Sega’s Move to Mobile Game Development and the Evolving Array of Business Models Available for Monetizing Video Games

An image of some different games available for download and play on mobile devices.
An image of a smartphone and a few icons showcases some of the popular mobile device games available for download. Many of these games are incredibly easy to learn and can be enjoyed when played for short periods of time. Source of image:

The video game industry used to be relatively straightforward in terms of how its products were monetized. Either consumers purchased a game and owned it outright and everything that could be done within it was all inclusive in the purchase price or consumers paid a monthly fee to have access to the game. The former typically relegated to video games for console systems with the latter being reserved for games on computers that involved an Internet connection and interaction with other players of the game around the world. In fact, the second example really represents a step in the evolution of how video games are played and further monetized today.

An interesting article in The Drum discusses the announcement of Sega games studio to shift towards developing apps for mobile devices. Sega is well known for publishing the Sonic the Hedgehog games and other renowned games. Sega was a major competitor to Nintendo in the ‘90s in the video game console segment of the business. Over time Sega made the decision to shift its focus to developing video games and moved away from the video game console business as sales of its own console declined. Now it appears that the company is looking to reallocate its resources towards focusing on game development for mobile devices. The company expects to see sales grow based on this shift and it would appear that a number of interesting opportunities would be available to the company for generating revenue as a result of the transition in strategy.

Mobile gaming has significantly shifted both the way that video games are able to make money as well as the audience for video games. A recent study by the Internet Advertising Bureau found that in the UK more women than men play video games with 52 percent of gamers being women and 48 percent being men. Increasingly, video games are being played by people of all ages, which can be most likely related to a more diverse array of games that require differing levels of commitment and carry differing levels of complexity. Many mobile device games are easy to pick up for individuals who might be classified as casual gamers (people who play games for minutes at a time). In addition, games on mobile devices remove a traditional barrier to entry for many, the purchase of a video game console. Since most people own a smartphone and downloading a game takes a matter of moments it is easy to jump right into the gaming experience. In addition, many mobile games are offered for free. Game publishers who offer their product for free seek to monetize their product through a few different options. These options can be combined in many cases and may include:

  1. Sell advertising to be featured within their games.
  2. Offer consumers both the option of a free version and premium version (paid) of the game. The premium version often contains additional features and the added advantage of being free of ads.
  3. Provide players the opportunity to pay money in order to purchase features and resources a la carte as they play the game.

The third option in particular is very interesting for many companies given its potential to actually generate greater revenue through the game than might have been possible if offered for a one-time cost. As a game is updated under this model of monetization new additions can be devised that create more opportunities to incentivize players to make in-game purchases in order to gain new features or resources that are hard to come by through other means. For marketers, the ability to analyze data from players of games on mobile devices also provides the opportunity to identify ways to improve the player experience and increase the amount of time that players spend within the game. For traditional video games, providing a better gaming experience made sense because it increased the likelihood that players would recommend the game to others as well purchase sequels of the game. When in-game purchases are available it also increases the likelihood that players will be willing to make an in-game purchase in order to be able to deal with a new challenge, gain a competitive advantage or gain access to a resource that will enable them to more quickly reach a new level of success in the game. This approach to generating greater revenue can be thought of in a sense as a “foot in the door” tactic.

For a company such as Sega, which has made the decision to focus a significant portion of its resources on mobile device game development, there will most likely be some interesting considerations that need to be made. For instance, which games up for development are best suited to be sold outright or monetized through one of the other options available in the mobile device gaming market?

From a marketing management perspective here are some questions to consider:

  • What are some kinds of games that you believe are best suited for each of the different types of monetization approaches described in this post? Why?
  • How would you measure the effectiveness of in-game purchases as well as provide a means of identifying what factors drive their sale?
  • As a marketing manager for Sega how would you approach marketing your mobile device games to casual gamers? What are some of the sub-segments within the casual gamer segment and what channels and messaging might be best suited for reaching them?