Will Indies Survive the Rush to Ad-Supported Games?

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For years, advertising in games has been a special space for indies. While a few large companies built ad-based games — such as Talking Tom maker Outfit7 — many more successful ad-based hits, from Crossy Road to Two Dots, were built by indies.

But in the past year, big companies have rewritten the playbook. Zynga bought Turkish developer Gram Games for $250 million. Goldman Sachs put $200 million into French publisher Voodoo. King reintroduced ads to Candy Crush. And in a sign that the ad business model has truly gone global, Ketchapp sealed a deal with Chinese mega-corporation Tencent for access to its 980 million users.

The game business is cyclical. Almost every new market niche is begun by indies but eventually owned by giants. Are ads any different? We think so! Here’s why.

Big money

The first question is why big companies have seen fit to dive into ads. For a few such as Zynga and King, the answer is that they already know the business. Zynga learned about in-game advertising in its early days on Facebook; King, similarly, had web and desktop ad DNA well before it went to smartphones.

But in mobile, both companies went with the general trend of focusing on in-app purchases. King took out ads from Candy Crush by 2013, since IAP in the game was printing money.

So why would King reverse course and use ads again? The answer is simple: IAP revenue has leveled out. Today, it’s ad revenue that’s skyrocketing.

Multiple factors lead to high ad revenue, but the most significant may be rewarded ads, a high-earning format that didn’t exist in the early days of mobile. Zynga didn’t just acquire 3 million new daily active users with its Gram Games acquisition. It also picked up devs who know rewarded — and a huge pool of users who love the format, which is heavily used in Gram Games’ most popular titles like Merge Town.

Goldman Sachs, which invested in Voodoo, is best known for banking, but it understands numbers. Helix Jump, a Voodoo-published game developed by Ukraine’s h8games, surpassed Fortnite with 100 million downloads. When you combine that kind of scale with ad CPIs like $1.88 in the US and $2.82 in Japan, the potential for big earnings becomes obvious. Even in China, where Ketchapp signed its billion-user deal with Tencent, ad CPIs on the Chartboost network are now over $1.

Indies and ads

These investments and deals in the mobile game market took place over a single year. Clearly, the giants are ready to stampede into mobile ads. So why — and how — will indies survive?

The key factor is game size. Mobile has broken the established rules of gaming; instead of getting bigger and more expensive to create, the mobile top download charts are now dominated by tiny, highly polished games. Voodoo started with only two people, and has a small staff even today. Its developers are often one- or two-person studios.

Another factor is the ease of implementing ads. As in-app purchases matured, game developers shifted their focus to complex calculations of spend and lifetime revenue. Successful developers hired entire departments of data scientists and analysts. The number of users who bought IAP never rose above 5% for most games, so developers specialized in pleasing a tiny proportion of paying users. Zynga even employed a special group of customer service specialists for its Platinum Purchase Program aimed at a tiny number of top payers. Indie studios employing a handful of people couldn’t keep up.

But ads are nothing like IAP. Users aren’t being dragged and prodded to open their wallets. In fact, in the case of rewarded ads, they often demand to be shown more ads. Two years ago, the Canadian developer Hyper Hippo put the emergence of rewarded to Chartboost this way: “It went from ‘Ads are evil, they’re blocking my game’ … to suddenly ‘We want more, we want more!’”

Ad-supported games could even be called the purest experience in gaming today. Unlike IAP-driven games, an ad-based game only needs to convince users to start playing and enjoy the game. And unlike the traditional paid game market, an ad-driven game has to keep the experience fun for players as long as possible.

Ads are unfreezing the monetization potential of the vast majority who don’t — and won’t — pay for IAP. Fortunately, making money from ads isn’t a question of who can sell the most, but of who can provide truly enjoyable experiences — as it should be. And that’s a goal that is within reach of any developer, whether you’re a rookie developer or a seasoned pro like Zynga.