Tobold's Blog
Sunday, May 22, 2016
Circular economy

Playing Free2Play mobile games I used to get pestered frequently by various games asking me to give them money. "Pay now, and get energy to play some more! Pay now, and get in-game resources!", the typical monetization schemes for "free" games, some very much in your face, others far more discreet. One learns to ignore them and play those games for really free, or if they are blocking your progress too much without payment, you just uninstall the game. But I've noticed that there is some development: More and more frequently games don't ask me for money, but instead offer the same energy or resources in exchange of me watching some advertisement. Watch a short video for some *other* mobile game, and get the same sort of reward you used to have to pay for, albeit usually in smaller portions.

Of course I understand what is going on here: The devs of game A get some of the advertising budget of game B for every player they can persuade to watch the advertising video of that game. It is another form of micro-payment, but this time really, really micro, and just demanding time from the player instead of money. Or in advertising speech, "eyeballs".

In 2015 in the US a whopping $30 billion was spent on mobile advertising, and that is expected to grow to $42 billion in 2016. That'll pay for a whole lot of micro-payments for Free2Play games. But I'm questioning the wisdom of this, because I see two fundamental problems here: The first is diminishing returns, the more you are asked to watch advertising, the less impact that advertising has. The game can't control if you are actually watching, or whether you basically trade 30 seconds of time looking elsewhere for your free energy or resources.

The second problem is that this business model is in danger of becoming circular: Game A gives you free stuff in exchange for watching a video advertising game B, while game B gives you free stuff in exchange for watching a video advertising game A. The overall effect is that neither game A nor game B is making any money, because people watch adverts instead of paying anything.

There are now over half a million games on the Apple app store alone, and a similar number (of often the same games) on Google Play, with about 200 games getting added every single day. That makes the 6,000+ games on Steam look like a meager offer. But as much gaming, and especially mobile gaming, has become main stream, there are natural limits to growth, both in the time people have available to play and in the amount of money they are willing to spend on games. A few people have gotten very rich selling mobile games, but a much larger number of people has gotten nowhere and lots of game studios have had to shut down. The richer game companies giving their advertising budget to the poorer game companies serves to spread the wealth around a bit more, but it isn't creating any more wealth.

I'm sure this trend of getting stuff for watching adverts will continue for some while, but at some point advertisers will realize they aren't getting enough bang for their bucks, and mobile games will turn to the next big idea in monetization.

And even the 6000 on Steam are too many...
This will continue until the economy completely explodes and all the phones go dark. Think of the advertising money sloshing around as just another bubble. I mean, really... how many thousands of games do there really need to be? Shouldn't all these companies just go broke? Nope! As long as they're "in the casino" (Have a stock ticker listed.) their valuation is through the roof, all they have to do is "Announce new product", no matter how derivative or total crap, and the announcement sends chips their way in the casino.
Ah now I worked with a mobile advertising company on performance based campaigns, and what you just described is incentivised media.

First up, that app developer is ultimatly being paid per impression. I can tell you that for an ad buyer this created a range of problems, with almost all of them being some kind of fraud. The industry has a few ways to attempt to address this, and one is to pay for an action instead. (Seriously the fraud is insane).

Now the advertisers, depending on a number of things, like what exchanges that app has their inventory in, and what is known about the user, are budding on those impressions but are paying for it by the impression, by click or by install. What the advertiser pays for depends on how the exchange is able price each of those actions. For example if they have a very stable click through rate and it turns out to be 1/1000, then they can pay the app for the impressions and charge the advertiser for the click.

And this brings to incentivised media. OT tends to work differently from non-incentivised and get used differently. The major use is incent installs. These tend to be poor quality and have low engagement. But they are also cheaper to get and help with app store rankings.

Oh and one last point, this is all about selling shovels in a gold rush. Everyone buys the advertising, regardless of their success. And because of the link between installs and app store rankings, it gets seen as required to enter the market.
Selling advertisements is practically outsourcing monetization. It's the dev saying: "I have no idea how to milk this free player, so I just sell him to someone who can (or at least believes so)"
I have a few puzzle apps (not very popular, alas) on Android playstore. They are free with text banner ads. Payment is officially an aggregate of all methods, but from observation it's over 90% click-based.
I don't recall ever playing a game where it wanted me to watch some advertisement in order to play, or rewarded me for watching one. Is that really a thing? And I probably play 20-30 hours of games a week, often buying several new games a month. But I guess kids today do things differently. Makes me feel old.

Amazing how there are little oddball communities of games out there, with their own subcultures.
@Michael "kids today" - my guess is that kids today tend to be comfortable with modern monetization and the no$ ads are for their bitter vet parents who think everything should be $15/mo or $60.

As an aside, IMO, the most likely way to fund a new AAA MMO is to find a way for advertising/product placement to work.
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