Part 9. Mobile Games — The Psychology of F2P and Gacha

Core question: How did smartphones change game business models, and where did gacha come from?

A Coin Machine in the Palm of Your Hand

In January 2007, Steve Jobs unveiled the iPhone and declared, “Today, Apple is going to reinvent the phone.” No one there could have predicted how the game industry would change.

The Apple App Store opened in July 2008, complete with a games category. The first unit of purchase was $0.99.

That figure mattered not simply because it was cheap. It became the smallest unit against which people anchored a purchase decision. “It is less than a dollar—why not try it?” became an easy thought, and the single arcade coin had moved into the palm of the hand.

The age of $0.99, however, did not last long.

Angry Birds — The Last Great Success of the Paid App

In December 2009, Finnish game company Rovio released Angry Birds for iOS. Its price was $0.99.

Angry Birds is remembered as one of the last runaway successes of the paid-app model. By 2012, the franchise had recorded more than one billion downloads worldwide. Look closely at the revenue structure, however, and most of those downloads came from free versions released later. Angry Birds Space, launched in 2012, offered paid and free versions simultaneously and placed advertising in the free edition.

Rovio's revenue plunged after 2014. In 2015, it cut roughly half its workforce.

What happened? The payment habit Angry Birds created was “pay $0.99, then download.” Then Clash of Clans (2012) established a new baseline: “The download is free; pay if you want to move faster.” Against this new standard, the $0.99 Angry Birds met a new form of resistance: “Why should I have to pay?”

The paid-app market contracted rapidly. Between 2011 and 2013, the share of paid titles among the App Store's top twenty-five games kept declining, while F2P games came to dominate the highest-grossing ranks.

There were exceptions. Art games such as Threes! (Sirvo, 2014) and Monument Valley (ustwo, 2014) continued to succeed with a paid model. The $1.99 Threes! was named Apple's 2014 Game of the Year, while Monument Valley distinguished itself through design and artistry at $3.99. Yet these were niches within the F2P mainstream.

The Collapse of $0.99 — Why Everything Became Free

In the App Store's early years, developers favored the paid-app model for a simple reason. It offered a clear formula: downloads × price = revenue.

Between 2010 and 2012, however, two things happened at once.

The first was App Store saturation. As the number of apps grew exponentially, discovery became harder. Paid apps converted fewer visitors into downloads than free apps. With the same marketing budget, a free app could acquire more users.

The second was proof of F2P revenue. Early smartphone social games—Zynga's FarmVille lineage and Japanese social games among them—attracted millions of users for free, then monetized a fraction of them to generate more total revenue than paid apps.

The numbers made the case. In 2011, paid games accounted for more than half of the top twenty-five titles by revenue in the US iOS App Store. By 2013, that ratio had reversed. Most of the twenty-five highest-grossing games were F2P.

Which generates more total revenue: charging a fixed price, or reaching more users for longer? After 2013, the answer in most cases was the latter.

The Energy System — Turning Time into Currency

Before the F2P transition, Facebook games conducted a decisive experiment.

In 2009, Zynga's FarmVille exploded on Facebook. At its March 2010 peak, it had roughly 83 million monthly active users. The game was free, and revenue came from item purchases made with Facebook Credits.

The central mechanism in FarmVille was time. Crops took a set period to grow and withered if not harvested in time; reviving them or speeding progress required payment. The sequel FrontierVille (2010) formalized this timing mechanism as an energy system. Plowing, sowing, and harvesting consumed energy. Depleted energy recovered over time, but an immediate refill cost money.

“Wait, or pay.”

Structurally, this is the same as the arcade continue countdown. The difference is that the arcade's time pressure said, “Decide within ten seconds,” while the energy system imposes a delay: “Wait thirty minutes, eight hours, or a day.” The delay becomes the reason to pay.

Candy Crush Saga (King, 2012): This game brought the energy system into the puzzle genre. Players had five lives. Lose one and they could wait thirty minutes, ask a friend for a heart, or pay. Around one billion rounds were played each day in 2013. King's revenue in the fourth quarter of that year was about $600 million.

The energy system creates a payment habit-space by presenting both the desire—“I want to play now”—and a route for resolving it with money. Waiting intensifies the desire. Paradoxically, inconvenience raises willingness to pay.

The Mobile Advertising Model — When Attention Becomes Currency

One model evolved from the energy system's “wait or pay” structure: the rewarded video ad.

“Watch an ad and receive free energy.”

This divides the payment habit-space into three paths: wait, pay, or watch an ad. A third option has appeared.

Users gain another choice. Game developers gain a way to earn advertising revenue from people who do not pay. Advertisers gain an opportunity to reach users already immersed in a game.

