Screen Digest's senior analyst and head of mobile media intelligence, David MacQueen, looks at the ad-funded business model for mobile games, and what impact it could have on more traditional methods.
Ad-funded mobile games are a new trend in the industry and a number of services have launched recently using that business model as a basis. Greystripe and Hovr, both US-based, are the highest profile companies in this emerging sector.
Greystripe distributes games through its own portal, Gamejump, as well as a network of over 40 partners running other mobile games portals. Around 15 per cent of downloads are via the Gamejump portal.
Greystripe's AdWrap technology inserts pre- and post-play dynamic interstitial ads, also known as "wrapping" - in other words, full screen ads before and after playing the game. They can be used for simple branding, or the ads can take the user to a mobile website, prompt the user to complete a survey, offer a click to call service have the advertiser call the user.
The company has deals with over 90 games publishers to supply content. While most of these have been smaller publishers, for whom the driver is to increase market visibility, major mobile games publishers - including Vivendi, Konami and Digital Chocolate - have partnered Greystripe recently.
There are plenty of other big names associated with Greystripe. Recently Yahoo used Greystripe's network to run a survey to research its mobile brand awareness. The company has received USD 10.1m in funding from investors including Steamboat Ventures, a venture capital firm affiliated with The Walt Disney Company.
Hovr launched in February 2007 as a free ad-funded mobile games portal with social networking elements. Initially, it sold its own ad inventory but following a deal signed in May, its inventory is sold through an agency, Third Screen Media, recently acquired by AOL.
Like Greystripe, Hovr runs its own portal and also provides a white label service for other web portals to distribute games. Hovr has recently moved into the Indian market with the first of these portals, set up in conjunction with Times Internet Ltd.
While Greystripe and Hovr market direct to consumers, and provide the backend for other D2C companies, competitors are taking an alternative route to market by offering ad-funded gaming platforms as services to mobile operators.
Amobee provides advertising services to mobile operators for all content types, including games, as well as more traditional banner advertising. Amobee manages the delivery of the advertising as well as managing the inventory.
The company has been involved in an ad-funded games trial with Orange France, and has launched services with Vodafone in Italy and Spain. The Vodafone services do not yet include ad-funded games.
Interestingly, the company has had funding from two mobile operators, Vodafone and Telefonica. It's very rare for mobile operators to work together, but this is increasingly happening in the mobile sector as advertisers are interested in mass market campaigns rather than targeting users from one operator.
Amobee has also signed deals with mobile games publishers including Digital Chocolate and Player X. The data Amobee shares with its publisher partners includes a number of metrics on gameplay, such as how many times the game was played, which levels were played, and so on - data which could be used to help improve game design.
Israel-based Inneractive has trialled its advertising platform with Israeli operator Cellcom. However, the company has not limited itself to operators and recently completed a trial with major off-portal content provider Jamster in the UK and US markets.
Also in the market are a handful of independent companies. Cellufun offers single player versions of its own games for free with in-game advertising, while the multiplayer versions are offered as subscription-based titles.
Cotopia offers its multiplayer games for free and the company is funded through advertising on the portal. Neither company has deals with other games publishers, mobile operators or major advertisers.
Finally, Actionality is a mobile start-up which has developed its own in-game ad insertion platform, AdFlex. The company was acquired by Yahoo in August 2007 for an undisclosed sum, but has made no announcements since then.
A growing trend
In-game advertising has been a growing trend in video games but is itself a nascent market. Screen Digest anticipates that mobile game advertising deals are unlikely to generate meaningful revenues in the short to medium term.
"Meaningful" depends, of course, on a matter of perspective. For mobile games developers, companies often struggling to keep afloat month-to-month, advertising-funded mobile games can offer a lifeline.
For the companies I've mentioned working in this sector, these revenues are very meaningful. But in the context of the mobile advertising market, or the mobile games market, mobile games advertising revenues in the next few years will account for a relatively small part.
What price free?
With over 20 million free downloads over the last two years, some industry observers have claimed that advertising-funded games have in fact shrunk the market, or at the very least contributed to a flattening of revenues. There is little hard evidence to back this up, and in fact data from some companies in mobile video - where advertising has been more common - would seem to contradict this viewpoint.
Operators offering free video alongside paid-for mobile videos saw a general increase in usage when free videos were offered. Undoubtedly some of this increase will have come by allowing users to experiment with mobile video for free. Many subscribers are wary of using their phones for any type of content service after hearing scare stories of ringtone companies' unscrupulous behaviour.
'Free' could also be a new 'window' for mobile games, something which is common in other media industries. For films, cinema is typically the first window, followed by the DVD window and so on. A 'free' window at the end of a product's lifecycle could bring extra revenues from back-catalogue titles for games publishers.
In the longer term, advertising could provide an important additional revenue stream for mobile games. With major brands and advertising agencies beginning to use mobile games as a channel and major games publishers, such as Konami, providing better quality games, meaningful revenues should start to be generated
Questions remain on the true price of free content; will this damage the pay per download model? If the new channel is treated as an opportunity, and not a threat, then the industry will find the right answer.
David MacQueen is senior analyst and head of mobile media intelligence at Screen Digest.