AppLovin - Poster Boy of Vertical Integration
This analysis is a part of Deconstructor of Fun’s Digest newsletter. You can sign up to the newsletter at the bottom of this text.
AppLovin has just announced its acquisition of MZ for an undisclosed amount. MZ’s Game of War was once a perennial #1 top grossing game in the AppStore. However, more recently the game has fallen on hard times along with the rest of the company as revenues have dropped from an all time monthly net revenue high of $128M in March of 2017 to $17M this past March 2020 (according to Sensor Tower).
source: Sensor Tower
Source: Sensor Tower
Besides MZ, AppLovin also has its in-house hyper-casual studio Lion Studios. Further, public announcements have been made about investments in “partner” studios such as PeopleFun, Belka Games, Clipwire Games, and Geewa. And then there is Firecraft Studios as well which has been the focus of lots of controversy and speculation.
So:
Who is AppLovin?
What caused their shift into mobile gaming?
What is the controversy surrounding the company?
And finally what is their future outlook?
Who is AppLovin?
AppLovin was founded by CEO Adam Foroughi (along with cofounders John Krystynak and Andrew Karam) originally as an ad network in 2012. They were incredibly good at what they did and wound up becoming one of the biggest players in the market.
Based on Soomla’s Ad Network Report, they were a top 10 advertiser in interstitials and rewarded video impressions in 2019:
Interstitial and Rewarded Video Impression Market Share, 2019
Source: Soomla 2019
The company has a reputation in the industry for being very aggressive, for doing whatever it takes to get deals done, and also for being very smart. CEO Foroughi has been described by some user acquisition friends I know as “one of the smartest guys in the industry.” It’s rumored that they often come up with “creative solutions” to get deals done and I can attest to their sales guys as being some of the most charismatic guys I’ve ever met.
Their success in the ad network space has been an incredible accomplishment especially against much better resourced and well established players.
What caused their shift into mobile gaming?
For years, the continued growth and dominance of the data-driven ad platforms from Facebook and Google had concerned some of the ad networks. They were concerned with their ability to compete and even with future viability.
Facebook has demographic and interest data (your Facebook groups and likes). Google has intent (Google search and Google Play Store) data. Not to mention spending data once you hook into their platforms. How can ad networks without much or any comparable data compete with ad platforms that have data capable of doing very specific targeting?
For this reason, it has been rumored for years that some of these ad networks could very well shift into other businesses.
In July of 2018, AppLovin announced the launch of Lion Studios to publish hyper-casual games.
However, even before this announcement Firecraft Studios launched Matchington Mansion in June of 2018. What became apparent later however was that there was a very tight relationship between AppLovin and Firecraft Studios. This relationship is still not very clear but some rumors suggest the company may have even been started by Foroughi although the company is headquartered in Beijing.
Revenue growth of Matchington Mansion:
Source: Sensor Tower
What is the controversy surrounding the company?
The controversy around AppLovin mainly has to do with, as Epic CEO Tim Sweeney calls it, a “customer adversarial relationship.” That AppLovin will not only be competing against its very own customers for advertising but that it could use data it gets from customers to give them an advantage against their customers.
To be clear, there’s no proof or anyone publicly suggesting that AppLovin has misused customer data (e.g., with Matchington Mansion). However, the potential for data to be misused is there. Does this happen even with the most reputable companies? Actually yes. See: Amazon.
Even further, it didn’t help that Firecraft surrounded itself in mystery using a fake address for its company location and that it was discovered that the US Firecraft Studios entity had Adam Foroughi listed as its CEO.
Matchington Mansion went on to compete very aggressively against Playrix titles and was able to gain significant share. At one point, Firecraft and Playrix were so aggressively buying up ad traffic that Glu Mobile had to stop spending during their Q1 2019. “Starting in early February, we saw a significant uptick in aggressive UA campaigns from two casual game publishers… As a result, we’ve dialed back our UA spend.”
What is their future outlook in mobile gaming?
AppLovin’s aspirations to dominate in the mobile gaming space are now quite well known as are the potential risks of utilizing its ad network.
On the gaming side, AppLovin has executed incredibly impressively just as they have on the ad network side. In this case, I’m mostly attributing the success of Matchington Mansion to AppLovin management.
So what is the outlook for AppLovin?
Well, let’s focus on AppLovin’s key advantages and leave the challenges for a future date.
So at least for today, here are the 5 key advantages potentially driving AppLovin’s future success:
As with every game company out there, we wish them the best of luck and we remain neutral on the controversy (at least publicly).
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