In-videogame advertising is an emerging business model and all signs point toward fast growth in the future. IGA Worldwide is an in-game ad-serving specialist. Courtesy of IGA Worldwide.

In-videogame advertising is still an emerging business model, but all signs seem to point toward fast growth in the months and years ahead. "Many publishers and advertisers are still trying to figure out where this market is going to go," says Michael Cai, director of broadband and gaming at Parks Associates. "But it makes sense. Gamers don't mind advertising if it enhances the realism of the game, publishers want the incremental revenues, and advertisers want to reclaim lost eyeballs. All the forces are working together to point to growth."

In-game ad-serving specialists, such as Massive (owned by Microsoft), Adscape Media (owned by Google), IGA Worldwide and Double Fusion; technology service providers, such as Exent Technologies; and online game publishers and distributors, such as RealNetworks and WildTangent, are among the players in the in-game advertising market.

Michael Cai director of broadband and gaming at Parks Associates notes that gamers don't mind advertising if it enhances the realism of the game, while publishers want the revenues and advertisers want the eyeballs.

In an April 2007 report, eMarketer estimated that worldwide spending on videogame-related advertising -- including static, dynamic and rich media in-game ads, product placement and integration, and advergaming -- will grow from $692 million in 2006 to over $1.9 billion in 2011 (a compound annual growth rate of 22.9%). eMarketer estimates U.S. spending at $346 million in 2006, with in-game advertising and advergaming each accounting for about half of that.

The Yankee Group, which pegged the value of in-game advertising at $56 million in 2005 and projects a value of $732 million by 2010 (more than a five-fold increase), estimated that approximately 200 games across all the major platforms contained in-game advertising at the end of 2006.

One indication of the potential of in-game advertising is that several large technology and media companies are entering the space. Microsoft acquired Massive Inc. in May 2006, and said it planned to offer dynamic in-game advertising across its online services, including Xbox Live, MSN Games and MSN Messenger. In March of this year, Google bought Adscape, while Double Fusion's investors include Time-Warner and Hearst.

For developers and publishers, the idea of accepting advertising is almost a no-brainer. A single game can cost as much as $25 million to produce, so generating additional revenue -- as long as it doesn't compromise the game experience--is appealing.

An indication of the potential of in-game advertising is that large technology and media companies are entering the space. Double Fusion's investors include Time-Warner and Hearst. It had placed Jeep in Tomb Raider. Courtesy of Double Fusion.

Advertiser Interest
With the rise of TiVo, intensified media fragmentation, the movement of entertainment consumers to new media, and other trends, most advertisers believe mainstream advertising channels are becoming less effective. They're looking for new, measurable ways to reach engaged consumers.

"There's going to be this huge displacement of ad dollars," says Timothy Walsh, evp of publisher relations for IGA Worldwide. "We want to position [in-game advertising] as a real, viable alternative."

Some of the most active advertisers are those that target core gamers (generally males 18-34); leading categories include cell phones, computers and other technology and communications products; movies and entertainment; automobiles; quick service restaurants; and beverages. "In the last couple of years, most of the advertisers have been 'first-mover' brands," says Jennifer McLean, senior director of marketing and client services at Double Fusion. "As it becomes more measurable, you'll see more mainstream advertisers."

Walsh agrees. "It will broaden a lot as time goes on and more advertisers realize, 'this is a great use of our advertising dollar,'" he says.

While most advertisers are targeting core gamers (teen and young adult males), demographics are actually quite broad. All told, 41% of the U.S. population aged 12 and up consider themselves gamers, according to Interpret/Gameasure. Of those, 58% are aware of in-game ads and 37% have seen them while playing. Gamers also tend to play often. Forrester Research finds that two-thirds of online videogamers play more than once a week, as do 50% of multiplayer videogamers and 42% of advergamers.