Tapjoy says Apple’s ban on promos is killing mobile game profits

Tapjoy said tonight that Apple’s ban of a popular kind of promotion on the iPhone is hurting mobile game developers.

Tapjoy and Apple held talks on the ban in the past few weeks, but Apple’s hard-and-fast ban on “pay per install” incentive promotions remains in place. Apple was concerned that game developers were paying Tapjoy to rocket their games to the top 25 ranks of the App Store, unfairly gaming the system and hurting the quality of the game rankings.

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But Tapjoy said such incentivized promotions are common and that their use has enabled game developers to create a predictable and stable business on a platform that has a lot of competition.

Mihir Shah, chief executive of Tapjoy, met with Apple to try to convince the company to allow a limited amount of pay-per-install promotions, with a cap that prevented developers from buying their way into the top 25. But Apple disallowed even that kind of compromise, according to Tapjoy.

The result could be disastrous for Apple’s game developer ecosystem, since pay-per-install has become a big part of the business. Glu Mobile, a publicly traded company, highlighted the ban’s financial impact in a statement last week.

Tapjoy surveyed 496 iOS (iPhone, iPad etc.) developers that have used its mobile app distribution service. Almost half of those have reported an increase in user complaints about the inability to earn in-game currency by installing other apps. A quarter of the respondents said they are receiving “way too many” user complaints about the problem.

The number of developers who saw their game usage decrease after the Apple policy change is eight times higher than the number who saw game usage increase. And the ratio was 15 to 1 for those who saw revenues decline versus those who saw a revenue increase. At least two-thirds of the companies surveyed said that 20 percent or more of their revenues came from the model. Many said that pay-per-install generated 60 percent or more of their revenue.

Last month, developers found out that Apple was rejecting their new pay-per-install apps and updated apps because of Apple’s concerns about whether the apps violated one of the company’s App Store rules. In a pay-per-install app, a user is encouraged through an incentive to install another app. The developer of the app that gets installed shares revenue with the original app that steered the user to make the install, so it is a kind of advertising program. And it has been a lucrative one at that.

But when Apple tweaked the way it calculates App Store rankings a couple of months ago, it also changed its stance on pay-per-install apps, for a largely unexplained reason. Developers have been directed to section 3.10 of the Apple developer program license agreement, which says, “Developers who attempt to manipulate or cheat the user reviews or chart ranking in the App Store with fake or paid reviews, or any other inappropriate methods, will be removed from the iOS Developer Program.” It may be that Apple views the campaigns as unfairly gaming the system, but the company has not been crystal clear in communications. Apple evidently doesn’t want its top App Store rankings to be manipulated. Some days into the changes, everyone seems to believe that Apple has users in mind as it enforces the 3.1 clause more stringently than it has in the past.

The problem is that Tapjoy, Flurry, AdMob, W3i and Apple’s own iAds generate considerable revenue (possibly hundreds of millions of dollars) through pay-per-install campaigns. Pay-per-install is a popular model among those who don’t have access to credit cards, such as children.

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Over time, Apple may suffer from this change in policy as Tapjoy and game developers embrace the Android platform, which doesn’t have the same restrictions that Apple has put in place.

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