- Published on
The Margins of Video Games: Marketing
- Authors
- Name
- edstef
- @epmeddie
Introduction
The computer software industry typically boasts the best profit margins across industries. This is in part due to:
- No cost to reproduce products
- Scalability
- Automation
- Global Reach
There is no physical product that can achieve any of these factors with such ease. Video Games are no different, and enjoy all of these factors as well since they are just pieces of software with a specific purpose. Which begs the question: Why do Video Games exhibit such low profit margins, especially when compared with the software industry?
Marketing Costs
I could make a video game, or any piece of software, deploy it to a domain, and within seconds I could have people from around the world giving it a try. The only caveat is, they need to be able to find it, and that is where things start to get expensive.
Building and selling software has 3 main expenses:
- Software Developers
- Marketing
- Web Hosting
Each of these expenses can be huge and are all part of the formula that eats away at video game’s profitability, but for this post I want to focus on just one: Marketing.
According to AppsFlyer in 2023, the mobile game market spent a whopping $29 Billion on user acquisition ads. Mobile game revenue in the same year hovered around $100 billion, which means that nearly 29% of all revenue went straight into marketing.
This ratio is extraordinarily high, and eclipses industries like retail, who spend around just 5% of revenue on marketing. As mentioned earlier, software enjoys a lot of profit margin benefits not available to traditional industries, but even other tech or SaaS products are only spending 10-15% of their revenue on marketing.
The heavy costs associated with acquiring users can be attributed to the vast amount of competition in the industry. There are hundreds of new games released every single day and they are all fighting for a finite player base.
In fact, the number of games being released every year is outpacing the number of new gamers by a lot. The result? Most video games don’t just go unplayed, but they go undiscovered by gamers who don’t even know they exist.
Conclusion
Creating video games is many people’s dream job. They love to play them so building them seems like a natural career path. But unless you’re willing to spend a ton of money on user acquisition, there’s a good chance your game will, for the most part, go unplayed.