Why Apple’s ad blocking will be good for games

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At this very moment, the top paid app on the US App Store is an ad blocker.

Ad blockers threaten the business models of many traditional media businesses as they transition to the web and mobile. The “implicit contract” is that users get free content in return for their experience being interrupted by ads, their personal data being gathered and for intrusive video advertising that hogs their bandwidth, battery life and airtime.

Marco Arment, developer of Peace, the ad-blocking software at #1 in the image above, said ““We shouldn’t feel guilty about [ad blocking]. The ‘implied contract’ theory that we’ve agreed to view ads in exchange for free content is void because we can’t review the terms first — as soon as we follow a link, our browsers load, execute, transfer, and track everything embedded by the publisher. Our data, battery life, time, and privacy are taken by a blank check with no recourse.”

Paradoxically, ad blocking might be great for video games on iOS, driving more high quality advertisers into our medium.

We are already seeing more and more free-to-play games generating significant revenue from ads, particularly video ads. Crossy Road has famously made more than $10 million, largely through video ads. Amongst my clients, I am seeing companies that are making half their revenue from ads, which is in stark contrast to the situation two years ago. Whereas three years ago I argued that F2P games should not be chasing advertising revenue, the situation has changed (and I need to write a 2015 version of that post).

The F2P advertising market has changed

The F2P advertising market has changed for one major reason: it has become possible to pay a lot more money to acquire new users for a mobile game and still be profitable. Fiksu estimates the cost per install to be in the region of $2 – $3, and those numbers are rising. Why? Because the successful companies like Supercell, King and Kabam have got very good at making money from their games, generating a high Life Time Value (LTV) from their users. If you have a high LTV, you can afford to spend a lot of money on getting new customers, because they will pay back over their lifetime.

This leads to a problem with the video market: many of the ads you see in mobile games are simply ads for other mobile games. It’s a circle by which mobile games companies are buying each other’s customers. As long as those games companies are only buying customers profitably (i.e. Cost per Install is significantly lower than LTV), that’s no problem. But if companies start choosing to make a loss on the marketing costs in order to grab market share or to keep new entrants out of the market, it could get very messy, very quickly.

The best advice continues to be to use video ads to generate revenue by all means. But if the majority of your inventory is ads from your competitors, you don’t yet have a sustainable business model. It might disappear at any time. I will become much more confident about the sustainability of the mobile ad-funded games market when we start seeing major brands advertising in video games.

Which brings me back to the ad-blocking software in iOS9.

Ad-blockers don’t block ads that users WANT to see

Video games have a major advantage over web advertising. We can make players want to watch adverts.

My six-year-old son, Alasdair, has been playing a lot of Angry Birds Transformers (Disclaimer: I consulted closely on the development of this title). He recently came running into my study, asking if he could watch an ad. “Please, Daddy. Please can I watch this ad.”

The ads in Angry Birds Transformers are optional. After completing a run through the game, collecting pigs and coins, players are rewarded with a results screen. They see how many pigs they have popped and coins collected. Sometimes (and it is important that it is sometimes), players are offered the chance to watch a video in order to double the rewards. Alasdair had just had an awesome run: he’d collected several hundred pigs and several thousands coins, about five times more than an average run. He was being offered the chance to double the rewards from an awesome run, and was desperate to watch the ad.

Imagine that: a player of a free game actually wanting to watch an ad, and treating it like a resource.

I felt the same playing Disco Zoo. I had a limited number of ads I could watch each day to improve my chances of collecting the rare animals I needed for my zoo. I found myself stopping playing when I had run out of ads and coming back the next day when the ads had replenished. I was treating ads as a scarce resource that I had to husband. For me, they had become a retention technique.

This is a huge opportunity for games, particularly in the era of ad blockers. I recently advised a client to take the sentence “Spending any money in the game will remove adverts” from their loading screen because I feared it would dissuade customers from spending money on In App Purchases. Players will want the free stuff that watching an ad grants them.

It’s not all rosy yet

Games are being clever at how they implement ads. Some of them are being greedy, chasing revenue rather than good experiences for their players, which is a short-term strategy which will alienate players from their game in particular and advertising in general. Others are in it for the long game.

With luck, brands will start turning to games. They will see how games are shifting ads from being an interruptive and negative experience into being something that players actively value. We’ll know that is happening when we start seeing ads in mobile games that are from household names like BMW, Coca-Cola and Nescafe, rather than the current crop of barely-dressed Kate Uptons and yet another ad for Clash of Clans.

When that happens, advertising-funded mobile games will have become a sustainable reality.

For the record, I did let Alasdair watch the video. It was the bloody Kate Upton ad.

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