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

By on March 20, 2012
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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”.

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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.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • Doctor Pants

    I’d say it depends highly on what kind of experience you are trying to create. Buyable ingame items is not suitable for all types of games.

  • Jessica Adams

    The acronym LTV stands for “Life Time Value”..!

    Checkout our new app Tattoo Designs

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  • Steven

    I am stating to think this may be correct, since the launch of my game the purchase of the full version has made more than double the money made through ads, I think I will take this on board for all my future games.

    shameless plug : Spinny Hoops https://itunes.apple.com/gb/app/id996179037

  • Edgar Aguilar

    with 10k euro per year I’d make a really great living where I am from, thanks for the encouragement.

  • Arby

    It just boils down to the kind of game a person likes and how it’s designed. Yeah, waiting for turnips to grow sucks. I never liked any of those games, but obviously a lot of people do (Check how many are playing FarmVille on Facebook).
    But how about Tiny Tower? I play the crap out of that. I loved it. I didn’t mind spending .99 for a faster elevator, and later I spent another $2 for some “bucks” so I could get a few things accomplished faster. Same principles, different game and different audience.

  • Barry White

    Ads are annoying, maybe it’s time for a more intelligent way to monetize free-to-play mobile games – http://www.youtube.com/watch?v=ATR0yuUz3TA

  • As far I can see ‘choice’ has to be carefully calibrated. If the player understands that a particular ‘choice’ is deemed undesirable, it can put off the player, even if there is another ‘choice’ of gameplay that the player may like.

  • Jeremiah Nunn

    People play games for entertainment. People pay money for entertainment. People pay money in games for entertainment. I personally don’t like games like this, but I can’t justify the position that not liking a particular approach is equivalent to that approach being the destruction of the industry.

  • Not kidding. I think it will be core.

    My preference (and what I advise my clients) is to make everything available to everyone. You can earn it by grinding, you can earn by being a social lynchpin if that fits your game (e.g. having lots of friends in the game) or you can buy it with cash. 

    It allows people to pay for what they care about. I am much happier with “choice”.

  • You’re kidding right?

    I don’t agree with you on many levels. Having to pay real money to progress in a game breaks immersion completely. When you’re playing a game, all the rules should be defined by the game. Adding real money causes reality to leak into it.

    It’s like the new Sims game, you have to pay real money for items. No matter how hard my Sim works his ass off at work within the game, it doesn’t matter because how good his house is, is actually determined by my real wealth. What’s the point of even playing such a game?

  • Hold on, you think they shouldn’t be labeled as free because they give advantage? Not because they ask you to pay?

    I have no issue with paying to make progress in a game. More than that, I think this will become core to all games over time.

  • David Hsieh

    I agree with you, those games shouldn’t be labeled as free. Those in-app purchases are just giving advantage to those who have money to spend on these kind of things over those who are actually into the game. 

  • Well, I see your point, but I still think we’ve got a problem with all these in-app purchase games. If every game starts adding it, we’ll only be designing games which fit the model, or worse, ruining fun games by adding the model.

    I’d take a game with ads, which was innovative and fun, over another Farmville meets habbo, real money soon to be overdone idea. They might be making more money, but it’s a poison to innovation and the mobile gaming market IMHO.

  • Aaron : that’s very nice for players but 5% of your customers paying a small price will hardly make the game profitable. For the 5% rule to work you need whales, big spenders. 

  • Although i’m sure many are making money from it, I really hate how the majority of games are implementing the in-app purchase model. They are completely destroying the fun from their games.

    You’ve just downloaded a “free” game, looking to do some casual, quick gaming on the train. Assuming you still have an internet connection when you start to play (usually a requirement for these sort of games) you get 2 minutes into it and you’re usually prompted to make a purchase to either speed up or enhance the game. If you don’t, you’ll be waiting 24 hours for your turnips to grow. When this happens, I usually just go find another game – I’ve hardly been sucked into the gameplay or have a reason to want to play on.

    I like how Kingdom Rush, the Flash game does it’s free model. You get pretty much the whole damn game, 12 or so levels, each with 3 different challenges. The full gameplay experience. After you complete it, and wanting more, it offers extra bonus levels, at a small price. I feel after 36 free levels, which I enjoyed, i’m quite happy to pay for the bonus stuff. I’d rather the 5% of my customer base sitting here.

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  • how about removing ads as one of the in-app purchases?

  • Diego Meller

    I agree but also I would add that a much better way of monetizing through ads is using an offereall based solution (Tapjoy, Sponsorpay, Jampp, etc). These basically give the 95% a way of getting the premium currency without spending money while helping you monetize them. Also payouts are much higher than traditional banner ads.

  • Sorry about that. We are thinking about different ways of carrying advertising on the site. And optimising it so that stuff either doesn’t happen, or the ads always appear last.

  • Interesting. Care to share what eCPMs you are making, and which ad formats you are using?

  • Ads

    … and I had to add a filter for adbureau.net to see this page at all, since it was waiting, waiting, waiting… in order to load some ad. ’nuff said!

  • Emir Fithri

    I can’t agree more. Please you all devs remove your ads so that my impression rate increases and gain more revenue for myself.

  • Simon Moeller of Kiloo gave this counter-argument in a tweet
    “150-200k DAU on Chartboost will net 750-2000 USD a day depending on advertisers without annoying users much”
    http://twitter.com/simonmoeller/statuses/182156654266159104

  • Exactly. And a studio that thinks they will hit paydirt with their first game is unlikely to be right 🙁

  • Sure, but few people design games with that in mind. If you happen to stumble upon a large user base, they have their place. 

    But if you can find a way to monetise that large userbase with IAP or microtransactions, I reckon you would make more money. probably 10x as much.

  • That’s not what I’m arguing at all. The game needs to be fun for 100% of people.

    but only some of them will spend. I see many traditional media companies trying to think of ways of monetising these freeloaders, or kicking them out because “they are just as bad as pirates”

    I said “Enjoy letting them have it for free and put all your effort into offering things that the 5% will truly value”. I mean it. Enjoy the freeloaders. Give them great content. Don’t worry that most of them will never pay. But do design lots of stuff that the 5% will spend on.

    I think we agree.

  • This is @NicolasG_B posting under Majaka, I seem to have signed in with the corporate twitter account ^^

  • Great article, Nicholas. Our games are free but don’t carry ads. For us the main argument is the end of your post : 
    “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. ”
    Any ad space I’d be willing to spare would be much better used for crosspromotion rather than advertising someone else’s app, since CPM is so low. 

  • I couldn’t disagree with this more. If you put “all your effort” into designing for the 5% you won’t have an enjoyable game. 

    I’d rather put all my effort on creating a fun experience and enhance it for the 5% after the main gameplay has proven to be fun. If you don’t have a fun game, the 95% won’t play it, if they don’t play it they won’t talk about it, if they don’t talk about it they won’t potentially drive more 5%ers to the game.

    None of the 5% will have started playing with the intention of spending money, it is only by designing a FUN game that people will spend money

  • LTV is Lifetime Value, Adam.

    Surely if you have apps, perhaps not made with a well realised freemium model, but with large userbases, ads have a place?

    Diversified revenue streams n’ all.


  • 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.” – AMEN to that! The sooner the rest of the world realises this truth, the better things will be for all of us.

  • Can you explain what the acronym LTV means?