How Does Pokemon Go Make Money?

The other day, my wife says to me “what did you do before Pokémon Go?

Meet my surly wife. And the Drowzee living in my sink!

Pokemon Go and my wife

Welcome to Pokemon Go

Early estimates are that one in ten Americans have downloaded the app, and on average they are spending 43 minutes a day on it. I open it a lot, but I generally don’t stare at it except to briefly check what’s around. Even when I have it on for walking, I keep it in my pocket. When someone starts speaking, I try to close my phone. The only time I don’t is when I’m flipping Poké balls.

My wife’s comment is a great example of the understanding gap between insiders and outsiders.

Despite being addicted, she would be shocked to discover I’m a light user.

I believe that Niantic may have cracked local search. Google, Yelp and Groupon have all be trying for quite some time.

Local search is the connection between somebody with money to spend, and a specific location keen to get their hands on said money. As a taster, imagine if Starbucks bought a dozen rare Pokémon, and said that they would appear across their stores next week. I think their traffic would double.

Before I go into Pokemon Go’s opportunities to monetize addiction, I’ll start with some background and give outsiders an overview of the game itself.

The History of Niantic

Pokemon Go uses Google Maps as a platform. The engineering team behind it was an internal startup at Google led by John Hanke.

John Hanke has pedigree in geospatial data visualization, with his prior firm Keyhole acquired by Google in 2004 and rolled into the Maps division. His new company Niantic was formed in 2010 and spun out of Google in late 2015.

Niantic is named after a whaling ship, from the time of the California Gold Rush, that grounded in San Francisco and became a storage house. Its a “reminder there is a lot of cool stuff beneath the surface of things” said Mr Hanke in an interview.

I’m going to speculate that the ship itself was named after a tribe of Native Americans formerly of Connecticut and Rhode Island.

Niantic’s first product was Field Trip, a mobile app that helped you find cool and hidden things around you. Their second product was an augmented reality mobile game Ingress.

Much of the features of Pokemon Go’s maps come from elements that grew with Ingress. Players of Ingress contributed location data to an online database. Portals, the key locations in Ingress, became Pokestops and Gyms in Pokemon Go.

Poke Stop Makes Money

The History of Pokémon

Pokemon was originally a wildly popular anime from the mind of Satoshi Tajiri, who was fascinated with insect collecting. The characters from the show and players in the game are styled as trainers who catch Pokemon. In the original this was via battling your little beasties. In the newer app it is via the flicking of a red and white Poké ball.

I’m hoping you have already heard the phrase “Gotta catch ‘em all!

By the time of its 20th anniversary in 2016, the Pokémon media franchise had grossed $46 billion in revenues.

As an aside, PETA have branded the game as encouraging animal slavery. They have declared their offices a Pokemon safe zone and are talking about releasing a version of the game where the battles are to free Pokémon, rather than capture them. Good luck on that one guys!

Peta #gottafreethemall

Image: PETA

Google originally announced Pokemon Go as an April Fool’s joke back in 2014. Described as a training tool on google maps, Google would hire the leading games players because it wanted savvy risk takers who could “navigate through tall grass to capture wild creatures“.

John Hanke quickly realized they had hit an emotional nerve.

Corporate Synergy Is Not Always Bullsh*t Your Boss Says

Pokemon is a Nintendo affiliate, second only in size to Super Mario. It is a sprawling plethora of companies that own shares in each other, built to manage the interests of the developers Game Freak and Creatures, and Nintendo. Nintendo’s stake is thought to be 32%. This stake was big enough to drive a doubling in Nintendo’s share price.

Nintendo making money on pokemon

Image: Tradingview

Nintendo and Pokemon will have separate, undisclosed stakes in Niantic. The Japanese really have a flair for incomprehensible corporate structures. All the better to ensure that one person has more control than their invested capital justifies.

Nintendo and Pokemon have resources, and an amazingly deep and compelling story franchise. But they did not have the technical ability to build Pokémon Go.

