With 1 billion users and 30 billion yuan in revenue, the mixed-revenue model is driving the growth of mini-games.

Written by Wan Tiannan

Edited by Chen Jiying

'Mini-games are actually not small,' said Yan Chunlu, CEO of Kongdao Technology, from the bottom of his heart.

Headquartered in Handan, Hebei, Kongdao Technology has a small company size of around 60 people, but it has tasted the growth dividends of mini-games thanks to the explosion of the puzzle mini-game 'My Favorite Stress Relief'.

Yan Chunlu's good fortune is not an isolated case.

Starting with the launch of Jump Jump in 2017, six to seven years have passed, and from the perspectives of user scale, supply richness, and ecosystem maturity, mini-games have entered the 'iPhone moment'.

WeChat, Douyin, QQ, Alipay, Meituan, and others have successively entered the mini-game space to varying degrees. The WeChat mini-game platform alone has gathered over 400,000 developers, attracting 1 billion users with over 500 million monthly active users.

According to the DataEye Q1 report, in February this year, the monthly active peak of WeChat mini-games surpassed the mobile game app industry.

High growth has ignited the industry, and Jiubit's Chairman and CEO Lu Hongyan optimistically estimates that 'the market size of mini-games may exceed that of apps.'

Capturing the dividends of mini-games is like getting a remote control for the growth of the gaming industry, but the user structure, product form, and commercial monetization of mini-games differ from mobile games.

This uniqueness is both an opportunity and a challenge.

I

Mini-games enter the iPhone moment

'My parents never used to play games, but now they can play mini-games for a long time,' Yan Chunlu was pleasantly surprised to discover that mini-games have attracted many atypical new users who previously did not play games.

His discovery is also confirmed by broader data.

The user structure of WeChat mini-games is significantly different from that of traditional games.

Despite users' enthusiasm and the intense competition within the gaming industry, mini-games have stood out.

According to the 'China Game Industry Report January-June 2024,' from January to June, the revenue of mini-programs (commonly known as 'mini-games') reached 16.603 billion yuan, a year-on-year increase of 60.5%. Currently, over 60 games on the WeChat mini-game platform have a daily active user count exceeding 1 million, and over 240 games have quarterly revenue exceeding 10 million yuan.

According to Guohai Securities estimates, the market size of WeChat mini-games was approximately 30.1 to 37.3 billion yuan in 2023, and it is expected to increase to 75 to 87.5 billion yuan in the medium to long term.

Amid the allure of high growth, the appeal of mini-games to developers continues to soar.

Unlike app games, which require significant production and investment, the barriers to entry for mini-games are relatively low, allowing a large number of long-tail developers to participate and share the dividends.

The project team for the mini-game 'Fingertips Unrivaled' initially consisted of only nine people but easily ranked fourth on the WeChat mini-game bestseller list in June.

Currently, over 80% of mini-game development teams consist of startups with fewer than 30 members.

Beyond small companies, according to observations by the WeChat team, most high-investment development teams for mini-game products currently come from traditional game companies, which establish dedicated teams, allocate considerable budgets, and deploy mini-games.

Leading game companies are now accelerating their entry into mini-games. Examples include 37 Interactive Entertainment, CMGE, 3K Games, Shiji Huatong, and 4399, each with varying reasons for their mini-game deployments: attracting new users, prioritizing growth opportunities, lower user acquisition costs, and more attractive ROI.

Among them, 37 Interactive Entertainment has achieved notable success, with 'Quest for the Tao' topping the WeChat mini-game bestseller list for half a year since mid-2023 and surpassing 160 million active users by February this year.

After successfully testing the waters, Wang Ziqiang, Vice President of Investment at 37 Interactive Entertainment, asserts, 'Mini-games possess unique advantages in user reach, usage scenarios, and gaming experience, and will become a new growth driver in the existing market.'

Today, unwilling to engage in intense competition within the existing market, 37 Interactive Entertainment has shifted its business focus from traditional app mobile games to mini-games.

Similarly, benefiting from the high growth of its mini-game business in 2023 – with revenue exceeding 600 million yuan – CMGE turned a profit that year. Chairman Xiao Jian revealed that CMGE plans to launch over 10 mini-game products in 2024.

Unlike 37 Interactive Entertainment's focus on native mini-games, Shiji Huatong experiments with replicating hit mobile games on the mini-game platform.

Since its launch in February last year, the overseas version of 'Endless Winter' produced by a subsidiary of Shiji Huatong has topped the global bestseller list for SLG mobile games. In April this year, the 'Endless Winter' mini-game landed on the WeChat platform and reached the top of the bestseller list within a month, ranking high on the consumption list as well.

Shiji Huatong is not alone in migrating mature mobile games to the mini-game platform to find new life. Many game developers also adopt this strategy. In June this year, 26 out of the top 100 WeChat mini-games were not on the list in May, with 15 being re-entries of old games and several being mini-game versions based on app games.

