App selling platforms like Apple’s App Store and Google Play use three Geo-specific Tiers to divide up the mobile market and sell apps around the world. Tier 1 unapologetically skews toward Western, fully industrialized nations while Tiers 2 and 3 comprise markets in the developing world.
Historic presumptions about which consumers will buy particular products, along with the promise of higher profits when selling to Tier 1 regions, leads to developing markets being ignored by many startups, including app developers.
What potential impact does this have on the diversity of mobile games that make it to market? What happens when a company decides to buck the trend of clamoring for Tier 1 sales and builds its brand to Unicorn status in Tier 2 and 3 markets instead?
Let’s dive in…
What are Geo-specific tiers and why do app stores use them?Historic presumptions about which consumers will buy particular products, along with the promise of higher profits when selling to Tier 1 regions, leads to developing markets being ignored by many startups, including app developers. Click To Tweet
Geo-specific tiers act as a type of corral that control access to mobile applications based on GEO location. If you’ve ever tried to play a DVD or watch a video on YouTube from a country outside your own and you were blocked from doing so, this is similar to what happens when a game or other application is region locked.
When developers distribute an app through an app store they have three market tiers to select from:
- Tier 1 – Consists of the wealthiest nations and most competitive markets, typically western countries
- Tier 2 – Consists of less competitive markets with a lower than average income per consumer
- Tier 3 – Includes regions containing consumers with the lowest assumed purchasing power and least competitive markets
These tiers not only control which markets can access an app, they also enforce the price at which an app can be sold in a region. On average, an app store makes 30% on every app purchased, so ensuring consumers from Tier 1 regions can’t buy apps at a cheaper price in Tier 2 or 3 markets helps protect the app store’s revenue.
Equally important is advertising. A bulk of mobile apps depend on in-app advertising for monetization and in-app ad spend is predicted to reach over $200 billion by 2021. For the ad ecosystem to thrive, advertisers need assurance that their ads will reach the desired demographic, something that is accomplished by region locking apps to tiers.
Because of the potential revenues that can be realized in Tier 1, it’s easy for developers and startups to concentrate on launching their products in this wealthy slice of the global market while choosing to ignore Tier 2 and 3. Within mobile games, this can affect the level of diversity (or lack thereof) represented in the industry.
While aiming for Tier 1 markets may be a strong trend, some startups are going a route less traveled…and profiting.
Here’s what happened when InMobi and OneWay.Cab ignored trends and launched in Tier 2 and 3…
InMobi is an international platform for mobile advertising. Its core service involves bringing personalized, highly targeted in-app ads to mobile users who are most likely to click.
Unlike many mobile app companies that use Tier 2 and Tier 3 markets for a short period of pre-launch testing before sprinting off to Tier 1, InMobi has built itself into one of India’s first privately held startups valued over $1 billion. While InMobi now counts Tier 1 countries like the U.S. and Australia in its portfolio, it established its base in Asia, and one of its largest clients is China.While aiming for Tier 1 markets may be a strong trend, some startups are going a route less traveled…and profiting. Click To Tweet
OneWay.Cab is another mobile-based company comfortably building and growing in Tier 2 and 3 markets. With a month-to-month growth rate of 20% and over 1,200,000 app downloads, OneWay.Cab found its fortune by simply solving a pain felt by many working-class people in India: having to pay twice to go to and from a destination.
OneWay.Cab’s founders Vivek Kejriwal and Devang Sanghi “strategically targeted the under-served Tier 2 markets” as the core of their business model. With profits projected to exceed $800 billion RS ($11,000,000 USD) in 2019, launching in and meeting the specific needs of a developing market has clearly paid off.
Why mobile game developers should take note
A recently published forecast by App Annie shows a bright future for the global mobile app market. In just one decade we’ve reached a world where over 50% of the human population has a mobile device and by 2022 a projected 258 billion apps will be downloaded annually.
However, what’s also noted in the report is the reality that Tier 1 markets are maturing which means a slowdown in growth and an increase in competition. Translation: it’s going to become increasingly difficult for mobile app startups to launch and profit in the prized Tier 1 strata.
Exciting opportunities for adoption, expansion (and profit) will occur in regions like China, Africa, Russia and India over the next 5 years. Enterprising mobile game developers will take note and recognize: Tier 2 and 3 aren’t just a sandbox for testing your games before going to market – over the next five years they will be your market.