Rewarded ads have a higher completion rate—the percentage watched to the end—than ordinary mobile ads. The reason is clear. When watching produces a reward, users choose the ad voluntarily and are less likely to skip it. That context increases the ad's effectiveness.

Some games depend entirely on rewarded advertising as their business model. The hyper-casual genre is built around simple mechanics, free downloads, mass user acquisition, and advertising revenue. Maximizing the number of ad impressions matters more than the complexity of the game itself.

Mobile-game advertising broadly takes three forms: banner ads, which remain visible at the top or bottom of the screen; interstitial ads, which interrupt play with a full-screen message; and rewarded ads, which pair voluntary viewing with a benefit. Each produces a different user experience and return.

The Origin of Gacha — From Capsule Machine to Global Industry

The word “gacha” comes from gachapon, Japan's capsule-toy vending machines. Insert a coin and turn the handle, and a capsule comes out. Because the character inside is unknown, people keep inserting coins until they obtain the one they want.

Game gacha is the digitization of that structure.

Where did the first digital gacha begin? Pinpointing the absolute first is difficult, but the model became commercially established in the early 2010s on Japanese feature-phone platforms such as GREE and DeNA's Mobage. At the time, “complete gacha” became a social problem. Players had to draw every item in a set, including items with extremely low probabilities, to complete it. In 2012, Japan's Consumer Affairs Agency judged complete gacha to violate the Act against Unjustifiable Premiums and Misleading Representations, effectively banning the practice. Disclosure of individual probabilities and pity systems subsequently began to take root as industry norms.

Puzzle & Dragons (GungHo, 2012): This game combined puzzles, RPG systems, and gacha. In 2013, it became the first Japanese mobile game to exceed ¥10 billion in monthly revenue. It proved that gacha could work not only in casual games but also in core genres. For a time in May 2013, GungHo's market capitalization even surpassed Nintendo's.

The psychological foundation of gacha is variable-ratio reinforcement: the behavioral principle that responses become most frequent when the timing of a reward is unpredictable. It is the same structure used by slot machines. The arcade coin-op model discussed in Part 6 drew on the same principle, but gacha combined it with the desire to collect.

“What you already own” makes “what you do not own” a reason to pay. Once a series is 99 percent complete, payment to secure the last one percent carries a far stronger motivation than payment for the first one percent. This is completion compulsion.

Supercell's Experiment — The Company That Systematized Failure

Before the success of Clash of Clans (Supercell, 2012), Supercell launched and shut down several games.

Based in Helsinki, Finland, Supercell became known among investors as an unusual company. If a game failed to meet its performance threshold, the service was shut down; one well-known story says the company opened champagne when a game was killed. Its culture treated failure as a signal for learning.

Games Supercell released and later shut down included:

Gunshine (2011): An isometric RPG, closed after soft launch
Pets vs Orcs (2011): Closed
Battle Buddies (2012): Closed
Magic Land (unreleased): Canceled during development

Then Clash of Clans (2012) and Clash Royale (2016) became global hits. Clash of Clans has remained in service for more than a decade.

What makes Supercell's structure interesting is that the games surviving a system tolerant of failure achieved long lives. The core business model of Clash of Clans combined village construction, army formation, and attacks on rival villages. Construction time was the key payment point. Building upgrades took hours, then days, and in the late game, weeks. Gems completed them instantly.

The result was a three-layer structure: it brought in beginners, who encountered almost no wait at first; retained long-term users, whose higher levels created longer waits and stronger reasons to pay; and bound them into a community through clan wars.

Supercell's next title, Clash Royale (2016), combined gacha with card-deck building. Championship seasons and a season pass created a recurring content cycle. The game earned roughly $2.3 million per day in its first year and expanded into the Clash Royale League esports competition.

The Kakao Game Platform — Turning the Friends List into Distribution

Kakao launched its Kakao Game platform in 2012, connecting the KakaoTalk messenger's friends list to game distribution.

The core mechanism allowed Kakao Game players to send invitations, heart requests for energy, and requests for help to KakaoTalk friends. Friends playing the same game could interact with each other inside it.

“Kakao Games” turned this structure into a user-acquisition channel. A game's name appeared across the friends lists of people who installed it, while notifications such as “Your friend has requested a heart in this game” became a path for viral acquisition.

Games released through the Kakao Game platform became successive hits in 2012 and 2013. Wind Runner, Dragon Flight, and Everybody's Marble, a Monopoly-like board game, each recorded millions of downloads.

This structure demonstrates how an existing social network can serve as an entrance to a payment habit-space. The existing relationship network spreads the game without marketing expenditure, pushing the cost of creating a first experience toward zero. In exchange, the developer pays the platform—Kakao—a fee.

