User acquisition: Customer profitability and lifetime value in free-to-play mobile games - Case study

Abstract

This thesis sets to study a Finnish mobile game company that generates revenue through the so called Free-to-Play (F2P) model. Understanding how User Acquisition is conducted and how customer profitability analysis and lifetime value ties into the setting is studied in the context of the case company. Given that during recent years mobile game companies have demonstrated phenomenal financial success while gaming has fast increased its popularity among new demographics, the topic presents a rather unexplored academic area.

The Finnish game industry consists of 200 companies but only a handful of them are commercially notably successful. Little research has been done on the financial and managerial accounting side of game development. The Free-to-Play business model is based on distributing a product for free but offering in-app purchases i.e. micro-transactions of virtual goods that enhance gameplay. Monetization in the model is heavily skewed with a large portion of players never making a purchase. This asymmetric dichotomy suggests that a necessity for financial success is to acquire a large player base.

The objective of this thesis is to: describe and gain an understanding of what the fundaments of mobile game Free-to-Play are and of how monetization and user acquisition are manifested in the setting; second, evaluate how user acquisition and customer profitability analysis is currently conducted in a Finnish game company; and third, create a proposal on how the company can mitigate the problems of user acquisition in order to support its growth targets.