Working in the free-to-play space on mobile is a real challenge, and building a great business model is an integral part of the process of developing games. Developer Aaron San Filippo talks about the bumps in the road he faced in the transition.

When my brother Forest and I started Flippfly, we struggled for a long time over the pricing strategy for our first project, an ios "Edutainment" app called Monkey Drum.

On one hand, it was unique (it's a combination of a musical sequencer with 3D characters) and it had great production values that would, in theory, set it apart from the average iOS entertainment app. On the other hand, we were completely unknown as a company. We were also releasing into the "Entertainment" category, and most of the successful apps there were free.

So we eventually decided that Monkey Drum would be free-to-play, and that we would implement a virtual currency system where users could earn coins through playing musical instruments, or buy the virtual currency in chunks for real money.

Two of our goals for the app were to gain users and to prove that we could produce a top-quality product. We largely succeeded at these goals: To date the app has been downloaded over by over 80,000 users, and has a 4.5-star rating. Users love it.

Of course, we also hoped that the app would turn a decent profit, perhaps funding the next project and allowing continued updates for some time. From the title of the article, you may have guessed by now that we failed in this regard.

The conversion rate was pathetic, and the average revenue per paying user was low enough that despite its decent download numbers and great review scores, we had achieved less than $500 in revenue after several months.

In retrospect, the mistakes we made are obvious. But since this time, we've seen these mistakes repeated by others, often small indies like us. So I'd like to share what we've learned and observed. Learn from our mistakes!

So, here are seven things you should do if you want to doom your free-to-play project to almost certain financial failure.

1. Fail to Give Users Great Reasons To Pay

Our thinking with Monkey Drum went something like this: "If a good conversion rate is something like 1-3 percent, maybe we can achieve that by delighting our users into wanting to give us more." The more we look at effective F2P design and contrasted it with our app, the more we realize that this doesn't work in reality. Your users need to love your app -- but you need to leave them wanting more. Sure, there will be a small percentage of philanthropists who will give you a few bucks to support you as a developer or out of pure appreciation, but generally speaking, you need to leave people wanting, or your conversion rate will probably round down to zero.

With Monkey Drum, we provided reasons to pay in the form of additional instrument unlocks and, eventually, character customization items -- but we also provided them with a means of unlocking the virtual currency to buy these items, and this method was actually a lot of fun and not terribly "grindy." In the end, a lot of our players probably don't have that urge to spend because they're always having lots of fun, and because the items included with the base product provide hours of entertainment.

Some very effective F2P games are clever and calculating in how they create this "pay magnet" -- often by giving you opportunities to spend more and more virtual currency as you "level up" (Zuma Blitz from PopCap is a good example.) Others succeed by pure variety: by providing not only gameplay incentives, but vanity items, extra content, etc.

Whatever your strategy, please realize that you have to find a perfect balance between delight, and leaving users wanting more. If they feel that they have a complete experience, or a reasonable means to unlock these items through gameplay, they will probably not pay for more.

2. Ignore the "Whale" Factor

Free-to-play monetization is fairly simple mathematics when it comes down to it. Your revenue will be LTV (lifetime value: the average amount a paying user will spend over the entirely of playing your game) times the conversion rate (the number of people who will spend anything on your app) times the total downloads.

Just keep that formula in mind:

Revenue = LTV x Conversion x Downloads.

Astute developers will realize that the lifetime value of a user is capped at whatever the maximum possible spend is. If this cap is $1 or so (maybe you charge to unlock the "full version") then you need a great conversion rate, and with such a low LTV, you'll need to be lucky enough to achieve virality, because the cost to acquire users by any paid method would exceed the return on investment.

The truth is: free-to-play works in large part because of "whales" -- users who spend significant money in your app. No matter how good your app is, there will be a percentage who download it and never play it. Of those who play it, there will be a percentage that just plays once. Of those who really get into it and pay for something, many will only pay once.

What you care most about about are those who are left. If you provide continual motivation to spend money, then the "burning core" -- that subset of customers for whom this is the best app ever and part of their daily routine -- will push up this LTV to the point that it can start to make sense financially.

