Mobile game developers are some of the leaders in app development. They push the bounds of what devices can do, how to implement constructive user experiences and handle privacy situations. By studying mobile game developers, one can see the macro environment of the mobile app ecosystem at large. Yet, when it comes to making money off of apps, game developers are often groping for solutions along with everybody else.

There are advantages and pitfalls to all types of monetization schemes. Freemium games with in-app purchases can be heavily reliant on a small portion of users. Mobile advertising only works for large-brand publishers and games that go viral. Monetization is the trickiest question an app publisher can face. What is a game developer to do?

Avenues to Monetization

There are several options for game developers to make money. They are not mutually exclusive, as different types of monetization schemes can be layered within a single app. The general categories are pretty broad: paid apps; in-app purchases and virtual goods; mobile advertising; and sponsorships.

The game developer ecosystem understands that most users are not going to load up on paid apps. Casual users may pay for a couple of games, but for the most part, they are going to go the freemium route and use games as a way to kill time or entertain themselves for short stints. That is why the two different avenues, in-app purchases and mobile advertising, become so important.

From a very high level, the key is to pick the monetization scheme that fits your game. I see a lot of people trying to fit freemium games into a game that clearly will not monetize on freemium," said Adam Telfer, VP of game development for XMG Studio. "I see people throwing into paymium games which do not have an effective in-app purchase strategy. In-app purchases cannot be retrofitted. Freemium game play has to be built in from the beginning."

Telfer makes a good point. Monetization strategies need to be conceived from the very beginning. It affects every decision of the development and design process. Where are in-app purchases going to live within the user interface? If we use mobile ads, what type of screen real estate are they going to take up? Do the color schemes of the ads match our game design?

In a perfect world, game developers would make games that are so crazy awesome that consumers would line up to put money in the publisher's pocket. The reality is that is not going to happen.

"That is what we think is ideal, what we are striving for: a user base that loves your game so much that they are willing to spend as much money as they can on your game," Telfer said. "The realistic method is that your producers, your game designers, have to become half salesmen and half game designers. So, they have to be able to understand what makes people tick, what makes people change their opinion about a product from being just something they distract themselves with to something they are willing to spend money on."

When thinking of monetization schemes from the beginning of development, there are a variety of factors to be considered. Whether it is advertising or in-app purchases, analytics are extremely important. What types of actions are gamers taking on a day-to-day basis? When do they tend to purchase virtual goods? By understanding user behavior, developers can create the proper logic within a game to optimize revenue return.

Thinking About Ads

"It is a neat time to watch mobile advertising get its legs and be a constructive revenue stream within the game environment," said Victor Milligan, chief marketing officer at Nexage.

Not all in-game ads are the same. There are banner ads, inline videos, rich media interactions and cutaways (such as when you get an ad after making a move in Words With Friends). These ads can be integrated through a direct partnership with a brand, by integrating an ad library or by creating a bridge to an advertiser through real-time bidding exchanges like Nexage. For example, Electronic Arts gave a good sample of four different ways to integrate ads in social games to AllThingsD earlier this week.

Nexage believes that mobile ads are the way to go to build revenue for games. To be fair, of course it does - it works on behalf of the advertisers. Nexage also focuses on premium brands, such as Rovio, so its perspective does not always align with smaller publishers. XMG has a couple of high level games, like Powder Monkeys, but it also focuses on niche demographics where mobile advertising is not worth the effort because the amount of eyeballs reaching the ads does not equate to considerable revenue.

"The ad libraries, there are tons of them and they all have their pros and cons. And in the end, it just comes down to the number of eyes that you have in your game. For the most part, we have a lot of niche games, so we won't be able get the eyes as something like a Farmville. Farmville or any game that has 10 million active users on a daily basis are the only ones that are going to be able to make money on advertising," Telfer said.

If in-app purchases must be figured into the game's logic, that goes double for mobile ads. Milligan points out that game developers, unlike other app publishers, always put the game experience first.

"What I find most interesting about the game developers is their maniacal focus on the game experience to the customer. One of the concepts of designing from engineers, you can really tangibly feel that game developers build their game as if they were going to play it themselves and the joy they have in that," Milligan said.

The goal of mobile advertisers should not just be about how to reach as many eyeballs as possible. Milligan points out that advertisers are coming up with ways to work with developers in meaningful ways to increase relevance and insert ads into game flow. A diligent developer with a popular game could do well working in cohort with a mobile advertiser that has the ability to focus on particular aspects of game logic and design.

It is a tricky line to walk. Game developers that do not have an astronomical amount of users are probably not going to want to bother with mobile advertising. It is a time-consuming and intensive process (from implementation, privacy concerns, tracking and analytics) and is often not worth the reward. Yet, if a game developer suddenly publishes a hit (such as Rovio did with Angry Birds, the 52nd app it developed), a lot of revenue can be missed by not having an advertising solution.

The common theme, from game developers and advertisers, is simple. Build the best game possible that keeps bringing users back to the app. The best gaming experience will lead to monetization because users will buy in-app goods and be tolerant of advertising.

Images: Blue lady, mobile money and kaboom courtesy of Shutterstock