecasted to top $1.5 billion by 2014-15, we offer a number of tips to platforms
and publishers to profit from the boom:

App stores and mobile gaming sites

1. iOS attracts a disproportionate number of avid gamers who not only spend more on mobile games but
also are heavier consumers of other smartphone content. While Google is taking steps to raise the standard of
apps on the Android platform through a new training portal and design site aimed at helping app developers
learn best practices, it needs to push harder to build a better catalog and attract avid gamers.

2. With gamers showing serious interest in non-credit card payment, gaming marketplaces should consider
accepting alternative forms of payment like PayPal to capture those who don’t own credit cards or want better
control over their spending.

3. Mobile gamers may routinely switch between searching and browsing for game titles, so app stores must
support both behaviors by providing filters, sorting, and advanced search. Help gamers find appropriate titles
by offering recommendations based on past purchases or reviews.

4. Make it easy for gamers to see what others are playing, suggest specific games, and invite friends to play by
presenting friend recommendations or allowing them to import their contacts. Present a clear sign-up process
to new players.

5. App store owners and marketplaces can differentiate themselves by offering low-cost subscriptions focused
around different mobile gaming genres or bundles of complementary apps hand-picked by gaming aficionados.
To present curated recommendations to specific audience segments, mobile gaming sites may want to
leverage an app distribution network like Appstores.com

6. Almost a third of avid gamers bought and gave a smartphone game app in 2011, yet gifting is not always well-
supported on game marketplaces. As mobile gaming gets steadily more popular, make gift options obvious to
casual or non-gamers, and aim for a fool-proof buying process.

17

Game publishers and developers

Mobile gaming has opened an immense market that is not confined to a single demographic. This is a tremendous
opportunity for game developers to broaden their portfolios to include games that appeal to diverse audiences,
including non-English language and local content apps.

1. With much mobile game content consumed in the living room, gaming companies should continue to
release marquee titles onto mobile platforms to engage existing gamers. At a later time, these players
can then be migrated up to console titles with higher average revenue per user (ARPU), or to “all-access”
plans that allow gamers to play a single title—or complementary aspects of it—seamlessly across all their
platforms and devices.

2. When avid gamers are looking for a new game to play, they turn to featured apps first and search second.
Mobile game designers should take notice and seek visible app store distribution to reach the most
engaged users, while raising awareness through a strong social media presence.

3. Many mobile gamers enjoy recommending titles and connecting with friends to play games. New gaming
franchises should integrate robust social features such as leaderboards and multi-player mode to build and
maintain a fan base.

4. With mobile in-game purchases expected to grow to $4.8 billion by 2016 according to Juniper Research,
game publishers should continue to innovate in the freemium space to find “whales” willing to pay for
in-game content. Offering some kind of virtual currency can facilitate in-app purchases; according to
Distimo, 35% of the 300 most popular iPhone games use some kind of virtual currency for monetization
purposes. For paid games, if no trial version is available, a trade-in program may entice even casual gamers
to open their wallets.

5. Mobile gamers show signs of brand loyalty. To raise awareness of lesser-known titles, publishers with
multiple games should look for opportunities to cross-promote them, both in-game and out. Similar to
non-mobile marquee titles such as Gears of War 3, commercially successful mobile games or franchises
should be supported by a branded website that showcases all related apps, news, and associated
merchandise.

6. With almost half of avid smartphone gamers showing interest in buying directly from in-game ads,
advertisers should work with game designers to pitch their products inside well-known games.

18

About Elastic Path

Elastic Path is the leader in digital commerce technology and expertise for enterprises selling digital goods and
services. Major global brands such as Google, Time Inc, and Virgin Media rely on Elastic Path to monetize digital
relationships with their customers in ways that are frictionless, social, and everywhere.

Web www.elasticpath.com | Blog www.getelastic.com | Twitter www.twitter.com/elasticpath

Methodology

From January 5 to January 7, 2012 Elastic Path Software hired Vision Critical, an interactive research solutions
company, to conduct an online survey among a sample of 503 US adults over the age of 18 who play games
on their smartphones at least a few times a month. The full dataset has been statistically weighted to ensure a
representative sample. The margin of error is ±4.4%, 19 times out of 20. Discrepancies in or between totals are due
to rounding.

© Copyright 2012, Elastic Path Software Inc. All rights reserved. Elastic Path™ and the Elastic Path logo are trademarks or registered trademarks of Elastic Path Software Inc. All
other trademarks are the property of their respective owners.

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