The Future of In-App Advertising

In-app Advertising and Social Games

Ever since the first instance of a commercial in-game advertisement in 1991, developers, players, and advertisers have been having an interesting dance, involving a tricky balance between three primary questions: How many ads can be shown without bothering users excessively, yet still make enough money for developers, and at the same time get enough impressions for advertisers? The sweet spot of in-app advertising has yet to be found, but it seems that we are coming one step closer to it. With the rapid growth of the mobile apps and games market, this question is becoming increasingly important.

In-app Advertising is Here to Stay

…or at least, for a while to come. According to Juniper Research in 2013, industry spending on in-app advertising might reach $17 billion by 2018. This amount is up dramatically from the $3.5 billion spent 5 years earlier, which makes in-app advertising the fastest growing sector of the mobile advertising market. The reasons behind this trend are manifold: from the fast-growing smartphone and tablet market, to the growing amount of developers who are always on the lookout for alternative monetization models for their games and apps.

Things We Have in Common

Game developers and advertisers are not so different as they may seem. In the end, they all want the same thing – users. Advertising gains value by its targeting accuracy, making sure that as many of the right eyes as possible will see the right ads. Games gain value by acquiring as many players as possible. It seems that advertisers and developers should become partners, helping each other to increase profits and revenue. But is this really a good idea?

Games are an Advertiser’s Best Friends

The repositioning of games from pure entertainment to an advertising medium opened a whole new world for advertisers. Mobile games possess the unique capability to reach carefully targeted consumers through highly direct means. Mobile ads are becoming increasingly individualized, as data analysts learn more and more about their audience. Users are also a captive audience – they can switch channels when an ad appears on TV, or skip an ad on a YouTube video, but it’s almost impossible to avoid an ad that pops up unexpectedly while they are playing their favorite game. In-game advertising finally gave advertisers the opportunity that they’d always dreamed of – to reach their users anytime, anywhere, and most importantly, at less cost. In-app advertising has proven to be a heaven for advertisers because of its unusual targeting capability, as well as the ability to reach the most hard-to-reach demographic – teens, especially males 11 – 16. For advertisers, it has become a tremendous breakthrough. But is it so for developers?

The 3 T’s of In-app Advertising

Though advertising does help some developers to improve their monetization strategies, it can also be potentially fatal to the quest for monetization – if done incorrectly. For ads to work more effectively, and still be engaging without being intrusive, in-game advertising has to hit the 3 T’s: Targeting, Timing, and Trading. First, in-app ads should only target users who are reluctant to buy virtual goods, so game developers avoid the risk of losing the players who have already spent some money in the game. The second T is timing – the ad units should trigger at natural breaks, to minimize disruption and not interrupt the game experience. This could be done at the end of a session, level, or mini-game. And lastly, if done right, in-app advertising helps to monetize users who are willing to trade their time to watch ads in exchange for in-game currency or rewards. It is interesting to note that only 10 to 30 percent of revenue from social games is coming from in-game advertising, with much of it coming from casino and slots games.

In the End

We are already experiencing a growing lack of engagement on the players’ part, and too much in-app advertising might be the final straw for them. Many independent developers find it challenging to continue fulfilling users’ expectations in regards to game quality, while giving their games away for free, and paying for user acquisition. However, there are a few success stories, and while it’s too early to judge the long-term effects of in-app advertising, I believe that it will ultimately bring both positive and negative results to user experience and the games industry in general. As market saturation and a proliferation of freemium games have already diluted game value, and as the loyalty of mobile users wears off, it will all depend on how developers themselves decide how to implement ads, their frequency, and their targeting accuracy.