The Kakao Game platform later developed into Kakao Games, which listed on KOSDAQ in 2020.

Regulation of Randomized Items in South Korea

Since 2014, South Korean policy has moved in stages toward mandatory disclosure of probabilities for randomized in-game items.

Probability-disclosure guidelines were introduced through industry self-regulation in 2014. A 2022 amendment to the Game Industry Promotion Act then made the disclosure of randomized-item probabilities a legal obligation, effective from March 2023.

Games operating domestically must accordingly disclose information such as each item's appearance rate and the probability of the highest-tier items. Some game companies had already disclosed rates voluntarily before the law took effect.

Changes observed across the industry after regulation include the introduction or strengthening of pity systems, which guarantee a rare item after a set number of draws; the spread of “banners” offering particular items only for a limited period; and advance notices indicating whether and when limited items will return.

Lineage M — Transplanting PC Payment Habits to Mobile

NCSoft released Lineage M in June 2017. It was the mobile version of the PC online game Lineage (1998).

On launch day, it ranked first by revenue in South Korea on both Apple's App Store and Google Play. First-day revenue exceeded ₩10.7 billion, and daily users peaked at roughly 2.1 million.

The notable feature of Lineage M's business model is that the payment habits of existing Lineage users were transplanted directly to mobile. Players accustomed to spending hundreds or thousands of dollars in the PC version spent at similar levels on mobile. There was no need to create a new payment habit; the game already had users shaped by twenty years of one.

The case also shows, in reverse, how difficult it is for new content to create a new payment habit-space. Lineage M did not succeed because it invented a new business model. It transplanted an existing one to mobile—it “went to the place where the habit already lived, carrying a new platform.”

FUT Packs — Combining Sports-Card Collecting with Gacha

FIFA Ultimate Team (FUT) in EA Sports' FIFA series, now EA Sports FC, is among the cases most frequently cited in debates over in-game gacha.

FUT was introduced with FIFA 09 in 2009 as a mode in which players assemble a team from player cards. Cards come from purchased packs, and probability determines who appears. The chance of receiving an elite player such as Messi or Ronaldo is extremely low.

Where did the structure come from? Physical sports-card collecting. Buying sealed packs of baseball, basketball, or football cards in the 1980s and 1990s offered no certainty about which athlete was inside. The act of children buying random cards at a neighborhood stationery shop had been digitized.

FUT accounts for a very large share of the FIFA series' total revenue. EA does not disclose FUT revenue separately, but it has reported that the broader Ultimate Team brand—covering sports franchises including FIFA, Madden, NHL, and NBA—makes up a substantial portion of the company's revenue. In fiscal 2019, the figure was about $1.4 billion.

FUT has one unusual structural feature: users can sell cards to or buy them from other players on the Transfer Market. Some top-tier cards trade for millions of FUT coins. An illicit cash market for FUT coins has also existed, and EA defines such transactions as a violation of its terms.

The United Kingdom, Belgium, and other countries have debated whether FUT packs constitute gambling. In 2018, Belgium determined that paid gacha in certain games fell under gambling regulation.

An Unexpected Connection — Pokémon GO Lands in Three Habit-Spaces at Once

Niantic and Nintendo released Pokémon GO in July 2016. It launched first in countries including the United States, Australia, and New Zealand, then spread rapidly around the world.

The business structure of Pokémon GO was:

Download: free
Basic gameplay: free
PokéCoin purchases: paid, including incubators and extra Poké Balls
Sponsored PokéStops and Gyms: brand-partnership revenue

What made the game's landing place unusual was the simultaneous combination of three habit-spaces.

First, the habit of collecting Pokémon: Pokémon cards and Game Boy titles had established it in the 1990s. “Gotta catch 'em all” expressed a long-standing completion compulsion—and payment habit.

Second, the habit of exercise and outdoor activity: walking makes Pokémon appear. It is not “play a game in order to walk,” but “walk in order to play the game.” The game landed in the habit-space of health.

Third, the place-based social experience: raid battles require several people to gather at a particular location. Strangers meet in parks and plazas to play together. The game also landed in the habit-space of social experience.

Monthly active users rose into the tens of millions immediately after release and fluctuated afterward. The game continued to generate hundreds of millions of dollars in annual revenue through the 2020s, making it a rare case of longevity for a single AR game.

Before Pokémon GO, Niantic operated Ingress (2012), a location-based game in which teams competed to control real-world sites. It formed a small community of core gamers but never became mainstream. Map data from Ingress helped determine the placement of PokéStops in Pokémon GO. A small experiment became the infrastructure for a massive success.

