Mobile gaming's last hope: Alternative payments & web shops

Archie Stonehill
Head of Product
Jun 19, 2024

Eric Seufert has long been talking about the total disruption of the mobile ecosystem - that after 15 years of stasis, the app economy is being turned completely upside down. ATT is of course a big part of that, but so are all the recent app store regulations - from the Apple vs Epic case in the US to the Digital Markets Act in the EU. Now, we’re seeing alternative app stores and payments become more common, and with good reason.

To break it all down, and discuss how direct-to-consumer can bring the app economy back on track, Eric invited Stash Head of Product Archie Stonehill to join his Mobile Dev Memo podcast. Tune in below or keep reading for the highlights. 

The current state of affairs

4:41 - “What's the current state of affairs with respect to alternative app stores and alternative in-app payments? Where do things stand at the moment?”

According to Archie, “we have a global movement in different jurisdictions. You want to separate America from the rest of the world.” 

In the rest of the world, we’re seeing a big push on legislative action to open up digital markets - like the EU, Japan, South Korea, and the UK. 

Meanwhile, “you have much less likelihood of legislative movement in America. First, interesting political reasons to do with California and Democrats regulations, but you have much more action through the courts. So the judicial system in America is where you're much more likely to see some significant movement.” 

36:15 - “You don't see much action in America because the Democrats are the only ones who regulate pro competitive digital market stuff. And Democrats are so beholden to California interests that it's highly unlikely that they're going to take significant action to open up the kind of tech ecosystem - because there's California lobbying interests.”

The size of D2C’s shadow economy

7:55 - "Off-platform payments are no longer really an open secret in mobile gaming. For a number of years, they were very hush. You couldn't really find the stores online … But several high profile developers operate web shops that are not difficult to find now. What do you think is the size of this shadow IAP economy” 

8:21 - “We call this [shadow economy] the D2C Iceberg. It's one of the most annoying things about industry consolidation - nothing is public anymore, like Zynga. But Playtika is public and it's one of the most visible. Playtika is doing about $700M through D2C. Every year for the last three years, their native app payments have decreased, but it's been offset by the D2C web shop. They're charging 3-4% payment fees instead of 30%.”

"It's clearly billions. I think probably tens of billions is more accurate."

Today’s biggest opportunity is increasing spend depth

11:06 - “The Stash product would not work if it weren't for free-to-play whale monetization. If you needed to shift 50% of your users to capture 50% of your spend, I don't think that'd be realistic. But you only need to shift 1% of your users to get 70% of your spend.”

“You're not doing it to acquire new users. You're not doing this to monetize peripheral users. We're not trying to influence payments and access with like rural players, for example. No, we are trying to access your biggest spenders, your most engaged players with the most premium possible experience.”

“The unlock for you is not going to be about payment access. I just don't think there's a huge audience of like rural players that, if they could just do carrier billing, would be spending 50 grand in your games.”

“It's unintuitive, right. Because a lot of developers are like, oh, IDFA deprecation is my biggest problem. User acquisition is my biggest problem. Discovery is my biggest problem. I get that. It's a huge issue. But I actually think that if you're looking for the biggest thing you can invest in right now, I don't think it's finding new users. I don't think it's enhancing conversion. I think it's increasing spend depth and maximizing the margin on your existing spend that you should be investing in.”

Web shops’ advantages over storefronts

14:21 - "A lot of people view [web shops] as an exercise in sidestepping the 30%. But my sense is there's actually much more of an opportunity in optimizing the monetization engine in ways that are not facilitated by the platform storefronts.”

"You can use these new mediums like web or first-party launchers to do things you have never been able to do in the app.”

Deeper personalization

“For example, the development of dynamic bundles that are personalized by the player. If I, Archie Stonehill, just lost in a pvp strategy game against a particular player who has X champion, and I don't have that champion, the developer can look at that game data and be like ‘all right, what is a specific bundle for Archie Stonehill's inventory that will convert him so he will spend $500? How do I dynamically generate that bundle to maximize Archie's spend depth?’”

“So if I'm worried about Archie lapsing or joining a competitive game, I can be more generous to him. I can maximize Archie's retention if that's what I'm worried about with him, or if I'm pretty comfortable that Archie's retaining and he has high engagement, I can maximize my monetization and really you can do this sort of level of personalization that's not possible in the app.”

Generative AI and UGC

21:41: “I tend to think UGC is potentially the next wave of monetization in games. Imagine if you have a user on your website who can customize their items using generative AI, and then they can then monetize that in a marketplace. They can sell the patents they create, they can sell their creation. Again, something you can only do on the web. You can't really use generative AI in an app environment as effectively as you can on the web.”

Creator integrations

22:22 - “I think creator integrations on the web are hugely exciting. I don't mean creator codes, which basically become popularity contests and don't properly incentivize creators to make content about your game."

"How do we create branded stores or create really deep integrations between web shops content to properly align those incentives in a way that you can't  do in native apps. You can only do that in the browser.”

Brand building

40:04 - The web is “more flexible, there's more of a depth of experimentation possibility. But then the other is that's totally aligned with building a brand - with building a nexus of consumer sentiment that's related to your company and not just having this anonymous app that exists on the app store.”

Why D2C on PC has taken off

27:53 - “On PC, how did the direct-to-consumer successes bypass Steam? They've done it by either offering exclusive content that you can only access through that first-party launcher, Riot … or they've done it by offering an enhanced consumer experience better than the store distribution experiences that you can access through Steam.”

“We try and think about, ‘how do you actually get consumers to opt in to your first-party launcher as a better way of experiencing your game than downloading it through Steam? And there's a few ways you can do that as a developer.”

“For example, you can offer a better social experience. If I'm going to play League of Legends, I'm going to do it using League's first-party launcher because that's a better way to matchmake or find competitive games.”

Mobile should follow Steam’s lead

29:48 - Pointing to Apple and Google “with everything that came out in the antitrust suit - instead of just putting up obstacles for other companies to operate alternatives on your platform, why not just make your platform so attractive that no developer would ever abandon it? … And no developer would consider the commission to be excessive because they see how much value I'm getting.”

“I think that the reason for that is because you've seen more innovation taking place on PC because Steam is a competitive distribution environment.”

“Look at what Steam did with early access releases. Steam did not originally have early access releases. They were forced to allow early access because was taking market share because all of these indie game devs were distributing through in order to release demos. So Steam reluctantly allowed early access on the platform. And what do you get from that? You get Valheim, you get indie devs releasing these really cool titles that are hyper innovative, and you get Baldur's Gate 3 creating a scale of ambition of game that was only possible because they could monetize for three years before launch to build this amazing game experience.”

The last hope of game growth

33:34 - “We've had amazing product innovation in the industry, but with this kind of stagnant distribution landscape, there's only so much product innovation that can grow this industry without some commensurate distribution innovation.

“I was looking at IDFA, I was looking at the UA landscape, and I don't think there's much developers can do if they can't innovate from a distribution perspective. One of the reasons I want to start Stash is to help developers grow.”

About the Author

Archie Stonehill

Head of Product
Archie Stonehill is the Head of Product at Stash, collaborating with top game studios to build a first of its kind direct-to-consumer platform for games. Previously, he was Engagement Manager and Senior Expert Advisor in Games at McKinsey, and following that, was a Principal at Makers Fund, working closely with founders and investing in the next big studios. As a hardcore gamer himself, Archie is deeply passionate about the impact D2C will have on player experiences and industry innovation.
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