Is The Tiny Partners Program Worth It For Indie Developers?
Recently an interesting piece of information hit the news: TinyCo, one of the major mobile game development companies, released a new partner program whereby developers who refer them customers could share over 50% of the revenue generated over the lifetime of the customer. This “new” model sparked my curiosity so we decided investigate whether this new monetization model would work well for the average indie developer.
This story, like most, has two sides. The mobile gaming landscape is becoming increasingly challenging. The App Store has changed over the recent years and the major distinguishing feature is the rapidly increasing competition. With the increasing competition, it has become increasingly difficult and hence expensive to acquire new users. Techcrunch published in July 2012 statistics by W3i which show that in the period between January to June 2012 Cost Per Install (CPI) rates increased by over 55% within only half a year! For advertisers such as TinyCo the costs are spiralling out of control, so it makes sense that they would look for a solution.
TinyCo’s solution was the creation of the Tiny Partners program. Through this program, as stated above, developers who refer users from within their apps could gain a massive 50% of the revenue generated by that customer over that customer’s lifetime. In order to setup the affiliate program developers just need to integrate the SDK and they can be up and running in minutes, although TinyCo recommends spending time to more deeply integrate the promotion into the game. Payouts occur 90 days after revenue is generated, with a payout threshold of $1,000.
So is this new model worthwhile for developers? The current alternative is monetizing apps through CPI advertising via companies such as Chartboost and Revmob. While TinyCo claims that their partner program is complimentary to regular advertising, I personally doubt that this wouldn’t cannibalize existing ad revenue as TinyCo claims, although this has yet to be seen.
In order to work out if this model trumps CPI advertising for developers, we need to do a bit of maths based on statistics that are available to us. Firstly, NPD group conducted a survey of close to 6,000 individuals, which found that “30 percent of app gamers have made either an in-app game purchase or have upgraded from a free app to a paid version”, with $3 being the average price at which app gamers feel they have received good value. Additionally in a recent interview with AllThingsD.com, Andrew Green, the head of business development for TinyCo, estimated that game developers are paying $2 to $4 for each new customer, and in some cases as much as $5 or $6. According to Green, “There aren’t that many customer lifetime values that are on par with a $6 acquisition cost… In fact, it’s going to be very tight for most developers at $2.” These snippets of information are important in order to work out how much revenue each customer is likely to generate.
So, let’s imagine that you integrate TinyCo’s promotion into your app and that you send 100 users to their App Store entry. At an arbitrary 10% conversion rate, 10 users will download the app. Using the statistics above, only 30% (3) of the users will actually make an in-app purchase at an average of $3 each, which means resulting revenue of $9. That means that the payout to the referring developer would be 50% of $9, or $4.50. In turn, this works out to be equivalent to a CPI of $0.45 ($4.50 divided by 10 installs). If we examine Green’s statements above, and knowing that TinyCo monetizes users well, let’s assume that a paying customer’s lifetime value is equivalent to $6 (instead of $3). If we plug this in to the calculations above, that means the CPI would be equivalent to $0.90.
Of course, this revenue generated through the Tiny Partner program won’t generate cash flow instantly, but rather over the user’s lifetime and will only be paid out after a holding period by TinyCo.
If we now look at the alternative CPI model, from W3i’s statistics above and also from other sources, nowadays CPI rates are typically in the range of $1-2. Interestingly the implication for this, based on Green’s statement above, is that most advertisers using CPI models are most likely acquiring users at break even or even possibly at a slight loss in relation to the customer’s lifetime value. This certainly makes sense for large development companies with a portfolio of apps since once a user is acquired they can be “sold” on the developers other apps through cross promotion. For most small indie developers CPI advertising is probably ill-advised, at least until you have your customer lifetime value figured out.
So clearly, if we examine the statistics at our disposal, it is highly unlikely that the Tiny Partner program could trump current CPI advertising in terms of revenue from the publisher perspective. If it truly is possible to integrate TinyCo’s SDK in such a way that the revenue was complementary rather than mutually exclusive then this model has hope. As it stands this revenue sharing model is incredible for TinyCo since they have a guaranteed return on investment and significantly improves their cash flow position. For publishers, when compared to CPI advertising, it means most likely lower payouts and worsened cash flow.