Five reasons why you shouldn’t use Ads in your free game

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I am not a believer in the ad-supported business model. Too many people (mainly those working in traditional media) believe that free=ad-supported. This is flawed, and wrong, and dangerous for your business.

Here are my five reasons why you should not use ads in your free game.

1. Ads require massive volume to be successful

In order to make money from an ad-business, you need massive volume. That is why in traditional media, ratings are key, and ad sales executives focus on inaccurate and unhelpful numbers like “circulation” or “ratings”.

There is a fiction sold to advertisers that everyone who buys a copy of the Sunday Times, say, sees every single ad, and the rates an advertiser pays are based on the circulation. Similarly, the incredibly inaccurate television ratings, and the flawed assumption that everyone watches the ads, are used to work out the cost of an ad spend in TV land.

In games, we don’t have the inaccuracy problem because we can measure the effect accurately. We still have the problem of audience size mattering.

To take an example, what do you need to achieve to earn £10,000 from an ad campaign for your free game. The basic answer =

Number of impressions x eCPM / 1,000

Assuming that you can achieve an effective CPM of $0.10, you need 100 million impressions. If you are able to push your CPM up to one dollar, you still need 10 million impressions.

That’s a million people playing your game 10 times, or a hundred thousand people playing your game 100 times.

And that only gets you £10,000.

Of course, you can play with this further. You might be able to push your eCPM above a dollar. You can put an auto-refresh on the ads so you show a new add every minute or two. You can try to squeeze more than one ad in, although that is pretty tough.

But if you want to make $100,000 a year from your ad supported game, you need between 100 million and a billion impressions a year. That’s a hell of a lot.

2. You can’t acquire ad-funded customers cost-effectively

The basic equation of any successful online business is:

CPA < LTV

Which basically says “if you can acquire your customers for less than their value over their lifetime with you, you have a viable business.”

This is getting harder. Customer acquisition costs on smartphones are reaching an all-time high. Fiksu said that the figure was $1.81 per user in December 2011.

To put that into context, assuming that you can achieve a CPM of $1.00, every single user would have to see 1,810 ads in order to break even on the acquisition cost.

3. Virtual goods are better suited to monetising niches

The virtual goods business model is demonstrably better. In 2011, 7 of the 10 top grossing apps were free to play, making over $20 million each. Flurry has shown us that the average transaction value for a smartphone IAP in the US is $14. 51% of IAP revenue comes from customers spending $20 or more in your game.

It’s not quite as simple as that, because, unlike in an advertising model, not everyone is monetised. The average transaction value may be $14, but if 99.9% of your users are not converting, you won’t make any money.

The GAMESbrief free-to-play spreadsheet shows an example, using virtual goods, where a game that gains 200,000 new users a month will generate $3 million in gross revenue during year one. You’d need between 3 and 30 billion ad impressions to achieve that revenue from ads.

4. Ads sap battery life.

A recent survey from Purdue University (and reported by the BBC) showed that free apps running ad software could see as much as 75% of their energy usage from powering the ads.

David Braben pointed out via Twitter that serving ads also uses data, an issue for users paying for data on a PAYG scheme.

5. Ads take up scarce screen real estate

An iPhone screen is pretty small. Every time I’ve worked on an iOS game, real estate has been an issue. Losing space to an ad makes life difficult for designers and players. There are solutions: pop-ups/interstitials rather than banners, for example.

However you look at it, ads make the designer’s life harder and, on a smartphone, the player’s experience less fun.

So drop the ads

There are some reasons to carry ads. I think that cross-promotion of your own games, or those of friends/partners/fellow developers is critical to success on smartphones.

But if I were designing a game, I would stop worrying about the 95% of players who will never pay for it. Enjoy letting them have it for free and put all your effort into offering things that the 5% will truly value, and spend lots of money on.

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