In-app Purchases vs. Ad Revenue - which strategy do you find more sustainable for game developers?

Both strategies are viable but depend on the game type and audience. In-app purchases are more sustainable for engaging, long-term games with loyal players, offering consistent revenue. Ad revenue suits casual, high-traffic games where players engage briefly, relying on volume over depth.

The sustainability of in-app purchases (IAP) versus ad revenue depends on the type of game and its target audience:

-In-App Purchases:
IAP is often more sustainable for games with strong player engagement, especially when the game offers valuable, optional purchases like cosmetics, premium content, or convenience features. It works best in games with dedicated player bases who are willing to invest in enhancing their experience. While IAP can generate significant revenue, its success heavily depends on creating a game that balances accessibility for free players with enticing paid options.

-Ad Revenue:
Ad-based monetization is sustainable for games with high player traffic and shorter play sessions, such as hyper-casual or free-to-play mobile games. By offering optional ads, such as rewarded videos, developers can earn steady income without alienating players. However, ad reliance can limit revenue potential compared to IAP, as it depends on maintaining a large, active player base and optimizing ad placement without disrupting gameplay.

Here’s a comparison of In-App Purchases (IAPs) vs. Ad Revenue for game developers:

In-App Purchases (IAPs)

1. Higher Long-Term Earnings: IAPs can offer more consistent and higher revenue, especially for premium content or in-game cosmetics.
2. Player Engagement: Players who make purchases tend to stay more engaged and invested in the game, improving lifetime value (LTV).
3. Control Over Monetization: Developers can set prices, sales, and bundles, giving more flexibility to tailor the experience and revenue strategy.
4. No Disruptions: IAPs don’t interrupt the gameplay experience, keeping immersion intact.
5. Scalable: If players are willing to spend, IAPs can generate more revenue than ads, especially for high-quality or addictive games.
6. Risk of Pay-to-Win: If not balanced properly, IAPs can create a "pay-to-win" scenario that frustrates players.

Ad Revenue

1. No Paywall: Ads provide a free-to-play model where players don't need to spend to progress, making the game accessible to everyone.
2. Steady Income: Ads can provide a steady flow of income, especially if your game has high engagement or a large user base.
3. Non-Intrusive Options: Rewarded ads (e.g., watching an ad for extra lives or boosts) allow players to choose whether they want to watch ads.
4. Low Barriers for Players: Ads can attract more players because they don’t require upfront purchases or investment.
5. Revenue Scalability: High player retention and frequent play sessions can lead to consistent ad revenue.
6. Potential Frustration: Ads can negatively impact user experience if not implemented thoughtfully, leading to player frustration or churn.
    

Verdict

• In-App Purchases (IAPs) are generally more sustainable long-term because they provide higher control over revenue and rely on player investment in the game. They are best suited for games with strong retention (D1 Retention over 40% and D7 Retention over 15% is a strong retention for mobile games) and loyal player bases.
• Ad Revenue can be a sustainable model for free-to-play games with lots of users, especially if you focus on non-intrusive ads like rewarded videos. However, it depends on a large user base and high engagement to generate meaningful income. It is generally a good strategy for games with low User Acquisition cost and low retention
• Hybrid Strategy: Combining both IAPs and ads can provide the best of both worlds. This way, you can offer the game for free while also monetizing through IAPs for engaged players and ads for casual or non-spending users.