'Free' And 'Ads' Get A Divorce
Last week my fellow Gaming Insider Shankar Gupta wrote a nice piece on the new business model sweeping online and mobile games: Free to Play. His piece is well worth a read if you missed it last week to catch up on the advantages of the business model and possible implications beyond just gaming.
I'd like to take a moment to dive a bit deeper into one of the implications the rise of this model has on advertising.
The F2P model relies on providing a large introductory portion of a game to users for free, and assumes that if the game is fun/addicting enough, players will be willing to pay after an initial investment of time. This works on a number of psychological principles related to loss aversion and cognitive dissonance. In short, it's extremely potent and effective.
We're seeing a major rise in this model, due in large part to what may have seemed a minor switch: Apple enabled in-app purchases for titles listed in the "Free" category of the App Store, which moved most game developers to explore the model. The success expanded exponentially.
However, these same developers, in both mobile and many of the now F2P online games, had previously been relying on in-game, interstitial, or banner ads. The mechanics of F2P do not encourage ad support in games, since the aim is to increase initial and sustained volumes of gameplay to yield maximum revenue. Running an ad in between level loads, having a user click out of the game from a banner, or even upsetting the users that find ads in content distasteful all can cost the developers more than the ads generate in revenue.
So while F2P is an awesome business model for the publisher (and the app store backend taking a cut of all payments), advertisers are getting the short end of the stick. Consider the massive volume games represent in the mobile app market share and time investment by end users. As the sector grew prior to F2P, mobile games represented an extended media vector for ad impressions. Today, all of the free games with higher quality production have adopted the F2P model and are now ad-averse.
As Shankar noted in his column last week, the F2P model could easily extend beyond gaming to other media (and there is no reason why this should not be the case though I suspect a very similar thought process is behind studios licensing past seasons of TV episodes to Netflix). If this happens, we might well be looking at a significant shift from the web as a largely ad-supported medium to a web built around ad-less free content at a superficial level with microtransactions powering deeper layers.
In truth, the death of ad-subsidized content may not be as terrible as it could initially seem. Marketing already seems to be shifting away from broadcasting a message to consumers, metamorphosing into more of a service-based offering for consumers. If the media in which static ads are placed erodes, it might force a deeper evolution of marketing strategy along the current service/social/shopper oriented trends.