'Initially, people believed that the mini-game platform was only suitable for lightweight games, but in fact, mid- to heavy-weight games can also excel on the platform with proper adaptation,' a gaming industry insider told Finance Story Hub. 'Many mini-games adapted from app mobile games are mostly mid- to heavy-weight games.'

After the success of the 'Endless Winter' mini-game, Shiji Huatong found that mini-games have a large user base and lower customer acquisition costs. According to insiders, the company is currently exploring more mini-game products.

Overall, the customer acquisition cost for mini-games is currently about one-third or even one-quarter of that for apps, with a higher ROI. The revenue sharing ratio is also lower, with developers receiving 80-85% of the total revenue, higher than the typical 50-50 split on app marketplaces or even lower.

'Mini-games have now formed a complete ecosystem independent of app games, catering to users' more fragmented and lightweight gaming needs,' Wang Ziqiang is convinced.

After seven years of exploration, mini-games have finally entered the 'iPhone moment'.

II

The mixed-revenue model fuels growth

With user structures and product forms differing from traditional games, mini-games have also developed a unique monetization model: the hybrid IAA (In-App Advertising) and IAP (In-App Purchases) model, which has become the most prevalent monetization path for mini-games.

IAA is a To B advertising monetization model where users watch ads to obtain items or unlock privileges. IAP, on the other hand, is a To C monetization model where users directly pay for items or unlock game privileges.

In the traditional gaming industry, these two monetization models are typically suited to different game genres. However, in mini-games, IAA and IAP have the potential to coexist harmoniously.

Since 2017, the monetization model of mini-games has gone through three stages: the first stage focused on IAA mini-games to attract users with low barriers to entry; the second stage explored IAP mini-games to increase developer revenue; and currently, the third stage has emerged, with the hybrid model becoming mainstream.

According to Tencent Advertising data, over 50% of top mini-games currently adopt the hybrid monetization model. In 2023, the number of hybrid mini-games and ad spend growth exceeded 100%, and their commercial penetration rate was nearly three times higher than that of IAP, making it the fastest-growing segment in ad spend trends that year.

This trend has continued to strengthen in 2024. In May this year, ad spend on hybrid products continued to rise, accounting for 60% of the top 20 in the WeChat mini-game consumption ranking. In the consumption growth ranking in March, hybrid mini-games accounted for 75%.

From current success stories, the hybrid model suits most game genres, including loot box-like, idle, simulation, tower defense, roguelike, puzzle, match-3, and more, all of which have validated the feasibility of the hybrid model.

Several mini-games launched by HuanYu Jiuzhou have adopted the hybrid model. Zhang Jun, its R&D leader, revealed that 'Chicken Fleet Strike,' which ranked 19th on the WeChat mini-game consumption ranking in June, employs the hybrid monetization model.

Platforms have also recognized the potential of the hybrid monetization model, with Tencent Advertising being an early adopter in collaborating with more game developers to create benchmark models and incentivize hybrid products through ad spend bonuses.

In March this year, the WeChat team introduced a growth incentive plan specifically for IAA mini-games, rewarding developers with advertising funds. A month later, Douyin mini-games followed suit with advertising fund incentives.

Both platforms and developers favor the hybrid model due to its comprehensive advantages over single monetization models like IAA or IAP. This can be seen in several successful WeChat mini-games that have implemented the hybrid model.

The hybrid model excels at acquiring new users compared to the IAP model.

According to official Tencent data, only 35% of paying users in mini-games overlap with those in the original mobile game market, indicating that acquiring new users is crucial for mini-games.

The hybrid model lowers the threshold for user conversion, enabling a larger user base, especially for new users who may be deterred by the higher barriers to entry posed by in-app purchases.

Under the hybrid model, new users can be attracted with free, low-barrier IAA options at a lower cost. Then, through incentivized ads that unlock better gameplay experiences and privileges, retention rates can be improved, and users can be converted to in-app purchasers at an opportune time.

This model has been validated by companies like CMGE and Kongdao Technology.

CMGE's new mini-game 'Hammer It Out' adopted the hybrid model and ranked first in the tower defense and match-3 genre in June, with a paid second-day retention rate of 75%.

Yan Chunlu told Jiemian News that the cost of acquiring IAA model users is only a fraction of that for paying users. By first attracting users through the free model, paid points can be introduced later for in-app purchases.

More notably, the hybrid monetization model expands mini-games' diverse revenue streams.

With over 1 billion users on WeChat mini-games, incentivized ads in mid- to light-weight IAP games can enhance the gaming experience for casual and non-paying players, increasing revenue through more frequent ad displays and higher eCPM. For paying players, purchasing 'ad-free cards' can avoid ads while adding another commercial payment point compared to pure IAP games.

