How the iPhone’s “Next Hit Game” Makes Money

Earlier today, @JasonKincaid over at TechCrunch wrote about one of Offerpal’s key iPhone partners, Side Hobby, calling their gpsAssassin app “the next highly addictive hit game.” He went on:

a new game called gpsAssassin may have struck gold by fusing location and the popular campus game Assassins with the text-based games that have become immensely popular on social networks, Twitter, and the iPhone.

Jason might not know just how right he was about gpsAssassin having “struck gold.” Since switching to the freemium model earlier this month — giving the game away for free and making money from users who purchase virtual goods within the game — the early returns have been very promising.

gpsAssassin is a game where you are invited to “kill or be killed.” Basically, you track down other players in your area (using GPS, of course), and attack them in a variety of clever and hilarious ways. You advance your rank in the game by beating your victims or fending off your attackers. Virtual currency comes into play in the form of “Blood Money,” which lets you get better weapons or armor.

When Side Hobby first launched the game, the price was $4.99, though enough units of “Blood Money” were sold that the company decided to lower the price to $0.99 and place greater emphasis on monetizing through virtual currency. By mid-September, the revenues from virtual currency were great enough that Side Hobby decided to offer the game completely free and put all of their eggs into the virtual currency basket.

Since then, the game has literally exploded, adding thousands of new users every day. And the revenue bet seems to be paying off as well.

Users can buy “Blood Money” through the App Store or through Google Checkout on the company’s web site. Or they can earn it for free by taking part in targeted ad offers through Offerpal. Since implementing Offerpal through the Tapjoy SDK, about 30% of the game’s total revenues have been generated through ad offers.

Will more iPhone developers follow suit and adopt the “freemium” model that has benefited game developers on other platforms so well? Probably so. While $0.99 may be a small price to ask for a truly fun and engaging game, the distribution potential of a free game and revenue potential of virtual currency combine to far outweigh the limited distribution of any paid game.