SAN FRANCISCO--The atmosphere at today's Game Advertising Summit is buoyant. Speakers at this GDC-produced conference on the emerging in-game advertising market believe it's poised to explode. And it's not all talk either--some players are putting their money where their mouth is, as evidenced by Microsoft's recent purchase of in-game ad leader Massive.
But although it's widely accepted that the market is heading for rapid growth, questions remain: How fast will the market grow? Who's the best target for in-game advertising? Will advertisers, publishers, and gamers get on board?
At this morning's analyst session, Michael Cai of Parks Associates and Julie Ask of Jupiter Research addressed these questions. Cai opened the session by sharing his growth predictions. In 2009, he believes that in-game ad revenue on PCs will crack $400 million--more than 10 times the revenue in 2005. Though projecting more than tenfold growth may seem aggressive, Cai points out that $400 million will represent only about 2 percent of the total online advertising market in 2009.
If Cai's projections are correct, in 2009 it will be hard--maybe impossible--to find a new game that's ad-free. Will gamers support the injection of advertising into their favorite pastime? Cai has explored this question in depth by surveying gamers, and his research has yielded interesting results.
Though a significant percentage of gamers (from one-fourth to one-third depending on demographic group) are strongly opposed to in-game advertising, a similar percentage is strongly in favor of it--as long as it enhances gameplay or provides an opportunity to win prizes. Moreover, the hardcore gamers--the ones who play the most and spend the most money on gaming--are much more likely to be tolerant of in-game ads than are less committed gamers. In short, it seems that public opinion in the game market will not be a significant barrier to the growth of in-game advertising.
Julie Ask took the podium next to present her perspective on how in-game advertising will coexist--or compete--with other forms of advertising.
As Ask pointed out, there's plenty of competition for "emerging technology advertising dollars," and just 8 percent of online advertisers currently use in-game ads. As that statistic shows, in-game advertising is still niche media, much closer to podcast advertising (used by 9 percent of online advertisers) than to in-page display ads online, a well-accepted format currently used by 46 percent of online advertisers.
However, Jupiter's research shows that in-game ads are much more effective in reaching teenagers than other kinds of online advertising. The teen market is notoriously difficult for marketers to capture, so as the infrastructure for in-game ads improves, it seems clear that advertisers will recognize the potential and get on board. Ask is particularly interested in the potential in the mobile-game space, where a number of companies are already working with different ways of using ads in mobile games to target the enormous audience of cell-phone users.
When is all this going to happen? Or, in the words of Michael Cai, "Where's the inflection point?" At some point, like Internet adoption or use of cell phones, in-game ad revenue will switch from its current steady but slow growth to a rapid growth phase, Cai predicts.
Speaking with GameSpot after his presentation, Cai said that the catalyst for that phase of explosive growth was to reduce the complexity of in-game advertising. Currently, the in-game ad market offers no common ad format across games, and there's no central point of contact for advertisers, who mostly negotiate separate deals for each game.
Though a number of firms, including Massive, have made progress toward solving these problems, until these barriers are removed entirely, Cai explained, in-game advertising will not be attractive for most marketers. Cai doubts that point will come within the next two years but thinks it's a possibility in 2009 or 2010.
But when it happens, when the market does take off, will developers get on board. After Cai and Ask finished their presentation, GameSpot caught up with Dan Connors for the developer's side of the story. As the CEO of Telltale Games, which both develops and publishes, Connors sees in-game advertising as a promising opportunity, especially for independents and smaller firms. It's a new source of funding that could supplement traditional models, and Connors even thinks that in some cases it might be possible for in-game ads to completely underwrite development.
So it seems that smoothing the technical bumps may be all it takes for in-game ads to explode. It will be a challenge for rival firms like the platform owners and competing developers to work together to make this happen, but the potential gains are so large that Cai's estimate of a few years for the market to gel may be right on track.