The Mobile Moneymaker - How Virtual Goods Can Increase Profit

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The mobile moneymaker goes into price discrimination via in-app purchases and virtual goods. A more diverse portfolio will naturally increase overall profits, however, bundling multiple virtual goods will relatively be more profitable when goods are more alike.

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The Mobile Moneymaker - How Virtual Goods Can Increase Profit

  1. 1. the mobile moneymaker.
  2. 2. A long, long time ago 2003
  3. 3. 2 new stores launched 2004
  4. 4. Another Appstore launched 2005
  5. 5. Slowly growing 2006
  6. 6. Boring 2007
  7. 7. Apple launched Apple App Store 2008
  8. 8. All major players follow the lead 2009
  9. 9. Winners already appear 2010
  10. 10. AppsSoftware designed specifically for mobile handsets, integrated with the web to deliver real‐time content aimed at the user’s location. 
  11. 11. What configuration of product characteristics and pricing will increase profitability of mobile App developers?
  12. 12. The Mobile Moneymaker? Free with advertisement Paid Subscription Virtual goods
  13. 13. Need for Speed,  Farmville, MafiaPortfolio Battlefield, Fifa wars,  PokerTurnover 5Bn 250MProfit 2Bn UndisclosedValuation 5Bn 5Bn Why? Potential
  14. 14. Virtual goods example Virtual good Everything consumers can  purchase in the app that  change something within  the app.
  15. 15. Price discriminationSales of identical goods or services are transacted at different prices.
  16. 16. Discrimination at three levels1.  Perfect price discrimination Total welfare Price2.  Quantity / Quality discrimination 13.  Multimarket 2 Demand discrimination
  17. 17. Bundling Student 70 20 10 100 eBuddy 25 50 25 100 Quant 40 0 60 100 Total 80 50 60 300 The price elasticity decreases
  18. 18. Versioning Student 40 60 60 60 eBuddy 40 60 80 80 Quant 40 40 40 40 Total 120 120 80 180 Segmentation according to WTP
  19. 19. Versioning, virtual goods and bundlingare conceptually the same  combining  or separating multiple functionalities
  20. 20. One Good100,000 pv Black Box yInput Simulation Output
  21. 21. Multiple Goods100,000v1 pvi Black Boxvk y
  22. 22. Bundle Multiple Goods100,000v1 pvi vb Black Boxvk y Bundling increases overall revenue
  23. 23. Bundle Multiple Correlated Goods100,000v1 pvi vb Black Boxvk y 11 ⋯ 1 ⋮ ⋱ ⋮ 1 ⋯ Correlation lowers overall revenue
  24. 24. More skewed valuation distribution100,000v1 pvi vb Black Boxvk y 11 ⋯ 1 ⋮ ⋱ ⋮ 1 ⋯ Skewness lowers overall revenue
  25. 25. Bundling correlated goods is  always favorable  over a’‐la‐carte 
  26. 26. The more goods are added to the bundle the more favorable bundling becomes
  27. 27. The more correlated goods are  the more favorable bundling  becomes
  28. 28. Measuring CorrelationFunctional Hedonic Social Positively influenced by Performance Visual  Cultural Appearance references Functionality Customizability Branding Rarity
  29. 29. Conceptual validation Pre‐/pilottestPLS
  30. 30. Survey started by 1462 users resulting  in 119 participants  (very frequent  users)
  31. 31. Significantly influenced by Cultural  Customiza Visual ap‐ Function‐ Perfor‐ Rarity Branding references bility earance ality mance 0.14T 0.22* 0.39** 0.31** 0.28* 0.17T 0.50*** 0.32*** Social Hedonic FunctionalT 0.1 * 0.05 ** 0.01 *** 0.001
  32. 32. ImplicationsAdopt virtual goodsstrategy Search for uncorrelated virtual goodsBundle correlatedvirtual goods
  33. 33. Contributions Addition of correlation to bundlings’  literature Validation of attributes of  virtual good Description of  mobile ecosystem
  34. 34. Limitations Costs Only one bundlePiracy eBuddy population Unreliable
  35. 35. The Mobile Moneymaker!

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