$130 BILLION

Author

Troy Fields
April 26, 2022

Business Insider recently reported that Xbox is building out an ad network to offer free-to-play (i.e. F2P) game developers more monetization options. What it means and why it’s inevitable.

Mobile gaming advertising spending worldwide from 2020 to 2025

Mobile gaming advertising was estimated to be ~$46 billion in 2021, and is project to increase to $130 billion by 2025. Consoles want a piece of that opportunity.

Users are familiar with ad supported gameplay in the form of F2P mobile games. With new console games typically selling for $60-$70, paying that much for a mobile game just didn't resonate with mobile gamers. Even selling a game on the app store for $5 was a significant barrier to entry. Ads solved the monetization problem in mobile gaming, but its largely avoided the PC / Console gaming worlds.

Its true games like FIFA & Need For Speed have commonly included in-game ads but these were commonly static and not dynamically placed ads. Something like Fortnite's partnerships with Marvel or Star Wars offering character skins and items could be considered a form of ads, but users actually want to buy these items.

If you're picturing the annoying experience of watching a 2 minutes of ads before you can watch your selected content (*cough* Hulu *cough), that's most likely not the experience Xbox will be pushing. We can probably assume the introduction of ads will be slow and tamper with the player experience as little as possible. Something like a banner ad before / after a instance based PVP (player vs player) match would make the most sense.

Twitch streamers today often have in-stream ad overlays while they play video games. It'll be interesting to see if an in-game Redbull ad gets a twitch overlay for a Monster ad for specific streamers.

This isn't the first time developers have had tools to build in-game ads on consoles. Unity game engine actually offers their own ad network for live service games. But given Unity is mostly used for mobile, we've yet to see a big impact on the console space. But the tools are there.

Interestingly Xbox claims they do not plan to take a cut of the ad revenue. The strategy is more focused on giving developers monetization tools while encouraging them to integrate with Xbox Game Pass (think Netflix but for Xbox games). Business Insider has also mentioned Sony is planning on building their own ad product since they first reported the Xbox news.

Is it inevitable?

Yes. The streaming wars are over and the gaming wars are just ramping up. We're going to see more and more competition enter the gaming space with a largely untapped marketing vertical for advertisers.

Could console ads be a good thing?

Sure. It opens the door for developers to offer more free content for players. On the flip side, it could just be another tool in the tool box for AAA studios to increase their P&L without actually offering more free content. The best scenario is smaller game studios have a better chance of success.

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