Beyond direct user payments, Pokémon GO has another revenue channel: brand sponsorships. Brands contract with Niantic to designate physical stores as in-game PokéStops or Gyms. When the service launched in Japan, McDonald's Japan signed the first major sponsorship designating stores nationwide as PokéStops and Gyms. Starbucks, Subway, SoftBank, and others later entered similar agreements. Users do not pay directly. Their movement brings visits to the brand, and Niantic charges the brand for that effect.

Even in 2020, when COVID-19 restricted outdoor movement, Pokémon GO generated roughly $1 billion in annual revenue. That year Niantic introduced the Remote Raid Pass, a paid item that let players join raids from home. A game built around movement preserved its revenue structure when movement became impossible.

Shadowverse and Digital Card Games — Deck Building Meets Gacha

Mobile gacha can take another form: the digital trading card game, or digital TCG.

Physical card games such as Magic: The Gathering (1993) and the Pokémon Trading Card Game (1996) sold cards in booster packs. Buyers did not know what was inside. Rare cards had more value and could be traded. This is the gacha structure of the physical TCG.

Hearthstone (Blizzard, 2014) digitized it. Buying a card pack produced five random cards, while unwanted cards could be disenchanted into a resource for crafting new ones. Unlike a physical TCG, there was no secondary trade.

Hearthstone reached roughly ten million registered accounts soon after its 2014 release and twenty million by the end of the year. Shadowverse (Cygames, 2016) later succeeded with a similar structure in Japan and across Asian markets.

The TCG-plus-gacha model is interesting because it combines strategic mastery with ownership of scarce resources. More good cards expand the range of possible decks, but good cards alone do not guarantee victory; strategy still matters. Competition rests on the combination of skill and card ownership. Payment motivation emerges from both “I want to win” and “I want to collect good cards.”

Genshin Impact — The Globalization of Chinese Gacha

In September 2020, Chinese game company miHoYo, now HoYoverse, released Genshin Impact.

Its business model followed the familiar gacha structure, but with a distinction: console-level graphics and open-world scale. Where earlier mobile gacha titles generally used 2D or simplified 3D graphics, Genshin Impact delivered the same level of quality across mobile, PC, and PlayStation.

Revenue in the first two weeks was estimated at roughly $100 million. Analysts put total 2021 revenue at approximately $1.8 billion.

Before Genshin Impact, Japanese companies such as Konami and Bandai Namco led the global gacha market. After its release, Chinese mobile games greatly expanded their share of the global market. Another miHoYo title, Honkai: Star Rail (2023), achieved similar success.

The game's pity system advanced an industry convention. A five-star character—the highest tier—is guaranteed within ninety draws, while satisfying certain conditions gives at least a fifty-percent chance of receiving the featured character. It was still gacha, but one with a ceiling on the worst case. The system became a standard for many gacha games released afterward.

Monster Strike's Reversal — The Invention of Cooperative Gacha

If Puzzle & Dragons (2012) marked the height of solo-play gacha, Monster Strike (mixi, 2013) experimented in another direction.

The heart of Monster Strike was cooperative multiplayer. Friends entered a room together to fight monsters. Some dungeons were too difficult to clear alone, making invitations necessary; both the invited player and the inviter received rewards.

This structure drove viral growth. A friend invited another person because “I need the reward too.” The in-game social network took the place of marketing expenditure.

Monster Strike ranked first by revenue in Japan's App Store in 2014 and at one point stood among the world's highest-grossing mobile games by monthly revenue.

Its gacha resembled that of Puzzle & Dragons, but playing with friends was the core content. The value of a gacha character was judged in a multiplayer rather than solo context. “This character lets me help my friends” became one of the reasons to pay.

It was a new combination of payment habit-spaces: gacha draws, cooperative play, and friend-invitation rewards—three previously independent elements—met inside a single game.

The App Store's 30 Percent Fee — The Platform Tax That Defines the Business Model

Every in-app purchase in a mobile game carries a fee from Apple's App Store or Google Play. The standard fee is 30 percent.

When a user pays $10 inside a game, the game company receives $7. To earn $10, it needs the user to pay $14.30. This fee structure directly affects game pricing and business-model design.

In August 2020, Epic Games introduced direct payment to the mobile version of Fortnite, bypassing Apple and Google's systems. It avoided the fee and passed the savings to users as a discount. Apple and Google removed Fortnite from their stores, and Epic sued both companies.

In the 2021 US trial judgment in Epic v. Apple, most of Epic's antitrust claims were rejected. The court nevertheless ruled that Apple could not prohibit links to outside payment methods inside apps, and Apple later revised the provision in part.

