At WildTangent, we frequently meet with developers who are interested in boosting revenues through advertising—but have become cautious about the impact it might have on the gaming experience. With all the media hype around the topic, it’s no wonder there is both excitement and caution.
If you are considering whether to implement an advertising strategy for your games, it’s important to understand the distinction between “around-game advertising” and “in-game advertising”—because gamers certainly do.
Around-game advertising can take the form of anything from traditional banner ads to full-fledged pre-roll video ads. In-game advertising is advertising embedded within the actual game-play experience (such as billboards in a racing game).
In-game Advertising
Seemingly incessant news reports citing grossly exaggerated revenue projections from some analysts have triggered such euphoria that otherwise sane individuals would have you believe that gamers actually like ads in games and that these ads enhance the game-play experience. But if you carefully look at the research this euphoria is unjustified.
The Parks Group did a survey recently which said approximately 20% of gamers would not buy a game that had advertising built into it. Much ado was made about the other 80% who either didn’t care or had no opinion. But can you imagine what would happen to game revenues if 20% of gamers stopped buying ad-stuffed games? It’s safe to say the revenue generated from the advertising would be dwarfed by the revenue lost—not to mention the immeasurable damage to brand loyalty.
To be clear, in-game advertising does have a place. It’s something we and many other companies have offered and will continue to successfully sell, but only in a limited fashion in a handful of appropriate game genres like sports and simulation games.
Around-game Advertising
What we’ve seen to be most popular for developers, publishers, advertisers, and gamers alike is making downloadable games free to the customer through around-game advertising.
While the benefits of free game play are obvious to the consumer, they aren’t necessarily as obvious to the game developer. The biggest question I get from developers considering this model is, “How do I protect and even grow my existing game revenues if I’m giving the game away for free?” That is a fair question from any developer, particularly those held accountable by the public markets.
To developers who approach me with this concern there are answers to two simple questions that can make all of these doubts fade away:
Question One: What is the Potential Audience for Your Game if it Were Free?
What no game developer knows is how many people who look at or pass by a game at Best Buy or Fry’s don’t buy it because they don’t value the game at the price the retailer is selling it for. We know how many people bought Halo 3, for instance, but how many more people would have picked up a copy of the game if someone at Best Buy was at the door handing out free copies?
Or think of it this way: PopCap’s Bejeweled is one of our most popular downloadable games. Like so many others, we sell it on our site for a retail price of $19.99. About 2% of those who play Bejeweled on our site pay the retail price to own the game. The other 98% play it for free. In other words, the free-play audience of Bejeweled is almost 50 times that of its paying audience. In fact, across our network of more than 450 games, we have found most games have a free audience that is 50 to 100 times that of its paying audience for an “optimally” priced game.
Question Two: How Many Times Does a Person Play Your Game Before Finishing it or Moving on to Another?
Once you know what your free audience is, you then must know how many times the average person is playing your game before either getting bored with it or finishing it. Knowing this can help you arrive at a per-play cost of the game, a cost you can either pass on to the gamer or to an advertiser willing to sponsor the game on behalf of the gamer.
Continuing with the Bejeweled example, we know that on our network the average player of Bejeweled plays the game about 80 times before moving on, making the actual value of the game approximately $0.25 per play to its paying audience (based on a retail price of $20). Since the free-play audience of Bejeweled (and most other games) is about 50 times that of its paying audience, then the value of each free play across its potential audience is about half a cent per session (that is, $0.25/50). That means that an advertiser could sponsor the game-play at a CPM of $5 ($.005 x 1000) and the developers would make the same amount of money as they would from selling the retail version to the 2% of its audience willing to pay for it. This math is essential to understand the online games business because advertisers are willing to pay 10 to 30 times the online monetizable value of a premium game to give it away free, provided the game is packaged in a way that enables the advertiser to sponsor it on a per-session basis.
You can do this math for any game. A successful game under this model is one that has a high replay value because the more plays it gets, the lower the per-play cost and the more advertisers will be interested in paying to sponsor free play. What traditional game publishers need to understand about taking their games online is that advertising is just an alternative payment solution for game-play that happens to work extremely efficiently once the developer can correctly transform a game’s retail price into a correct CPM value for advertisers. Traditional publishers also often mistakenly believe that online distribution should be treated as an aftermarket for games that have outlived their retail shelf-life. The truth is that online distribution offers a means of getting paid to market a new game—at an extremely high return and low cost of goods sold. Traditional publishers, who are accustomed to the constraints of marketing in a boxed-game world where distribution costs make it impossible for games to market themselves, often waste this tremendously profitable and viral way to market new games.
The Bottom Line
The vast majority of the developers with games on our network have seen tremendous growth in the size of the checks we send them every month—simply because they now know the answers to those two important questions.
