Freemium apps and virtual good sales: Mojo for developers

When ngmoco was acquired by DeNa  last month, figures revealed that the iPhone-exclusive game developer did not break even for the last two years with $13.36 million losses. The studio founded by former EA employees was know for its dedication to the iOS platform but also for the introduction of innovative ways to monetise their apps. Many observers assumed that the losses had to do with the failure of their freemium system, but I suspect it has to do with investments in servers, rolling out Plus+, buying Freeverse and not necessarily with the business model. 

Mark Pingus, Zynga CEO by JD Lasica/
Any AppStore shopper that looks at the top grossing app list will notice that some of the most profitable apps are actually free. Titles like Smurfs' Village, Tap Zoo, Lil' Pirates, Kingdoms at War, Tiny Chef, Restaurant Story and Texas Poker are free to download but are also in the UK top 20 grossing apps. Something similar can be said about the US and these rotate when the game novelty wears off, but definitely find it easier to get there, along with GPS navigation apps and the top sellers of the month. 
"This is a cocktail party," Zynga CEO Mark Pingus
The introduction of in-app purchase in the 3.0 iOS release was the official welcome of a new generation of games inspired by the success of FarmVille on Facebook. With it a new generation of players attracted by the simplicity and the social features of these games started spending their virtual credits on the iPhone too. Zynga, the creators of the popular FarmVille and FrontierVille, have discovered the recipe for success that many developers try to mimic on the AppStore. According to data from USA Today, Zynga accounts for 20% to 25% of the American market for virtual goods, valued in a sweet $1.7 billion. With social networks and mobile platforms adopting similar revenue models, analyst Think Equity believes that the amount could reach $3.6 billion by 2012. 
I have to admit it. I'm not a big fan of the majority of these games but I don't like iPhone ports of Flash games either. While some titles are engaging and put quality first (Eliminate), the later ngmoco series of WeRule were just clone games around the same concept and recycled ideas. Successful or not, people are buying into them. I did smile when I heard that a Smurfs themed freemium game was coming to the iPhone, but I could never expect that it would be received so well. Some websites including IGN and PocketGamer reported that children were using their parents iTunes accounts to buy Smurfberries.
We have heard the story before: This time developer Capcom is accused of benefitting from the 15 minute password gap on iDevices, allowing players to carry on buying things inside the game without being asked to verify their password.  
Of course this is the ugly side of the virtual goods market. How many headaches that addiction for FarmVille would have produced to parents around the world. When it comes to iOS games, I prefer the traditional model where I pay for a title and can play as long as I want and appreciate the all the individual characteristics that come with it. I also like in-app purchases for extra level packs or mini games. I just don't find buying virtual currency very appealing, but perhaps it's because I'm just a patient guy. Apparently a lot of gamers are not!