"There's a life below the top 20 grossing"

The last time I spoke to Palringo's Magnus Alm, at the Nordic Game conference in May, his team in Gothenburg was working on a new approach to mobile marketing, searching for the holy grail of lower CPI and higher lifetime user value by leveraging the company's community of chat app users into a feedback loop for its new line of iOS and Android games.

The idea is simple enough: approach Palringo's existing audience, with it's measurable levels of engagement, spend and areas of interest, and introduce them to the iOS games which Alm's studio (previously Free Lunch Design) is building. As the chat app's threads are already used extensively for the discussion of mobile games, the team knows it has a ripe audience for conversion, but is also aware of how delicate the balance can be between facilitating and directing discussion. Do users who spend on stickers and in-app text games convert to paying players of other mobile games? Is the social glue of sharing a group in a messaging app enough to create an army of evangelists?

With the studio's first game, Balloony Land, about to enter the market after soft launch it seemed like a good time to catch up again and see how the magic formula was working out.

"It's performing very well so far," says Alm of Balloony Land, a simple but polished match three game which sits comfortably in the neighborhood of King's big money maker. "If you look at all geos we have very strong retention numbers, with day one retention around 55 per cent, day seven at around 30 per cent and day 14 somewhere around 20 per cent.

"What has become very apparent to us is that we're able to drive highly monetising users from our own network and they monetise very well - in some geos we're seeing ARPDAU of $0.25. So from our perspective it's been a really successful launch. What we're focusing on right now is improving virality and organic uplift in the game by adding a few new features.

"In certain areas we were able to lower the average CPI by 35-40 per cent...More importantly, we really discovered that we could drive the most valuable users from our service into the game"

"We've been able to prove this really important point of delivering a game whilst significantly lowering the CPI. In certain areas we were able to lower the average CPI by 35-40 per cent, which is obviously great. We can market the game more, and spend more in the areas where we don't already have that sort of traction. More importantly, we really discovered that we could drive the most valuable users from our service into the game. Balloony Land is a match three, but we have some more hardcore games in the pipeline and I'm pretty sure we're going to see even better monetisation for those because we have an even bigger audience that come to Palringo precisely because they were playing these mid to hardcore mobile games and were using Palringo as a companion app."

Even a relatively captive audience can be easily lost, however, especially if you suddenly drench them in marketing. Alm is well aware of the importance of not trying to bully your customers with advertising.

"We're really fleshing out the platform tech in terms of how we use it to communicate to the users," he says when I ask him how the games will be presented to chat app residents. "We have simple stuff like geo-notifications, where we can target areas or languages to highlight something to particular users, where we can have a strong call to action with graphics etc, include the app store icon so they can recognise it. We also have a games tab where you can click to play or install them, and we also have our own other social network channels like our Facebook page.

"There's also the chance to talk to our community directly. We have a lot of agents, or VIPs as we call them. They work with and for Palringo as volunteers, evangelists. A lot of them help us out, many of them will have been playing the games in beta, so they're eager to spread the word. Finally we have a rep system, a sort of metagame, so users get a bit of rep for downloading a game, sort of an incentivised install.

"We've discussed, but come to no conclusion on, the idea of putting the ads inside the Palringo app itself, because we can target them very well based on a number of factors. We haven't really had that so far - our users' privacy is very important to us. Palringo is very much about people using a persona or an alias, rather than their true name, so I'd hate to give them the impression that we're snooping, or listening in on what they're doing.

"Being able to present relevant ads to them...of course that's interesting, and we're definitely going to do video ads in the games, but we've previously tried some simple banner advertising in the app itself and we're never going to go back to that. It just doesn't make sense on any level.

"The theory with Balloony Land was that we'd be able to lower the CPI with existing methods, which we were, but what's even more interesting to us is that we were able to drive these proven highly monetising users, to boost our ARPDAU. So the benefits have been two-fold."

The first games in the pipeline aren't world changers. Like Balloony Land they take a familiar mechanic and deliver it in a satisfyingly polished way, with the additional benefits of integrated Palringo social networking. More complex titles are planned, but for now, this about proof of concept: establishing the feedback loop between app and game. Alm is confident that the task of pushing games to chatters can be a profitable one, but the other half of the process is driving Palringo registrations from the games themselves.

"Obviously the users with the highest rates of connection to Palringo are already Palringo users, that's a no brainer, but the conversion rate ranges from around 5-20 per cent, depending on the region. You could say we have an average 10 per cent conversion. We're working on optimising the user flow, to make sure you end up in a group that makes sense.

