The Cannibalization Conundrum: Decoding How Long Tail of Small Payment Systems Impact Mobile Game Publishers Net Revenues
In the rapidly evolving world of mobile gaming, the dynamics of payment systems play a crucial role in shaping the industry’s economic landscape. For years, mobile gamers have predominantly used credit cards for transactions within app ecosystems like the Apple App Store. This longstanding reliance on traditional distribution channels has, however, seen a significant shift since October 2021, marking a new era in mobile game commerce.
The Lock-in with Credit Cards
Historically, the Apple App Store had a stronghold on payment methods, with credit cards being the primary mode of transaction. This setup provided a seamless experience but came with its limitations and costs. High distribution fees led to a growing demand for more flexible and cost-effective solutions.
Transition to Web Platforms
The change in 2021 opened doors for game publishers to explore web platforms as a means to distribute their games. This strategic move aimed to bypass the hefty fees associated with app stores and address the challenges posed by a deteriorating user acquisition environment. By expanding to the web, publishers hoped to tap into new revenue streams and bolster their shrinking net margins.
The Role of Payment Aggregators
Enter payment aggregators, intermediaries that offer a plethora of payment options, including hundreds of smaller, high-cost systems. While these aggregators facilitate access to a diverse range of payment methods, they also introduce an additional layer of fees, exacerbating the cost issues faced by game publishers.
The Cost Dynamics of Small Payment Systems
When comparing traditional credit card payments to smaller payment systems, the cost implications become evident. Credit card transactions typically incur a processing fee of around 3%, plus a nominal fee paid to the payment facilitator. Smaller payment systems, however, often charge upwards of 5%, a premium that does not include a higher aggregator’s cut.
Incentive Structures and Their Consequences
These smaller payment systems create a perverse incentive structure. By offering slight benefits, such as 1% cashback to users, they can entice players to switch from credit card payments, effectively cannibalizing a publisher’s existing paying user base. This shift not only reduces the margin for game publishers but also reallocates a portion of their revenue to the payment system and aggregator.
The Unseen Impact on Game Publishers
The consequence of this arrangement is a net loss for game publishers. As players migrate to more expensive payment options, publishers face dwindling margins, caught in a cycle that benefits payment systems and aggregators at their expense.
Conclusion
The unspoken alignment between payment aggregators and low-value, high-cost payment systems presents a complex challenge for mobile game publishers. While diversifying payment options is essential in catering to a broader audience, it’s imperative for publishers to navigate this landscape carefully, balancing the need for accessibility with the imperative of maintaining healthy margins.
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