When Will Mobile Advertising Become Part of Mobile Gaming Companies’ Media Strategy? Part 1

Part One of a Part Two Series

There are about 120M mobile gamers in the US today. Hit games like Candy Crush Saga, Words with Friends, and Clash of Clans have 10+ million monthly users. According to the September 2015 Verto Mobile Gaming Index, the top games average 10 hours of monthly usage time per user, which exceeds many of the TV shows. The top mobile gaming companies make billions of dollars of annual revenue, and are highly profitable. It is projected that mobile game revenues reach 42Bn USD by 2017. Impressive, isn’t it? But, where are these revenues coming from, and how do the mobile gaming companies run their business?

Digital Audience Measurement Use Cases in Mobile Gaming and Advertising

Traditional digital audience measurement use cases that drive customers’ revenues and profitability are all about media buying and media sales: understanding how to best invest your advertising budget, how a product company, brand, or advertiser selects the right media mix, the right channels and execution strategy to achieve brand recognition, to drive sales, or to get people to visit their retail stores.

What matters more after finding the right strategy is how to measure its effectiveness. The other use case is all about monetizing your audience with audience measurement data. Given that publishers have a certain number of active users, site visitors, or registered members, the question is how to sell that to advertisers? Third-party data is needed to convince ad agencies, advertisers and marketers about the quality, size, demographic profile, and structure of the audience. In the intersection of these two use cases, audience measurement data from independent measurement companies works like a currency – it provides the means of a trade. It sets the right price tag for a particular target group within the audience – and both sellers and buyers need that information.

How do these use cases drive the overall size of the mobile gaming and mobile advertising market? Mobile advertising hit north of 30Bn USD last year, and is experiencing significant growth during 2015. Currently about 5% of marketers’ advertising budgets are invested into mobile. However, like Rex Briggs concluded at the Verto Media & Advertising Summit in NYC in May 2015, this should be more towards 10-12% of total budgets. Most of today’s mobile advertising budgets are all about fairly simple mobile app installation ads, very simple, and straightforward performance-based marketing. The big giants like Google and Facebook dominate this market as sellers of those ads. They effectively sell installations – a mobile gaming or app company wants to grow its audience, and they pay the ad networks dominantly via a CPI-model, and each installation has a price tag. What happens after that? The fact is that most ad networks do not care; their pricing and revenues are based on mere installations.

Mobile App Installation Ads vs. Brand Advertising

The market for mobile app installation ads was born from a need to stand out from the competition. There are millions of games in the app stores, and the competition for user attention intensifies all the time. It is difficult to organically gain downloads if you don’t have millions of people in your audience and gain visibility from being amongst the top rankings. This is why app developers spend money to obtain downloads. Obviously the big gaming and app companies have bigger budgets to do this. Their earnings provide cash to further invest into incremental audience acquisition, they know how to execute well with these campaigns (it is not easy), and the overall downloads to in-game monetization conversion model.

Brand advertising in mobile is almost non-existent and the big budgets of traditional brands and product companies have not yet found into mobile. This is a big problem, and for that reason I am still describing mobile advertising to be relatively immature and poorly capitalized against the total amount of time spent with mobile devices. The balance between time and advertisings dollars in mobile is a far cry behind TV, radio, or even web – though it is changing slowly. One could also argue that the mobile advertising market could be experiencing a bubble of its own kind. Many of the mobile app and gaming companies are funded via venture capital. Effectively speculative venture capital (instead of earnings) is boosting investments in mobile advertising. These investments will last as long there is enough VC money to support all of the gaming and app companies out there. We would all be safer seeing mobile advertising driven by more profitable app and gaming companies, as it would be great to have a healthy and wide array of companies who can profit in the mobile gaming business.

In part two of this series, we’ll explore the need for a media sales model for mobile gaming, why mobile companies should invest in mobile advertising, and how mobile advertising can be a monetization mechanism for mobile game publishers.