Breaking the App Store monopoly with Singular & Stash

In January 2024, John Koetsier sat down with Stash Head of Product Archie Stonehill to unpack the direct-to-consumer for games. (Watch it here!) Fast forward one year, and the space is exploding. On this episode of Growth Masterminds, John checks back in - this time with Archie and Justin Kan - to explore how far things have come and where they’re headed next.

The conversation digs deep, from how today’s tech giants mirror the monopolistic railroads of the early 1900s to how international regulations against Apple and Google are starting to crack their hold. At the heart of it all? D2C webshops, which are driving 25%+ revenue growth and giving studios the power to connect directly with their most passionate players.

Tune into the full episode below, or keep reading for the highlights.

D2C is filling a gap in the market

Justin, 4:19 - “ We saw that there was this hole in the market, where you had these large distribution platforms effectively rent seeking game companies that were providing these amazing experiences to players, and not providing that much value for the amount of tax that they were taking. There's been this huge amount of interest from the game studios and figuring out ways they can directly communicate with, directly interact with, and directly sell things to their player base.”

Always know your customer

Justin, 4:39 - “I follow the customer first whenever I'm thinking about a new business.  That's what we did at Twitch. Before Twitch, we had this company, Justin TV. We were one of the first live streaming platforms and we saw there's this niche of streamer that's streaming video games that really wants to reach this audience. And we said, ‘hey, what do you guys want?’ We were really curious. And they told us they wanted to grow their audiences and they wanted to be able to make money so they could do it professionally. So we said, ‘okay, let's listen to them and figure out how to build products for them.’ And that's what became Twitch.”

“And at Stash, we're just really taking the same philosophy. Our customers are the game studios. We think game studios are really awesome - we're all gamers, we like the products that they make. And we think game studios deserve to be supported and directly owning their own customers. So we've created Stash as, not a platform, but a company and a suite of software tools that serve game studios and help them.”

The upside to webshops

Archie, 6:42 - “At Stash, our average incremental revenue is about 25% plus. The way that that's possible, even with Stash taking a 5% fee, is that uplift is 25% of net revenue. So if I'm a developer, I earn $100 dollars from Apple, what's actually happening there is the player is spending more like $143 - because 70% of $143 is $100. So at Stash, we take a 5% fee and then there's some additional fees that are variable based on payment processing methods. Normally it's unsurprising for us to be getting 30% uplift on net revenue from direct channels as well as a bunch of other non direct financial benefits.”

Use our interactive calculator to see how much revenue your game could save with a web shop. 

The true challenge in gaming payments

Archie, 8:16 - “You can make a mistake when you try to make direct channels your exclusive channel and the only way to access content. Every developer I know that operates a webshop does it alongside in-app monetization.”

“The thing about direct channels is they're really for your most engaged players. This is not really going to be a channel I would use to convert new players to spend. If you can't drive a first time conversion within gameplay, it's going to be hard for us to do it on your web shop.”

“If you think about payments, it’s pretty incompatible with the F2P model of games for a number of reasons. One, microtransactions are weird for conventional payment processors. Two, it’s quite vulnerable to digital gaming fraud since you don't have a physical delivery address. There's less ways to know exactly who you're selling to. So for a number of reasons, the payments industry took a while to catch up with F2P digital monetization.”

“The challenge in online gaming payments is really not processing payments. It's capturing player spend. It's finding a way for players to spend through a channel that you can process yourself versus spending through the app stores or through Steam. A lot of our job is to build that combined value proposition to players on behalf of developers - a first-party distribution channel that is so good that they will do something that's pretty unintuitive and inconvenient.”

“Many other industries have done that. They've disintermediated distributors, and oftentimes they have to sacrifice convenience for other benefits for their customers. So we design those benefits, whether it's loyalty programs or other ways to engage with the game. Often I would actually argue that in the context of these web experiences for your whales, for your most important users, you can actually drive more spend, enhance your value proposition, and grow your overall player spend as well as capturing more margin on that spend.”

How big is D2C in gaming today?

Archie, 14:12 - “ You can approach this question by looking at it by genre, which I think is probably the most helpful high level breakdown of the market when thinking about direct-to-consumer. There are some genres that are much more suited for this than others.

“First of all, you have to have in-app purchase revenue in order for you to take a margin on it. The genres where you've seen the most uptake are midcore and casino. Within midcore, you have RPG and strategy, and to some extent shooter as well. Then you have casino and all derivations of casino, like luck battlers, which have been massive in this market. Monopoly Go has a phenomenal web store, for example. To some extent, other genres like puzzle and simulation have some penetration of direct-to-consumer. Some games, more than others.”

