Loss of Incentivized Installs Crimps Profit Margins for Developers, Tapjoy Argues

It looks like Apple may not budge on its decision to clamp down on offer walls where gamers can earn virtual currency for downloading apps.

Tapjoy, the biggest driver of such incentivized downloads, is taking a very public strategy in touting the benefits of this practice, as it says Apple is continuing to reject apps that contain these offer walls. Tapjoy argues that this is jeopardizing the freemium monetization model and is crimping profit margins for developers.

“The effect is so severe that more than half of our developers report that both their daily active users and revenues are down sharply,” said Matt McAllister, a spokesperson for the company.

The company is sharing results of a survey with 496 iOS developers to show the impact of losing incentivized installs — a sign that private negotiations with Apple may be stalling.

Eight of every nine developers Tapjoy surveyed said they were seeing a decrease in daily active users while 15 out of 16, said they were also seeing declining revenue. Two-thirds of the developers Tapjoy surveyed said that 20 percent of their revenues are generated through these offer walls.

The company has to act fast as many of its earliest partners are sending updates to the app store that have stripped out incentivized offer walls. Glu Mobile, a publicly-traded developer that is one of Tapjoy’s biggest partners, said last week that it took incentivized offer walls out of many of its biggest games and isn’t counting revenue from this practice going forward. The company thinks it will be able to replace 50 to 75 percent of the foregone revenue in the near term with other kinds of advertising. Tapjoy is also a provider of many of these alternative advertising products, so the company does have a way of replacing the lost revenue too even though it may not be as lucrative.

Incentivized downloads had taken off in the last year before Apple’s crackdown. Developers would use offer walls to as much as 30 percent or more of their revenue. They would also pay for installs on offer walls, buying enough to break into the top of the app store charts and gain greater visibility in front of consumers.

It quickly became a controversial practice. One common argument is that pay-per-install distorts the app store ranking charts as developers have to pay to get in front of consumers. As the app store becomes more crowded with north of an estimated 500,000 applications, it is quickly becoming more and expensive in both development and marketing costs to stay competitive as a business.

At the same time, Tapjoy has argued that in fact they level the playing field. The argument is that mobile gaming giants like Electronic Arts and Gameloft will spend lavishly on marketing anyway, with so-called “burst campaigns” on traditional types of advertising that break their apps into the top of the charts. These campaigns can cost tenfold of what a incentivized installs campaign does.

Smaller developers like San Mateo-based Playforge, which has one major game to its name, Zombie Farm, and was originally started by a husband and wife team, have told us in the past that incentivized downloads helped bring predictability to their business. With so little “shelf space” in the app store to get in front of consumers, incentivized downloads brought a relatively inexpensive and reliable way of at least ensuring that a studio’s work would be seen.