Last week I wrote about the rising cost of paid user acquisition. this week I want to dive deeper into how advertising can help mitigate this issue. Ironically, my former employer, Zynga, made a creative move recently in this direction. Zynga announced SponsoredPLAY, an in-game advertising product where sponsors offer special content or levels that enhance rather than detract from gameplay. I do not know enough about the offering to comment on it directly but it shows how game companies need to think to thrive in the coming age of higher cost per installs.
Why advertising is the natural hedge
Last week I discussed the fundamentals of the paid user acquisition space and why it pointed to dramatically higher CPIs (cost per installs) in the near future. There are several options to cope with this situation but one of the strongest is to increase advertising revenue in your game. Once advertising becomes a significant component of your revenue mix, any increase your CPIs due to higher advertising rates should also generate additional ad revenue on the other side of the equation. The more CPIs increase, the more your ad revenue increases.
Advertising 2.0
Unfortunately, increasing advertising is not as easy as putting banner ads in your games. Last January I wrote how consumers are much savvier now and expect their communications with companies to be as smart and sophisticated as they are. The same holds true for advertising.
For advertising to work in 2015 and beyond, it must achieve certain functions that most ads do not
- Targeted: The advertising should be relevant to the customer. A 50-year-old man should not see an ad for a Miley Cyrus concert.
- Contextual: The advertising should fit naturally with the overall game experience. You should not be playing Game of War and all of a sudden see an advertisement with pink fluffy unicorns dancing on rainbows.
- Beneficial: Rather than having the advertising annoy the player, enhance their experience. Use it to deliver benefits that they would not normally receive.
- Segment: You do not have to show ads to everyone. You may only want to show ads to non-spenders. If the ads are truly beneficial, you may actually want to show them more frequently to spenders. The important thing is to create as small clusters as possible and then create an advertising strategy that optimizes the value for that cluster (IAP [in-app purchases], subscription, advertisements).
- Multiple formats: You should not limit your advertising strategy to one type of advertising, just as you would not limit your in-app purchases to only allowing players to buy chickens. Different types of ads will work in different parts of your game and some types will be more relevant to certain users. Use the full arsenal of advertising to optimize your player’s experience and the revenue they generate.
- Flexibility: The digital marketing world is still in its infancy. Rather than have a laser focus on one ad unit or strategy, keep abreast of developments in the industry and continually evolve your strategy as best practices evolve.
Scalability shmalability
The most common refrain heard when discussing integrating advertising in mobile and social games is that it is not scalable, which has always confounded me. You can also argue that Super Bowl ads are not scalable but you do not see the NFL doing away with them. eMarketer estimates advertisers will spend nearly $600 billion in 2015. While advertising may not be as scalable as selling virtual chia pets, it’s hard to argue it is not a very relevant revenue source.
Spend almost as much time optimizing ad revenue as in-app purchases
Given the evolution in the game industry, with CPIs becoming increasingly difficult to justify solely from LTV (lifetime value) generated from IAP, you need to build out a thoughtful and comprehensive advertising revenue strategy. Rather than just throwing ads in your app, devote significant resources to testing and creating the best strategy, just as you devote significant resources to optimizing your in-game economy. If you devote sufficient resources and follow the principle above, you will be well positioned to weather the changes in the gaming ecosystem.
Key takeaways
- The importance of advertising revenue is underscored by increasing user acquisition costs, and in-game advertising provides a hedge against further increases.
- Creating a revenue stream in your app by integrating advertising that targeted, contextual, beneficial to the player, segmented, flexible and integrates multiples formats.
- When building out your ad revenue strategy, do not skimp on resources for optimizing it just as you devote sufficient resources to in-app purchases.
The Business of Social Games and Casino 
One thought on “Dawn of a new era of in-game advertising”