The lawsuit placed a question with direct consequences for mobile-game business-model designers at center stage: “If the platform fee is 30 percent, should prices be set around that 30 percent, or should developers find a way around the platform?”

Google Play adjusted part of its fee structure in 2021, introducing a 15 percent rate on the first $1 million in revenue. The structure favored smaller developers. Also in 2021, South Korea amended its Telecommunications Business Act to prohibit app-market operators from forcing a particular payment method. Debate over in-app payment fees spread to many countries.

Failure Case: The Windows Phone Game Ecosystem

Microsoft released Windows Phone 7 in 2010 and operated the Windows Phone Store alongside it.

As a mobile-game ecosystem, the Windows Phone Store fell behind Apple's App Store and Google Play. In 2012, when the iOS App Store offered more than 700,000 apps, the Windows Phone Store had fewer than 100,000. Major hits including Clash of Clans, Candy Crush Saga, and Pokémon GO did not release Windows Phone versions.

Developers' decisions were structural. Investing development resources in a platform with low market share promised little return. With few users, developers stayed away; without developers, users stayed away—a chicken-and-egg problem.

Windows Phone's worldwide market share peaked at roughly 3 percent in 2013 and then declined. Microsoft officially ended Windows Phone development in 2017.

The Payment-Prompt Sequence — A Monetization Journey Designed Day by Day

Mobile-game business models are designed not item by item but unit of time by unit of time. From installation to churn, the game carefully determines which payment offer appears at each moment. Inside game companies, this is often called the “payment journey” or “onboarding funnel.”

D+0 (installation day): first impression and starter pack

If a new user finds the game enjoyable within the first few hours, that moment is the ideal time for the first payment offer. This is when the starter pack appears. Usually priced from $0.99 to $2.99, it may claim “90 percent off the regular price.” Currency, characters, and boosters are bundled together, and the same terms are unavailable after purchase. Its scarcity lies in “now or never.”

The purpose of the first payment is behavioral change more than revenue. A user who spends $0.99 begins to see themselves as “someone who spends money in this game.” The psychological barrier to later purchases falls. The difference in thirty-day LTV—lifetime value—between users who make a first purchase and those who do not is known to reach tens of times.

D+1–2 (first energy depletion): waiting and a small purchase

A day or two after installation, energy reaches zero for the first time. The user faces two choices: wait or pay. The offer at this point is commonly $0.99 to $1.99. Timing is designed so that the first barrier appears during the early state of immersion, when the game feels most enjoyable.

This moment divides users who churn from those who pay. A paying user keeps playing and invests more deeply in the game.

D+7 (completion of the first week): churn defense and the first subscription offer

A user who completes seven days of login rewards has begun to form a habit. Two business models come into play. First, a monthly subscription offer appears with a notice that the “seven-day free VIP trial” has ended. Once users have experienced VIP benefits for free, loss aversion works against having them removed. Second, players often join their first in-game community—a clan or guild—around this point. Social relationships raise the cost of leaving. It is hard to abandon a place where your friends remain.

Statistically, the thirty-day retention of users who pass day seven is many times that of users who leave earlier. Game companies treat D+7 as the first critical churn fork and concentrate rewards and payment offers around it.

D+14–30 (habit formation): competitive motivation and mid-priced packages

After the second week, users enter serious competitive content: PvP, guild wars, and seasonal rankings become active. The reason to pay changes. It is no longer “because I want to enjoy the game,” but “because I do not want to fall behind.” Comparison with others inside a competitive structure becomes the motivation.

Mid-priced packages from $4.99 to $19.99 target this period, with offers such as a “season-limited combat-power package” or “clan contribution event.”

D+30+ (loyal users): premium events and gacha banners

Users who remain for more than thirty days are the game's core revenue source. From this point, premium packages from $19.99 to $99.99 or more, limited gacha banners, and season passes become the main business models. The more time and currency someone has invested, the more strongly the sunk-cost effect says, “If I quit now, everything I built will be wasted.”

Dissecting Business-Model Types by Payment Trigger

No single category can explain all the monetization drivers in a mobile game. Several operate simultaneously in one title, and each user responds to different ones. The following breaks down the major triggers and their structures.

1. Energy/life systems — time as currency

Create waiting, then offer payment to remove it. The core equation is time = money. Restricting playtime generates payment from users who want to continue immediately and for as long as they please. The lives in Candy Crush Saga, construction waits in Clash of Clans, and crop growth in FarmVille all use this structure.

This model is well suited to repeated small purchases. But once users learn that they can simply wait, the motivation weakens. It works only when the discomfort of waiting exceeds the convenience value of payment.