With Monkey Drum, we failed here. To be honest, we really hated the idea of "whales" -- especially given that our app was primarily for children, and we were hearing all the horror stories about kids spending hundreds on virtual currency. We had one consumable item in the app -- a bunch of bananas you can feed to the characters. But in our determination to not be evil, we provided a fairly easy means of earning enough coins to unlock more bananas -- not to mention our clear message to parents about how to disable in-app purchases -- and it turns out that most of our audience really enjoys the process of playing the instruments and unlocking these.

3. Fail to Guide Users to Payment

This goes back to your conversion rate. It's easy to forget, after working on your labor of love for a year or so, that the average user will probably miss all of the things you think are obvious. For instance, if the only method of spending cash in your app is through a "store" button in your menu (and not implanted somewhere in the main play cycle) then the truth is, many players will never see it because they're going straight to "Play."

There is a reason that games like Triple Town integrate virtual item purchases right into their tutorial -- you want everyone to know it's there, and to know how (and why) they would want to use it.

It also goes without saying that the companies that succeed at F2P almost universally use analytics (such as Google Analytics or Flurry) to determine exactly how many of their users are landing in the store -- and they're tuning this flow continually. Something like the placement and color of your buttons in the menu can have a surprisingly large effect on user behavior.

I understand that these things feel so minor when you're focused on the gameplay. And don't interpret what I'm saying to mean that you shouldn't focus on gameplay (see my plea here.) But if you're making a F2P game, you need to care about how well you're guiding users into purchases, if you hope to be financially successful.

4. Give Your Game an End

Again, this goes back to lifetime value and conversion rate. Most paying users aren't going to give you money the first time they play your app, or even the second time. And remember that of those users who do invest -- the most valuable are those who come back and make repeat payments.

If your app has a fixed amount of content -- for example, a puzzle game with 30 levels -- then you're essentially cutting off your most valuable users, and your LTV will suffer. There are, of course, exceptions. But take a look at any F2P top-grossing chart, and you're going to find mostly games with evergreen mechanics, and the top IAPs will mostly be virtual currency to fuel this play over a long period of time.

5. Make a Mediocre Game

This one should go without saying, and probably should have come first in my list, since it's the most important. In the "bad old days" of retail packaged goods, you could get away with a mediocre product to a certain degree, as long as the box was pretty. And in the paid app marketplace, this is still true (but to a much lesser extent, since users tend to be more savvy and the user reviews are right there to read).

But mediocre free-to-play games do not succeed financially. Oh sure, there are exceptions -- and since quality is so subjective, it's a hard thing to prove. But you absolutely need to create a game that has a set of users who love it. If few people love it, few will talk about it, and even fewer will stick around to pay. One of the cool things about free-to-play is that you can make a living with a niche app -- but it still needs that burning core, and that burning core needs to stay engaged for a long time. This is your first priority, and is also the hardest thing to get right!

6. Fail To Test and Iterate

It's important to realize that there are a lot more opportunities to fail with a F2P app than there are with a paid app. With a paid app, you've earned the revenue at the moment of download, even if the user never launches it. With F2P, Not only do you need to grab users with your app's concept and presentation in the app store, but you need to delight them before they spend a cent. And then you need to give them a great reason to spend money, and to guide them through this process, and then get them to repeat it. If anything in this process breaks down, it's going to kill your revenue potential.

It's not enough to test your gameplay -- you need to test the whole loop. Companies that succeed at F2P test extensively before launch, and then treat the release as the beginning of a product's life, using analytics and business experience to improve their core metrics until the product has either proven viability, or is abandoned.

With Monkey Drum, we tried here, but honestly could have done better. We learned fairly on that most users weren't finding the store, and were able to improve this significantly through some UI changes. Unfortunately, this didn't seem to be the biggest factor in Monkey Drum's failure to monetize, which leads to the next point...

7. Fail to Understand Your Audience

When we chose to make Monkey Drum free-to-play, we had this idea that the very young users would probably enjoy the free-play drum mode and interacting with the characters, and a much wider audience would get into the sequencer and music creation tools. We imagined a community of users materializing around the song creation tools, and kids and adults alike wanting to purchase additional instruments to create more expressive creations.