They contributed the IP, or intellectual property.

Google and Niantic brought the technical chops to make it happen.

Gameplay

How does pokemon go make money

Once you login, you choose an avatar and are dropped like a streetview blob figure into a version of Google Maps. Poké stops are places you can pick up supplies for free. Gyms are a first attempt at incorporating the battling aspect into the game.

Out in the real world, all around you, there are wild Pokemon running free.

There are some Pokemon you get tired of seeing, Ratattas, Pidgeys and, near me, Drowzees. But your location is key. Each Pokemon has a type, such as grass, water and fire. Everywhere you go there are more and different Pokémon. Public parks are clearly favored by certain types of Pokemon, often grass related, while some ponds I’ve visited are frequented by water Pokemon. My local Ikea seems to be filled with Weedles.

Each Pokemon has a CP or combat power score, that indicates how advanced it is.

The revelation that Niantic brings is the need to get out of your house and start moving. I saw a sentiment on a forum “why are there players out there with 1500 CP Pokémon? My best are only 600 CP. How do they do this?”

After a few commiserations, one reply jumped out “you’re just not playing hard enough”.

The internet never ceases to remind me of a school yard. But the principle is set in stone, the more you walk with your app open, the cooler your Pokemon.

Poke balls make money

The capture sequence is relatively simple, involving the throwing of balls and a pulsating target. The artificial reality that provided the unflattering photo of my wife is a cool feature, but its much easier to catch Pokémon with it turned off.

You can incubate eggs by walking specified distances. You can feed and train your Pokémon with the use of Pokemon specific candy. But one key trick seems to be you need to build on fearsomely high CP starter Pokémon. You need to hold off evolving, saving up your candy until you find it. And those high CP starter Pokémon only come from playing and walking hard enough.

What tips and hints do I have? I think most people reading this will know to use low cost pidgey evolutions to speed up collecting XP, or experience points, and leveling their up their trainer. Another one I like is to throw the Poké ball from higher up the screen. It is instinctive to flick from the bottom to the middle of the screen. Somewhat cleverly, the ball goes further if you flick from the middle to the top of the screen – just like if you throw over arm instead of underarm.

Pokemon Go’s Business Model

  1. Start with Pokemon’s quirky and unique Gotta Catch ‘Em All story.
  2. Embed the story in the real world as sketched out by Google Maps.
  3. Offer an in game currency Poké Coins which can be bought for real money
  4. Allow Poké Coins to be spent on in game assets.
  5. Explore offering real world partners marketing relationships.

Poke coins costs in Sterling UK

Early estimates of Pokémon Go’s revenues are about $1.6m a day or $660m a year. This is purely for the sale of Poke Coins. These Coins can be exchanged for items such as incense that bring Pokémon to you, or lucky eggs that help you gain more experience points. ThinkGaming, an industry consultancy estimates the app’s revenues as already at a run rate of $1.6 billion a year. This will be based on monetization rates of other successful smartphone games.

Pokemon shop makes money

Pokémon Go is just out in Japan as I write this. This could be to give the developers time to scale their platform to the required size and deal with the game’s infamous server issues. Or they may just be timing it with the end of Japan’s school term. The initial agreement with McDonald appears to be to make all the McDonald’s branches in Japan Poké stops and Poké Gyms and therefore a huge traffic driver. They are even offering Pokemon themed meals. This kind of revenue stream has the potential to be both large and recurring. My local pub is a Poké stop. If Niantic asks them to pay, otherwise they will move the stop, I’d guess that they would pay. Yelp’s problem with their reviews centered around how it felt like blackmail. Poké stops are more explicitly a privilege that can be charged for.

How Does Pokemon Go Make Money?

Freemium games can be hugely profitable. You already knew that, but did you know that some people on Farmville, a Facebook game that was big back in 2009, used to spend $30,000 a year?

