November 22, 2013 | In: Opinion

The Growing Economy of IAP (In App Purchases) Games on Android

Try downloading on of those “free” games (or “freemium” games) on Android, and you will notice that the moment you are hooked, you are asked to make a purchase to continue playing the game (this is called an IAP, or In-App Purchase), or else, you will have to wait some time until you’re refilled to play again for free. Refilling takes ages, and spending the refills just takes about 30 minutes, in short, if you really want to play the game, you will have to pay real money for it. This is fair, because developers do not work for free and nor they should be expected to.

Now, when this happens to me, and I’m not a casual gamer, I uninstall the game and move on, but reading the comments posted for each of these games on Android, I noticed that many others actually make a purchase.

Here’s a comment written by one person about one game: “I have paid $60 last week and this week I paid another $60 for this game. It’s great, I love it!”

The man paid $120 in 2 weeks just to play a game – he’s not really owning the game, he’s just buying time to play the game. He can very well pay thousands of dollars for that same game to finish it, and he may never finish it, because games, nowadays, are made to be addictive and literally never-ending.

All of a sudden the PS3 and the PS4 games appear to be docile and harmless, because you only have to pay for them once and then you own them until you want to sell them. You can’t own an Android game and you definitely can’t sell it. Google has devised the most profitable business model ever known to gaming, selling games as a service!

I was thinking, if that sucker paid $60/week for that game, and if there are 1 million other suckers similar to him, then Google can make a healthy $600 million revenue from these games a week! Of course, that revenue is not all profit, but 70% of it is paid to the developers, while Google keeps 30%, or $180 million. Not bad for a week’s work!

Of course, everyone is allowed to make money the way he or she wants as long as it’s legal, but I have 2 problems with this business model:

  1. It’s addictive, very addictive, scary addictive, similar to gambling addictive. In fact, it is nearly identical to gambling, except that gambling is better, at least, in gambling, there is a chance for one to win back some of his money. It’s not the same case with IAP.
  2. Many game developers are buying into this business model, including the giant Electronic Arts, which means that we may reach a point in time where buying a game is no longer an option, and you’ll be able to just buy time to play the game.

Now, what will this mean for Google’s stock?

Since there are quite a few suckers out there who will willingly and happily pay for time to play games, then this means that Google’ stock will go up. How much up? I don’t know, but this business model might generate $1 billion every month for Google by the end of next year. You do the math!

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