How To Make Freemium Work: Niccolo de Masi, CEO of Glu Mobile (Part 6)

Sramana: Let’s discuss your P&L. In general, I believe freemium is a capital-intensive strategy. The only way that strategy is viable is by raising a lot of capital. What are your thoughts?

Niccolo de Masi: I think our industry has unique aspects. Our games monetize the day they are launched. Most of our users start spending the first day they download the game. There is no lag in generating revenue from a freemium model compared to a paid model. There are many small developers who put out casual games like Zombie Farm and they do OK.

I think you are correct because in the long run the companies with the biggest audience base are going to be the ones who succeed. That is simply because he who gets the largest audience base will have the biggest future titles because of cross-promotion. The big get bigger. You cannot be a successful freemium company because of marketing alone. We invest our money in content, and we do not spend much on marketing compared to other companies. We build games that sell themselves. That is the most sustainable way to make money. If you can make games that captivate users and compel them to stay there, you are going to find it cheaper to market them and you are going to get more leverage on your marketing dollars.

Our content does three things at the same time. In the short term, it drives revenue. We believe freemium games make just as much money as paid titles and we have tested this out. We made more money with the same game using the freemium style.

Sramana: There are a lot of developers out there launching games or apps completely free. There is no freemium. They think that somewhere down the line they will have a premium product. I think that is a dangerous strategy.

Niccolo de Masi: I agree. We are a company that is focused on the bottom line in the long term. That means in the short term you need a viable revenue model. There will be a few companies that can go a long way with just audience growth, like Facebook. You must have a proven ability to monetize or the bottom will fall out. We know our investors care about growing smartphone revenues. The business model we choose is secondary to that success.

Sramana: You have provided the key to the question. You launch with your premium monetization strategy in place.

Niccolo de Masi: There are examples of success in both directions. I just think that if you acclimate your users to never seeing an ad or having to pay, then you are going to face a lot more resistance when those things start to appear. It is a slippery slope for most companies. I don’t think there is very much venture funding in the Bay Area for companies with no revenue model. It is possible to acquire users and generate revenue from day one or day two.

This segment is part 6 in the series : How To Make Freemium Work: Niccolo de Masi, CEO of Glu Mobile
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