I remember playing a freemium game Badland. It was free to start, but with premium features you pay for. In this particular game, after about three rounds, the fourth round was impassable except for elite players. You were being obliged to pay to get to the next stage, and many, if not me, would pay to play.

That’s as good as saying pay or leave.

Thankfully Pokemon Go have eschewed that. They have gone for light in game monetization and a larger network of users. Right now they just sell items that speed up your progress. In the future this will definite widen. Farmville specialized in different colored tractors and barns.

Farmville shop makes money

Image: Farmville

This is a simple facet of time is money. People’s time is valuable. So even if you’re offering something purely aesthetic, you know what, if you got them spending their time on there, then some of them will be tempted to pay for a color. They have already spent something as valuable as their money, their time.

I generally rip into articles that claim companies are out to sell your privacy.

Privacy = Trust = Your Time = Adverts = Money

Ergo, Privacy = Profit

Selling your privacy is a misunderstanding of the value of your privacy to the company holding it. I may go too far with this line of reasoning. Although the media likely cares too much on the sale of your privacy, undoubtedly individuals largely do not care enough.

The very real risk around privacy is that no organization, from the FBI to Niantic is really secure. From hackers to internal employees, humans put you and your privacy at risk.

More Valuable Than Your Time

There is actually a force multiplier to the value of your time. And that is your physical presence. So far, few have sustainably solved how to get people to a particular place at a particular time.

Groupon appeared to have addressed this through the use of coupons, only later to discover that they were crushing their small business customers, while the daily deal emails were rapidly degenerating into junk mail. Yelp is a key internet resource for rating restaurants and bars. But as I noted earlier, their paying business customers hate them with a passion.

However, these were channels for marketing and advertising.

I believe Pokémon have gone way beyond that. Pokémon Go can sell your personal presence. That’s not marketing, that’s traffic. This is taking the idea of you as a product to another level.

Google can get your browser to a paying webpage. Pokemon Go can get your butt in a paying store.

I’ve already discussed McDonald’s likely future Poke Stop position, and that is merely scratching the surface. As I touched on at the top, rare Pokemon in Macy’s during the back to school sales would bring huge crowds. How about corporate sponsored Pokemon like a Nike? Or a collector Pokemon when you buy a particular Tesla car?

My local pokemon gym

Generally, I’m not a big fan of the internet of things. This is the business premise that we will have sensors and processors in everything, from your clothes to your fridge. This may happen but unfortunately so far it’s been hugely difficult for any company to really make money out of it. Batteries are capacity constrained and use cases tend to be narrow and unexciting.

Pokémon is a break out in local and location specific services. And part and parcel of that could be the internet of things. If they integrate any device into their ecosystem, like a yo yo to replace the ball throwing system or a pair of movement aware boxing gloves for Pokémon fighting, these will immediately become highly desirable mass market toys.

Catching ‘em all has only just begun.

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Yuen Lo

2 Comments

  1. Excellent article! Thank you for explaining his new Pokemon phenomenon. I have yet to try it, and I probably will not – I don’t have a lot of extra time raising a young family. But if I was a kid with a smartphone, I can see how addictive this would be. I don’t think most people saw this innovation coming and it seems to have left a huge cultural mark almost over night. Thanks to your article, I finally feel that I have a grasp on both the game and the business model. What I find fascinating is that so many high tech innovations are simply new advertising mediums. Magazines, newspapers, and TV commercials are dying and being replaced by Google, FB, Pokemon Go, etc. I guess what is new is just old ideas modernized. None of this is really new or novel to human experience. So, we continue to watch how technological innovators disrupt timeless business practices to fulfill customers’ needs. Thanks again.

  2. Somebody else pays is just such a powerful business model – maximum users for the least amount of friction. If there is a better way of doing I imagine that model (i.e. netflix) almost has to have fewer users by definition. Thanks for your kind comments Ryan! I look forward to when your kids force you to play Pokemon with them 🙂

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