2. Gacha/randomized items — scarcity and completion compulsion

The user does not know which item a random draw will produce. The structure is based on variable-ratio reinforcement. Two motivations dominate: the desire to obtain a particular item, and the compulsion to complete a series—the urge to collect the remaining one percent after reaching ninety-nine.

An individual draw is inexpensive, commonly $1 to $3, but the desired item may require repeated purchases. Heavy spenders, or whales, characteristically consume at scale within this structure. A pity system makes the maximum cost predictable, which can make the purchase decision easier.

3. Battle passes — time-limited promises

A battle pass differs structurally from gacha. Users know from the beginning what they will receive, and sufficient play guarantees it—but they must play enough within the season. FOMO, the fear that a missed reward will never return, combines with the commitment effect of “I paid for it, so I need to earn it.” Consumers often perceive battle passes as fairer than gacha, and they attract less controversy in regulatory environments at home and abroad.

4. Ad removal — improving the experience

This model appears mainly in hyper-casual and casual games. Interstitial and banner ads interrupt play, while a permanent-removal option is offered for roughly $1.99 to $4.99. Paying to remove ads means “using money to eliminate an unpleasant experience,” so the purchase can feel positive. It may also accompany the sentiment, “I want to support this game.”

Advertising games face a dilemma. More impressions increase ad revenue, but more ads also strengthen the motivation to pay for removal. The two revenue models push against each other.

5. Starter packs/first-purchase discounts — lowering the entry barrier

This is the main instrument of D+0 monetization. An extreme discount of 80 to 90 percent from the stated price minimizes the psychological cost of the first purchase. Because each account can buy it only once, its purpose is not immediate revenue but conversion into a “user who has begun paying.” The probability of further purchases rises substantially after the first.

6. VIP subscriptions/monthly plans — making recurring payment habitual

For a monthly fee of roughly $4.99 to $14.99, users receive daily currency, energy, and special items. The unit price is lower than a one-off purchase, but the payment repeats. “Benefits arriving every day” become one reason to log in. Rewards continue while the subscription remains active and disappear when it stops, allowing loss aversion to support renewal.

For the company, subscriptions provide predictable, stable revenue and steadier cash flow than one-off gacha sales.

7. Time acceleration — selling shorter waits directly

This differs from the energy system. Energy systems sell refills; time acceleration directly reduces how long a task takes to finish. Examples include instant building completion in Clash of Clans and accelerated acquisition of awakening materials in Lineage M. Waits grow longer at higher levels, increasing the strength of the payment motive.

8. P2W, or pay-to-win — items that confer a competitive advantage

These items directly affect performance. Paying users gain an edge over free users in PvP games. The model works in genres with strong competitive motivation, including strategy, MMORPGs, and sports. It can also drive free users away; once “you win by spending” becomes the game's reputation, new-user acquisition declines. This is why criticism of P2W repeatedly surfaces around Korean MMORPGs.

9. Cosmetics — identity expression

Cosmetic items—skins, emotes, titles, and frames—do not affect performance. Their purchase motive is “How do I want to appear?” In intensely competitive multiplayer games such as Fortnite and League of Legends, cosmetics enable monetization without P2W criticism.

10. Rewarded ads — voluntary viewing for a reward

Users voluntarily watch an ad and receive in-game currency or an item. Non-paying users can participate, while the company receives an impression fee from the advertiser. In casual games, the format generates ad revenue while raising retention among non-paying users. In some hyper-casual games, rewarded ads account for 80 to 90 percent of total revenue.

The Relationship Between User-Acquisition Cost and Business-Model Design

Understanding a game's business model requires looking at costs as well as revenue. The largest cost in mobile games is often the advertising expense of bringing in users: user acquisition, or UA.

The key metrics are:

CPI (cost per install): advertising cost for one app installation
LTV (lifetime value): the total amount one user pays before leaving the game
ROAS (return on ad spend): revenue relative to advertising expenditure
CAC (customer acquisition cost): total cost of acquiring one paying user

For the business model to work, LTV must exceed CPI. A user must pay more than it cost to bring them in.

Estimated average CPI by genre in the early 2020s

Hyper-casual games: $0.20–$0.50, with simple play and dependence on advertising
Casual/puzzle games: $1–$3, with energy systems and mid-priced packages
Midcore strategy/RPGs: $3–$10, with gacha and VIP subscriptions
Hardcore MMORPGs/battle royales: $20–$50, with high spending and whale economies

A high CPI means not only that users are difficult to acquire, but often that the genre contains more users with a strong willingness to pay.

Whale model versus advertising model

Two UA strategies occupy opposite extremes.

