Alex St. John is CEO and co-founder of downloadable gaming company WildTangent. He spoke to eMarketer recently about the prospects for advertising in and around video games.
Prior to founding WildTangent in 1998, Mr. St. John developed Microsoft's multimedia
strategy. He helped create Microsoft
DirectX, which is used in all Windows
multimedia applications, 3D graphics, media players, PC and
Xbox games.
eMarketer spoke with him about how video game ad models are evolving.
eMarketer: What factors are enabling
opportunities for advertisers to market their brands through casual games?
Alex St. John: Take [best-selling casual game] Bejeweled. It has a 1% conversion rate, which is another way of saying that the game's free audience is 100 times its paying audience.
For every 100 users who try Bejeweled, one pays $20. There's no cost of goods for the game and the bandwidth is virtually nothing. Somebody who pays $20 for the game pays an average of 25 cents a session. On a free audience basis, it's worth a $2.50 CPM.
If Coca-Cola said, "You would make exactly the same giving it away as selling it," advertising could be equivalent to credit cards in revenue generation.
When advertisers create per-session value for gamers, that is not the same as shoving an ad in front of them.
The average 30-second video ad has a CPM of $20, and gets a click-through rate of about .25% or .5%. We get $138 CPM and deliver a click-through rate of 10.5%.
At that price point, it is vastly more profitable to take premium game play and get advertising for it than to charge the consumer. The games are worth more if the advertiser buys the game play than if the consumer does.
eMarketer: How do you get the ads in front of gamers?
Alex St. John: We use off-the-shelf technology like DoubleClick to serve ads. As a consequence, we can unlock it on a per-use basis. For the really premium ad units, if gamers want to play the game all day, they can do so in exchange for watching an ad.
The standard video ads that are going to Microsoft or Yahoo Websites are standard IAB ad units with the standard DoubleClick ad servers.
The difference is, when gamers fire up Bejeweled, they are asked if they would like a sponsor to buy the game for them. Clicking an ad brings up the game-loading screen, and during that time they are shown the video ad unit, and around the window is Coke branding and a 30-second spot. Above the ad unit is a message saying: "This complimentary session of Bejeweled paid by Coca-Cola, Nike or whomever."
Oil of Olay might ask which games mothers play most. They might then buy all those games and make them free. The site might say "These are all the games Oil of Olay is making free." It's all essentially standard Web advertising, just presented in a structured and elegant way in the context of a premium.
eMarketer: How will video game advertising opportunities evolve over the next few years?
Alex St. John: Advertising will become the monetization vehicle in the US for a whole bunch of premium game types.
You will see game publishers and distributors announcing partners, and the console game ad model will move online. A lot of the game industry will start putting premium game play into advertising models.
eMarketer: What is the future of in-game ad dollars?
Alex St. John: The in-game advertising business is a niche that will be thrown into a much bigger advertising market.
There are very few dollars for in-game advertising. It's 5% of the ad dollars. Basically, in-game ads are a lot of hype. The console guys are experimenting with in-game advertising and ad sponsors. To a large degree they'll struggle on the console.
I don't think a ton of ad dollars will flow into the console, but console games and game play will flow into the Internet, where the advertising dollars are.
The largest, most countable and interesting advertising market for gaming is running a prestitial video in front of a Flash game.
The average value is $20 CPM on AOL, Yahoo, Shockwave and WildTangent. There is a very sustainable advertising business to be made from that .
I suspect that the standard video unit is one of the most dominant models where advertising and gaming are linked.
The next most prevalent and most money-making is the sponsored-session model.
If you look at DFC Intelligence's data, even by 2012, compared to the Internet, there will be very
few consoles online.
I predict that the console advertising business, the combination of in-game advertising and sponsorship of gaming, will be small compared to console sales.
Different trends will overwhelm in-game ads by 2012, keeping them from ever being a significant opportunity.
It used to be that value of that console was that the value of a game had to do with graphics and the game input controller. The living room and TV set was the only display available where everybody consumed media, but the living room isn't as dominant or influential as it used to be.
The console in general is likely to experience a decline in relevance. Games will move back to PC, MMOG, communities, and gaming supported by advertising. As a result, the ad focus will shift from consoles to PCs.
Learn how other companies view video game ad evolution. Read
eMarketer's Video Game Advertising report.