Dependent on Digital Whales - stratechery by Ben Thompson

Ben Thompson looks at Facebook and their announcement from the F8 conference held recently. Facebook is getting very good at targeting ads for apps and finding the right people to make them profitable for developers. The downside is that this is overwhelmingly working for free-to-play games, which are highly dependent on “digital whales” as Thompson calls them – those individuals at the far end of the long tail who will pay thousands or tens of thousands of dollars to be at the top of the leaderboards. The dirty secret of freemium games is that 90% of the users pay nothing to play, 9% pay a pittance that’s not nearly enough to be profitable and 1% pay enough all by themselves to make the games wildly profitable. The key to freemium is finding the 1%, finding them quickly and keeping them engaged and spending.

So while there currently exists a virtuous cycle – Facebook finds new users who install and later pay to play the game (some of whom are whales). When they convert, Google/Apple takes their 30% cut and the developer gets more money to bring back to Facebook to find more users – it all could fall apart when the whales dry up.