Only after we shipped, however, did we realize that our biggest audience was very young children -- and that their favorite activity was playing the drums, which didn't have much incentive to pay.

As I mentioned earlier, we went out of our way to not be "evil." We clearly mentioned the in-app purchases in the app description and when the app first launched. The hard truth is, educational music apps have a much smaller audience than games. And educational music apps with a specific aesthetic that appeals to young children have an even more limited audience -- and one that we suspect doesn't drive many IAPs in any situation.

Despite being an almost universally loved app, and going out of our way to guide users into our store, the downloads and LTV portions of the revenue equation just didn't make sense with this audience. We believe now that it was the wrong business model altogether.

Turning it Around

After several months of tuning the UI in Monkey Drum, adding a character customization system, being featured by Apple, and being reviewed by several sites, the app was still failing financially. At this point, we had a thought: Why not release a separate, "deluxe" version for an up-front price, without the in-app-purchase? We would tune the in-app currency earn rate to be even more forgiving, and simply remove the option to buy additional currency. We would also put it in the Education category, as this seemed to be where it was appreciated the most.

This "Deluxe" version worked out considerably better for us -- Apple featured it in the New and Noteworthy (Education category) for four weeks, a better featured slot than the original had ever achieved, and we were able to earn better than the average iOS app.

It was still not a smashing success, but it easily made 20 times or so what the free version did. We believe this worked out for us because the app itself was very appealing and fun, and we were able to drive customers from the free-to-play version to Deluxe with a launch popup, and from the in-app store where we suggest that users may want to check out the deluxe version if they don't want to bother with IAPs. It was basically the lite/full version model, but kind of retrofitted in.

I would suggest that if your plan is to release your app as "free-to-try" with a paid upgrade to the full version, then please, please consider releasing a separate paid version as well. There is a large portion of users who will gladly pay you $2.99 upfront if the app is highly rated and looks entertaining.

But if all you have is a free version, a large portion of these otherwise willing customers will be lost in the long path from download, to play, to delight, to desire for more, to payment. It's just a matter of statistics, if you think it through.

In our case, building the "Deluxe" version as a separate app took us perhaps two weeks; it was well worth the time. It also gave us a fresh pass at Apple's editorial team (which paid off in the form of a N&N feature) and allowed us more visibility worldwide in various pockets of the app store. It's all about visibility.

A Note on Flippfly

Perhaps you've read through this list, and rather than identifying an action plan for your next F2P game, you've spotted some patterns that kind of turn you off. This was the case with us as well.

We don't like the idea that "whales" are what we need to sustain our games. We don't like the idea that only 3 percent or so of our users will ever experience our games in their fullest, and that the other 97 percent will probably be left wanting, if we're "doing it right."

We also don't like the idea of spending a significant portion of our time analyzing and tuning our user flow towards an in-game store, rather than focusing on the game itself. And we especially don't like the idea that even our paying customers will be nagged for additional money in a never-ending cycle of microtransactions that never quite satisfy. We want to build memorable and unique gaming experiences, and in-game monetization -- in its most effective form -- seems to always get in the way of that out of necessity.

These reasons form a large part of why we changed our direction as a company away from mobile as our primary focus. We're very proud of Monkey Drum. We went out of our way to be ethical with it, and with over 80,000 users, we have never had a single complaint about the in-app purchases, despite our core audience being five to seven year olds. And we don't believe that F2P is necessarily "evil." But when we looked at the reality of what it takes to really thrive in free-to-play, we decided that we'd rather be able to focus more of our time on making great games.

So we made the decision to refocus ourselves on the PC platform, where there is still a thriving community of gamers who are willing (indeed, who often prefer) to pay for their games upfront rather than piecemeal. Our first major game release, Race The Sun, will ship for PC for somewhere around $10, with an early purchase discount much like that of Minecraft. It will have a free-to-try demo with many of the lessons we've learned from our F2P experiment, and a paid mobile version will come later -- if it makes sense.

We couldn't be happier with this decision so far.