The following is a guest contributed post from Mark Robinson, CEO of deltaDNA, creator of SmartAds.
In free-to-play (F2P) mobile games it’s common for fewer than 2% of players to spend money via in-app purchases (IAP). Therefore, the attraction to integrate advertising as a way of monetizing the remaining player base is obvious.
However, getting ads to work in tandem with the rest of the in-game economy isn’t without its challenges. Developers have to be able to balance player retention, social engagement and IAP monetization with advertising, in a way that doesn’t annoy, frustrate or confuse users, while ensuring high fill rates, and maintaining eCPM (effective cost per thousand impressions) value across multiple ad networks.
This isn’t easy, which is reflected in the findings of our In-Game Advertising Study 2016, which identified that the majority (52%) of developers are unsure how best to approach ads, with only 3% describing their ad strategies as ‘effective’.
In a perceived bid to protect retention, most developers take an ultra-cautious approach to setting ad frequency. However, recent research from the University of San Francisco shows that ad frequency actually has no effect on retention. While ads don’t affect retention, showing some ads can still be worse than showing no ads at all, because advertising can cannibalize hard won IAP revenues:
So, the situation is that unless they’ve taken steps to manage IAP cannibalization, many developers are losing money, some up to 75% or more of their IAP revenue by running ads, compared to not running them. I think this gives enough of a guide to show that the prevailing approach to advertising as a bolt-on isn’t working, but it’s important to note that advertising certainly can work, and work well.
Mind the data gap
Alongside the complexities of integrating, optimizing and reconciling numerous ad networks, a lack of accurate performance data means that it’s actually incredibly difficult for developers to ever truly understand what impact ads are having on different types of players.
The irony is that the industry is in a very fortunate position in that data on any player interaction can be captured and analyzed, yet most game developers can’t make the most of this data because, with advertising, it is housed in separate analytics silos.
For game developers and publishers, mediation is also fraught with potential inefficiencies. Often, when you implement an ad network, the eCPM may start high, but then it drops like a stone as programmatic buying kicks-in to minimize cost per click for advertisers. If they change around the order of the cascade, the same happens. Developers need to be able to optimize ad serving by using different ad network cascades for different regions and different device types in real-time to ensure they are serving the highest value ad available each time of asking, so each player receives the best performing available ad.
In-game experience is everything
When it comes to the in-game experience, there is a real opportunity for rewarded ads to support game progression and enhance the experience, and so long as ads don’t interfere with gameplay experience they aren’t proven to be a problem, as the University of San Francisco study shows.
Therefore, if your ads provide a positive in-game experience, then there is little need to worry about frequency, so you can confidently show more of them. Of course, the only reason for caution is when you aren’t in possession of the data to know what the outcomes of a strategy are likely to be. Segmenting your players and knowing when to provide an IAP offer, a rewarded ad opportunity, or an interstitial ad, and to whom, is the key to effective monetization.
Rewarded ads are a great case in point for understanding players’ ad engagement. On average, more than 70% of players don’t engage with rewarded ads, which is a big opportunity, given they pay out on a cost per click (CPC) basis. By testing different positions, rewards and creative, developers have a huge opportunity to improve rewarded ad monetization, and to ensure there are no adverse consequences on IAP revenues down the line.
We know, by looking at the monetization strategies adopted by the most successful games, that IAP and ad monetization can sit side-by-side and deliver great returns, but to unlock this potential, developers need to take back control of their entire in-game data, confidently optimizing ad performance with regard to its effects on IAP and retention by treating it just like a game mechanic, and use intelligent mediation that serves-up the best value ad for each player, not the lowest value ad for each advertiser.
Until then, you might never know your game’s true revenue potential.