"That's the idea, to have that feedback loop. Something that gets people moving from one app to the other, but something that actually makes sense for them: it's not forced, it adds value"

"Some people will probably download the app just to get those additional features that they'll gain access to, but of them will also stick around, maybe eventually form clans etc. That's one of the reasons we're experimenting with a simple sign-up interface where you can create an account name and an avatar and take part in discussions. That's the idea, to have that feedback loop. Something that gets people moving from one app to the other, but something that actually makes sense for them: it's not forced, it adds value."

It's a sound strategy, but the plans for cross-pollination are bigger than just internally produced games - in the relatively near future Palringo hopes to release an SDK for integrating games into its social network. How exactly that new relationship with external devs might function is still open to debate, however, with the potential for light handed curation or a more traditional dev/pub partnership.

"We're definitely not going to become an app store and try to compete with Apple," says Alm when I suggest the possibility of a closed garden for Palringo enabled apps. "We have a good relationship with them which we want to maintain. We certainly don't want to become one of these 'app of the day' services. We want to be a community network which marries chat and gaming, so when we start to look at publishing externally produced games, there are a few potential ways to go.

"We can be a curator platform, cherry-picking certain developers which we want to work with and try to get in as early as possible in their development process to help them with recommendations, making the most of their games, helping with things like metrics and of course the implementation of the Palringo gaming services like the leaderboards and achievements. We can also help with the marketing process: soft launch, measuring and defining KPI, business cases then putting the game into full launch and then driving low CPI, high spend users to the game.

"Coming from the developer side, I've already been burned by working with mobile publishers...I would hate ending up being something like that"

"So potentially we can really go hand-in-hand with a few selected developers. That's time consuming, so you really need to find relationships where there's a lot of trust at both ends. Coming from the developer side, I've already been burned by working with mobile publishers, it's a bit of a jungle out there. There are those who will publish anything and see what sticks, they don't want to commit on marketing spend for anything that isn't already a hit. I would hate ending up being something like that. So if we do go down the road of curating with a select group of developers, it's important that it makes business sense on both ends.

"On the other hand, we might go the way of just opening up the SDK so that anyone can download and plug into so they can benefit from what we have at Palringo. Obviously the two models are pretty different and I can't currently say which one we'll pursue, but I think the starting point will probably be the first one, working with close partners. Potentially we could then stick with that or open it up.

"Palringo has a number of ways of benefitting regardless of how well a game performs. If it doesn't monetise well, it might still drive user registration, which has value to us, or vice-versa. If it doesn't do either, well, maybe we shouldn't be supporting that game in the first place. If it's an open SDK then it's not really our problem. We're very structured in the way we approach things, though, so I think in the beginning it will be a more traditional publishing partnership, with the developer covering the majority of the dev costs, perhaps with some money up front from us."

As ambitious and upbeat as Alm and his team are, I don't hear anyone talking about breaking the top ten, making the next huge hit and selling out to whichever publisher has the biggest gap in their mobile portfolio. Nobody here is chasing rainbows, which seems like a sensible contrast to a lot of small mobile devs. Alm says there's room to breathe even if you're not troubling Supercell.

"People point at things like Crossy Road, but that's just one from huge number of developers...I think as an indie these days, you have to be very happy if you can break even"

"I think there's a life below the top 20 grossing on both Google and iOS. I think there are niche markets. For us, we're investing a lot of time, energy and resources into markets like India, Russia and Brazil, quite Android heavy. The US is obviously a bit of a holy grail for us. Even for a game like Balloony Land, which is clearly not monetising at the level of Candy Crush, it's still doing well. It's early days but even now I think I could justify going out and buying users at $2 a piece and have a lower acquisition cost than lifetime value. I think the video ads will help with that in the US, because of the value of those eyeballs.

"Is it sustainable for indie devs to get into the app store race in a traditional way? No. If I was a small indie today I would rather work on PC than mobile. People point at things like Crossy Road, but that's just one from huge number of developers. You look at how much developers are spending on development compared to marketing and it's scary. A lot of developers are under the impression that if they make this great game, people will just find it, that it's a problem which will solve itself and you'll end up as Notch. I think as an indie these days, you have to be very happy if you can break even. We were before we were acquired by Palringo - some years we made a profit, some years we broke even, some years we made a loss. You roll with the punches. If you're able to sustain a studio from your own means, that's a great achievement.

"But is the market sustainable long term? I think that, for the big players, something radical would have to happen for it to change, if anything it's consolidating even more. For the indies there's not really even any question of whether it's possible - it's not, a few statistical anomalies aside. For the upper middle segment, which is where we sit, some real opportunities and challenges lie ahead."