“A very top performing web store will be hitting 30% of its overall revenue. Major publishers are doing north of 50 or 60%, depending on the specific profile of that game. Often if you have hyper-whale monetization, or you're a pretty old game with users who have been playing it for a very long time, but very bought in, very regular spenders, you can get your numbers up to 70 or 80%.”

Major cross-platform potential

Archie, 15:37 - “You also see a lot of success in mobile-to-PC cross platform games plays with first-party launchers. Look at a company like Plarium with the game RAID: Shadow Legends, which does not actually have a web store right now, but it does have a PC client that they distribute directly via Plarium Play. 35% of RAID’s revenue is coming from that PC client. Same with games from Scopely, or MiHoYo, even AFK Journey, which is a PC client. For certain genres, even more than web stores or alongside web stores, anything with cross platform potential often will have a good shot at first-party game launchers. I don't think it would be incorrect to see 50% of the mobile gaming industry's revenue end up in first-party channels over the next few years.”

Regulations gaining steam

Archie, 17:23 - “The EU is always exciting to watch. We're now very much in the enforcement stage of their regulation, the Digital Market Act, and they've proved that they're not going to let this slide. They've been pursuing Apple in particular quite aggressively - determining that Apple was not in compliance with the Digital Market tax requirements. In theory, that could lead over the next year to fines in excess of 5% of Apple's gross global sales. Often the tech companies will just bamboozle the regulators. But the EU teams are showing that it is not going to be the case here, that they're going to cut through the BS and really get to the heart of the very competitive ethos of these acts.”

“Then in America, there's a number of exciting near term developments as well. So one major thing that changed since we spoke last is that the federal Department of Justice launched an antitrust investigation of Apple. Obviously with a new administration, we'll see how that evolves, but that would be a landmark prosecution if they successfully hold Apple to account on really restricting the app store competition and super apps stores-within-stores where they targeted most clearly. Even if that takes a number of years to progress, which it probably will, there's also the outcome of the various Epic Games trials.”

“Epic won a complete decision against Google in December of 2023 in Google vs Epic. The judge came out with his determination of the remedy in that case, and it was more aggressive than anyone thought it would be. It was basically an ethics wish list, including opening up native app payments to be a completely open ecosystem, which is wild. That’s on pause while various appeals happen. But even if some version of that remedy goes into effect, it would be game-changing for Google Play.”

“And even the Apple case, Apple vs Epic, which Epic mostly lost, but did win on one count. Apple, in a similar way to the EU, came out with compliance that involved taxing purchases that were sourced from within the App Store, even if they didn't take place within the app.  The judge, she does not seem like she's going to accept that either. So she has been pressing Apple extremely hard, backing some of the discussions that took place in April and May. So I'm quite excited that this will continue to be something we see major gains and hopefully some really nice surprises.”

History likes to repeat itself

Justin, 20:47 - “If you take a step back from just the mobile app stores or mobile payments, you look at like the tech companies, and what we've seen in the last 20 years around social and mobile is very parallel to what happened 100-150 years ago as America went through industrialization. You had this rise of these big robber baron monopolies and oligopolies around the railroads and banking. And at a certain point, the American people decided that that was too much concentration of power and they created antitrust legislation to take power from these oligopolies.”

“If you take a step back from the specifics of what the DMA says or what cases are being prosecuted specifically, I think everybody feels the sentiment change in the tech industry, and I've been in the tech industry for my whole career, 20 years. I've seen the sentiment go from like, ‘oh, it's like a cheeky band of rebels building some cool fringe product’ to, ‘major political parties feel like these companies have too much power aggregation.’”

“I don't think there's really any coming back from that - from a sentiment perspective until  I would say power is like taken away from centralized tech oligopolies. I think the way that looks specifically here is more requirements to open up playing fields. And you saw that 20-25 years ago with the Microsoft case and Internet Explorer bundling. I think that's probably a likely outcome … I just don't see public sentiment changing. I think it's pretty bipartisan at this point.”

“ These companies have gone from startups to the establishment and because the centralization of power and data on the internet and these economies of scale, they become incredibly impactful to our world - not just our country, but the whole world. So people get upset when there's so much concentration of power. 

Archie, 24:13 - “ Even Mark Zuckerberg recently has been quite vocal about this issue. All of this indicates there's a zeitgeist for returning to a form of digital landscape that is more open. Mark Zuckerberg was specifically using the analogy of the Windows ecosystem vs the mobile ecosystem - it being his prediction and his goal or whatever it's worth. The next phase of the internet, however that looks, will be a lot more open than the mobile space has been.”