Pokénomics: The Secret to the Success of Pokémon Go

Pokemon Go
A player's phone decorated with Pokémon stickers as he plays Pokémon Go, London, July 15. Syrian children are using pictures of Pokemon to call on the world for help. Olivia Harris/Getty

Upon stepping outside your home recently you may have noticed a rise in people wandering around in a seemingly aimless manner, staring intently at their phones, only to suddenly start frantically swiping at their screens. If this sounds familiar, you've likely witnessed people playing the viral, augmented reality (AR) game Pokémon Go—and if it doesn't, odds are you're one of the 75 million people with their head down, desperately swiping to catch these digital monsters yourself.

The location-based game that merges the digital and physical world on our smartphones has successfully brought a new way of gaming into the mainstream nearly overnight. The rapid popular appeal and the commercial potential of Pokémon Go's hybrid reality world is nothing short of staggering – leaving many wondering exactly how it happened.

Catching the users

The nature of the game, allowing users to 'play' in and interact with the outside world offers an obvious appeal. And although it wasn't the first AR game, what it did have was brand recognition and an existing audience to tap into.

In the '90s and early '00s, Pokémon spread across cards, movies and games. By tapping into this brand's existing, dedicated community, the developers appealed to a nostalgic group that may not otherwise have been interested in a cartoon-based mobile game. The effect of having a group of early adopters that didn't belong to just one demographic also made the game appeal to the broader market, and young kids as well as grown adults are equally likely to be playing.

The rollout was also staged across regions. This not only allowed the game to build momentum, but also gave time to gather user feedback and fix early bugs. This is significant as loyalty is often directly linked to performance, with research finding that 80 percent of users will only use a problematic app three times or fewer before abandoning it.

Since launch, the Pokémon Go development and test teams were continuously rolling out updates to fix bugs, increase loading speeds, reduce crash rates and improve GPS signals. There are always improvements to be made but testing and constantly improving the platform has meant that each new user will have a better first experience than the last and, crucially, be more likely to play again.

Catching the money

Within three days of trading after Pokémon Go burst onto the scene, Nintendo's shares skyrocketed 53 percent, until they dropped 18 percent on July 25 after issuing a press release clarifying that Pokémon Go would have a "limited" impact on the company's earnings as it was not an outright owner of it.

The viral game is a collaboration between Niantic Labs and The Pokémon Company—the latter of which Nintendo only owns 32 percent of. Accordingly, Niantic Labs' valuation has now also risen to $3.65million dollars. But is the game just gathering users or can it actually make money? In short: yes, it can.

One revenue stream is in-app purchases. The game is free to play and download, but it also lets you buy extra items, such as Pokéballs, used for "catching" and "storing" Pokémon. From U.S. iOS players alone, the app was making $1.6 million per day in mid-July. However, there's another reason investors have been getting excited about Pokémon Go—the game has a unique standing at the intersection of the digital and physical world.

The potential for commercial deals with any brick-and-mortar businesses to direct and drive footfall, for instance to cafes and retail stores, is nearly limitless—particularly because it can be incredibly targeted. The game is local by its nature, scalable, and can allow precise marketing and targeting for physical stores through a digital platform, incentivizing players to visit real locations.

However, to fulfil this commercial potential, the game absolutely must keep its users playing.

Will they catch 'em all?

Recent user statistics show that the number of daily active users may have peaked, dropping from 25 million in mid-July to about 20 million in the month's final week. Some may take this as a sign that there's no longevity in Pokémon Go and it will be a flash in the pan; however, this is only partly true.

Will people be playing Pokémon Go forever? Potentially not, but if we consider it as a platform for AR instead of just a game, then it is here to stay. In contrast to most games that are restricted to our screens and the internet, Pokémon Go has successfully introduced the masses to a new way of interacting with the world around us and shown the potential for building real world relationships—whether with brands or consumers. And as Nintendo does own the intellectual property for other well-known gaming characters, such as Mario and Zelda, who may have potential for similar AR games, investors may not want to sell off their new Nintendo stocks just yet…

Christopher P. Willis is chief marketing officer at app testing platform Perfecto Mobile and has over 18 years of experience growing companies in the technology sector.