Whale model: Even with a high CPI, the LTV of a small number of heavy spenders recovers the cost. Less than 0.2 percent of users may account for more than half of total revenue. In this model, 500 non-paying users are “content” that sustains the game ecosystem. Without opponents and standards for comparison, whales lose their reason to compete. A large free population gives whales a reason to pay.

Advertising model: Keep CPI as low as possible and acquire users at scale. Even if advertising revenue per user is only $1 to $5 per month, volume accumulates into total revenue. This is the characteristic hyper-casual approach. Because LTV itself is low, a continuous stream of new users is essential: the funnel must constantly be refilled.

Hybrid model: Monetize non-paying users through rewarded ads and paying users through in-app purchases. Many games between casual and midcore adopt this approach. The ratio of advertising to in-app purchase revenue varies widely by genre and design.

How UA cost determines business-model design

Genres with high UA costs, such as MMORPGs, must recover more revenue from each user. High-involvement models such as premium packages and gacha therefore become essential. Genres with low UA costs, such as hyper-casual games, can compensate for low individual revenue with acquisition at scale and depend more heavily on advertising.

UA costs tend to rise over time. Average mobile-game CPI in 2022 was several times the 2015 level. One major cause was Apple's introduction of App Tracking Transparency in 2021. Restrictions on user-data tracking reduced the efficiency of ad targeting, so the same budget acquired fewer users.

The change reshaped mobile-game UA strategy after 2022. The industry began moving away from dependence on outside advertising and toward organic growth through in-game social virality, including friend-invitation rewards and content sharing.

Business Models by User Type — Whales, Minnows, and Ad Viewers

Even within one game, users contribute revenue in different ways. Game companies segment them by spending level and behavior, then design business models for each group.

Whales: Roughly 0.1 to 0.2 percent of all users, yet responsible for more than half of in-app purchase revenue. They spend hundreds to thousands of dollars per month. Competitive advantage—first in PvP rankings or strongest in a guild—completion of rare-item collections, and conspicuous display motivate payment. Companies design dedicated VIP channels, direct support from a game master, and limited packages for them. If a game fails to prevent whales from leaving, half its revenue can disappear at once.

Dolphins: Mid-level spenders paying roughly ₩10,000 to ₩100,000 per month. They regularly buy season passes, monthly subscriptions, and mid-priced packages. More numerous than whales and relatively less likely to churn, they often contribute 30 to 40 percent of total revenue.

Minnows: Users who occasionally make a small purchase of $0.99 to $4.99, or almost never spend again after their first purchase. Their individual revenue contribution is small, but they populate the ecosystem. They give whales and dolphins opponents to fight, standards for comparison, and a social context. Without minnows, the competitive and display motives of whales disappear.

Non-paying users: They make no direct purchases. In games with advertising, they produce indirect revenue by watching rewarded ads or provide social infrastructure as clan members, PvP opponents, and content consumers. A game accommodates this group when its contribution exceeds the cost of retaining it.

Which Team Is the Game's Engine? — Core Organizations by Business Model

The organization of a mobile-game company changes with its business model. The source of revenue shifts the company's center of gravity and determines which team holds decision-making power. The structures can be divided into five types.

Type 1. The Marketing Team as Engine — UA-Intensive

Some games, including Last War: Survival, Whiteout Survival, and Berserker, depend on the scale of advertising as the central engine of the business. This type has several characteristics:

It reinvests 60 to 90 percent of revenue in UA advertising.
As long as CPI < LTV, more ad spending produces more revenue.
The click-through rate of advertising creatives can matter more than the quality of the game itself.
ROAS is the company's core KPI.

In this structure, the marketing or UA team is not simply a publicity department. It is the company's revenue engine, calculating in real time how much return each level of spending in each channel will produce and allocating the budget accordingly. The development team delivers the game; the marketing team pours users into it and creates revenue. Specialists capable of operating advertising at scale are a core corporate asset.

The game's overriding design priority becomes a structure that attracts users through ads, induces early payments, and maximizes LTV. The goal is to convert users into payers as quickly as possible during the honeymoon period, roughly the first two weeks.

Controversy over ads that misrepresent the actual game appears frequently in this model. The company may adopt creative that shows different gameplay if it lowers CPI. The advertising team holds the greatest decision-making power.

Type 2. The Development Team as Engine — Content/IP-Centered

Games such as Genshin Impact (miHoYo), Pokémon GO (Niantic), and Minecraft (Microsoft) draw users through the quality of their content or IP itself.

Organic acquisition arises through word of mouth, reviews, and streaming even without UA advertising.
The quality of content updates produced by developers is central to retention and new-user acquisition.
The development team strongly influences business-model design. “Does this structure damage the fun?” becomes one criterion for monetization.
Marketing plays a supporting role, mainly informing an existing fandom.