Practice has shown that as long as ads are properly integrated, core paying users (big spenders and medium spenders) of mid- to heavy-weight or high-quality mini-games will not mass exodus due to ads.

Previously, Tencent Advertising, the University of Hong Kong, and 3K Games conducted an experiment on the latter's 'Beast War' mini-game to verify changes in key metrics after transitioning from an IAP model to a hybrid monetization model.

The 30-day experiment showed that after adopting the hybrid model, the 30-day average LTV (lifetime value per user) of 'Beast War' mini-games increased by 20%, and the 30-day paying retention rate improved by 2 percentage points, validating the feasibility of the hybrid model – it does not lead to a loss of paying users or a decrease in spending, but instead enhances user retention, paid conversion rates, and revenue ceilings.

Not only 'Beast War,' but according to Tencent Advertising's broader data, the overall monetization rate of hybrid mini-games is three times higher than that of pure IAP games. On the first day of a hybrid mini-game's launch, paying users account for 50% of the total paying users within seven days, indicating a higher user retention and payment rate.

III

Navigating the hybrid monetization challenge

While the earning potential of the hybrid model is now widely recognized in the mini-game industry, the question of how to balance and prioritize IAA and IAP revenue models to best serve users remains to be explored further.

Currently, Shiji Huatong's mini-game 'Endless Winter' still adheres to the IAP model.

'Each company's situation is different, and so are the positioning of their mini-game products, which need to be determined based on their unique circumstances,' an insider told Finance Story Hub.

However, Shiji Huatong has not ruled out the hybrid model and indicated that it will consider diversifying its monetization strategies in the future.

To reap the benefits of the hybrid model, it's essential to maintain an open mindset, embrace trial and error, and stay on top of trends.

Many traditional game developers initially launch their games on apps and subsequently release mini-game versions. They often start with the IAP model and gradually experiment with the hybrid model.

In the cases mentioned, the hybrid model serves both as a way to lower the entry barrier and retain users. Conventional games might require an initial investment, but the hybrid model can help increase retention and paid conversion rates.

Adding ads to premium games without affecting the payment rates of big and medium spenders also requires skill.

Firstly, enhancing game quality is crucial. As long as the gaming experience is sufficiently good, big and medium spenders won't be deterred by ads, and ad-supported users may even transition to IAP users drawn by the high game quality. Secondly, effective user segmentation is vital. The number and placement of ads, as well as maximizing their value, require continuous experimentation.

Under the hybrid IAA and IAP model, what constitutes an optimal monetization structure?

Currently, there is no universal consensus based on genre. Many practitioners believe that for light games using the hybrid model, the optimal ratio of IAP to IAA revenue should be around 3:7 to maximize overall revenue.

Furthermore, different life cycles of a game can also influence the emphasis placed on IAA or IAP.

Taking 'Chicken Fleet Strike' as an example, when it first launched, ads dominated monetization. As the game matured and amassed loyal, high-stickiness users, the team transitioned to a model where IAP became primary, supported by ads, and intentionally removed many ad placements to enhance the gaming experience for these users.

'If IAP is the primary monetization method for a product at a certain stage, it's crucial not to compromise the experience of paying users or invest too much value in ads targeting these users. Conversely, if ads are the primary monetization method, in-app purchases shouldn't be set too high but can serve as a supplement, such as selling ad-free cards,' summarized Zhang Jun, R&D leader of HuanYu Jiuzhou, the developer of 'Chicken Fleet Strike'.

Beyond self-exploration, game developers can also leverage platforms' resources and traffic advantages to maximize the benefits of the hybrid model.

For instance, using video numbers to drive user growth and distribute mini-games through short video tasks has proven effective, with benchmark mini-games achieving over 100,000 daily registrations per game, contributing over 80% of total registrations. In live streaming scenarios, a single game can attract over one million daily viewers, with an ROI of up to 130%.

Game developers can also take advantage of platform incentive policies. For example, IAA ad revenue generated by mini-game registrations sourced from video numbers will be eligible for up to 40% ad boosting funds, while IAP revenue will be eligible for 10% ad boosting funds. Under the ad fund incentive policy, from today until September 30, developers can directly consume ads to receive 50% of the ad fund (up to 10% of monthly revenue) without the need for additional recharges.

New teams can also take advantage of Tencent Advertising's summer rebate and other incentive policies to reduce advertising costs and amplify growth leverage. For new games with an average daily turnover of 50,000 yuan for the first time in a week, Tencent Advertising will offer a 15% advertising rebate incentive on advertising spend until September 30, with a maximum amount of 1.5 million yuan.

Mini-games that have reached their iPhone moment have strong spending power.

Players who enter the market should prioritize mini-games strategically, understand the differences between mini-games and APP games in terms of scenarios, users, gameplay, operations, monetization, and other aspects, coordinate well in research and development and distribution, and have the ability to manage traffic and issue central platforms. This will allow them to get a head start in the market and reap the benefits.