In the case of Genshin Impact, miHoYo operates a gacha model while maintaining heavy, development-centered investment in content. Users stay because the content is good, and those who remain pay for gacha. If development cannot produce content, the revenue structure collapses.

The loss of the development team is an existential business crisis in this model. The loss of the UA team, by contrast, creates only a short-term shock.

Type 3. The Operations Team as Engine — Events and Live Service

This type appears frequently in Korean mobile MMORPGs such as Lineage M and MU Origin. Initial development may be complete, but continuing live events and content updates generate revenue.

The team regularly designs and runs seasonal events, limited gacha banners, and server events.
“Which event do we run this month?” determines that month's revenue.
Operations analyzes user data and coordinates event timing and reward structures.
It also handles whale VIP management, complaints, and payment issues.

The development team delivers new content; operations uses it to create revenue. The quality of event design determines month-to-month revenue fluctuations.

Type 4. The Business Team as Engine — IP and Platform Partnerships

Publishers such as Kakao Games, built around the Kakao Game platform, and Netmarble use outside IP licenses or platform partnerships.

Development is entrusted to an outside studio or developer.
The business team leads IP negotiations, platform placement, and publishing agreements.
“Which IP do we acquire, and on which platform do we launch it?” is the central business decision.
The development team resembles a supplier, while the business team determines product direction.

The early success of South Korea's Kakao Game platform came from a business-team decision to connect games with KakaoTalk. Deciding which games entered the platform determined their prospects.

Type 5. The Advertising Team as Engine — Advertising-Dependent

Hyper-casual games fit this type, with specialist publishers such as Voodoo and Ketchapp as representative examples.

In-app purchases are absent or marginal.
Ads shown during play generate revenue.
The advertising team chooses networks and determines impression frequency.
Session length, plays per day, and ad-completion rate directly affect revenue.
Development focuses on creating games with a rhythm suited to ad viewing.

Here the advertising team operates the revenue channel itself. Choosing an ad-mediation service such as AdMob or AppLovin and raising eCPM—revenue per one thousand impressions—are central business concerns.

Comparing the Five Types

UA-intensive: The marketing/UA team is central. Early in-app purchases are the revenue source. Representative genres are 4X strategy and idle games. Core KPIs are ROAS and CPI.
Content-centered: The development team is central. Gacha and package sales are the revenue source. Representative genres are gacha RPGs and open worlds. Core KPIs are DAU and content retention.
Live service: The operations team is central. Event gacha and VIP programs are the revenue source. Representative genres are MMORPGs and collection games. Core KPIs are monthly revenue and event conversion.
IP/platform partnerships: The business team is central. Platform fees and IP revenue are the revenue source. The representative genre is platform games. Core KPIs are contract count and platform share.
Advertising-dependent: The advertising team is central. Ad impressions are the revenue source. The representative genre is hyper-casual. Core KPIs are eCPM, session count, and DAU.

Real games do not fit neatly into a single type. Most combine two or more. But answering “Who is responsible for this game's revenue?” reveals which team holds practical decision-making power—and therefore the direction of its business-model design.

Hints from This Chapter — Checkpoints for New-Content Planners

Checkpoint 1: Does my content have a payment point that “shortens time”?

The energy system proved that waiting itself can become a reason to pay. Is there a point in your content where users naturally feel, “I want to shorten this wait”? The sequence matters: do not force a wait merely to charge for it. First create a structure in which waiting arises naturally, then offer payment as a way to resolve it.

Checkpoint 2: Can I design scarcity that stimulates the desire to collect?

Scarcity is the core of gacha. If every user owns the same things, there is no desire to collect; something must be available only to some. It may be a character, content, or an experience. What matters is that scarcity produces different emotional responses depending on whether it comes from randomness, effort, or a time limit.

Checkpoint 3: Are there users who already have the relevant payment habit?

Lineage M succeeded because it did not need to create a new payment habit. Is there a group of users who already share a purchasing experience similar to your content? Reaching them first is faster than creating a new habit.

Checkpoint 4: Have I found the intersection of several habit-spaces?

Pokémon GO found the intersection of three habit-spaces: collecting, exercise, and social experience. Landing in only one reaches only those who already inhabit it. Find where two or more spaces overlap naturally and you can reach a wider audience. The overlap must be structurally natural, not an artificial combination.

The next chapter moves to the point where the boundary between games and services disappears: GaaS, or games as a service; Fortnite's battle pass; and Roblox's player-driven economy. How does the business model change when the game becomes a world that never ends?

Kim Dongeun WhtDrgon@MEJE.kr 2026