Microsoft is developing an ad program to enable businesses to place in-game ads in free-to-play Xbox games, reported Business Insider (1). Sources told Insider that one of several ways Microsoft may show ads in these ads in games could be as digital billboards in car racing games. However, it is unclear which other techniques Microsoft will adopt to offer ads in its free-to-play games.
“We always look for different ways to improve the experience for gamers and developers. However, we don’t have anything more to share,” told a Microsoft spokesperson to Insider. TechCrunch also reached out to Microsoft; however, the company didn’t share any additional information beyond its original statement to Insider (2).
The report from Insider suggests that Microsoft is aware that adding ads into games would be bothersome to players. Hence, it is taking a careful approach to the idea and plans to build a private marketplace where only select brands would be able to purchase ad space and display ads without disrupting the gameplay.
Sources also note that Microsoft is not planning on taking a commission from ad revenue and would only focus on building its Xbox ad network. Instead, the company will allow adtech companies and game developers to share the ad revenues.
One of the sources speculated that Microsoft is not interested in taking a cut from in-game ads revenue because it aims to give developers of free-to-play games more opportunities to monetize.
Reportedly, Microsoft is also working on securing its customers’ data to prevent other businesses from using it. The company also doesn’t have any immediate plans to offer user data that it collects from searches on Bing and other sources to advertisers for targeted ads on Xbox.
There’s no immediate clarity on whether Microsoft has pitched the in-game ads program to advertisers. However, Insider informs that it could launch the program by Q3 of this year.
This program would allow developers to make money from free-to-play games without depending on in-game paid content like passes or character skins. Also, it would serve as a way for brands to reach gamers and young consumers who may have been hard to reach elsewhere.
If we consider a downtick in traditional online advertising (3), we can expect in-game ads to become the next big thing.
The Impact of In-Game Ads
Microsoft will build its in-game ads network with the help of its recent acquisitions like Blizzard and adtech platform Xandr. These ads may appear as billboards in games or as a part of characters’ outfits (4).
Notably, the company is not looking to charge a commission to ad revenue; instead aims to use the program as a chance to attract more developers and free-to-play games on Xbox.
The move is significant since it would open up a stream of revenue for developers besides microtransactions which several regulators and players see as “very sneaky tactics.”
Over 40% of the world’s population play games; however, besides being a source of entertainment, games are also a product, and the need to monetize their players is an integral part of game design.
Microtransactions are one of the most popular methods of bringing in money from games. These are repeated, uncapped in-game purchases like extra content or ways to make easier progress in the game. Players could make these transactions with real money or in-game currency, which players purchase with real money.
The industry is moving from a one-time, up-front purchase model toward microtransactions. And since microtransactions are now making the majority of their revenue, free-to-play games are increasing.
The free-to-play mobile games market worldwide was estimated at 73.8 billion USD in 2020.
With the incentive to drive players to spend being a key part of the game design, it has become important for regulators to see if these microtransactions are incorporated in games that may be unethical toward players.
For example, a large-scale survey found that the more players spend on loot boxes, the more likely they develop gambling issues. (7).
However, regulations around microtransactions can be challenging since we don’t know enough about their nature in digital gaming, and they might affect gamers.
Another survey focusing on problematic in-game microtransactions also tried to identify which of these monetizing features gamers come across seems most unfair, aggressive, and misleading (8).
As per the survey, gamers find “predatory advertising and product not meeting expectations” misleading and “in-game currency” as an unfair practice. It reflects that gamers want information presented about an in-game purchase not to be incomplete, skewed, or incorrect.
The domain of in-game currency is perceived as unfair because it makes the implications of purchase decisions less clear for gamers. Meanwhile, when players are pestered to make purchases so often, which detracts them from the game, they find it aggressive or predatory.
There are also subjective domains of the microtransactions that many players recognize as problematic. For example, tactics like pay to win are highly disliked by several players because it creates social division.
In other words, the widespread presence of microtransactions clashed with a gamer’s idea of what a gaming experience should be like. The survey also indicates the need for developers to avoid including game elements whose sole purpose is to get players to spend their money.
Hence, we believe that Microsoft’s in-game ads network could create a gaming industry that works for everyone.
Free-to-Play Modes on The Rise
A record 1.5 million users in the United Kingdom have canceled their streaming subscriptions over the past three months due to concerns about inflation (9). And as more people tighten their wallets, we are likely to see an increased push toward ad-supported, free-to-play, or free-to-watch models.
We already see some developments in that direction. For example, Amazon plans to launch a free, ad-supported platform as an alternative to Amazon Prime. FIFA’s new streaming platform FIFA+ is also starting as a free, ad-based service (Suggested Reading: FIFA+ An Independent Video Platform of FIFA Brings New Twist to the Streaming War).
As the survey above suggests, more gamers and viewers want freedom of choice. They look for flexibility in when and where they access their choice of entertainment.
Microsoft’s First Mover Advantage
As a source of entertainment, the gaming industry is now bigger than videos and sports combined (12). It is not the money alone that people spend on games; it is also about the time gamers spend playing these games.
The gaming industry will soon be worth more than 300 billion dollars, with a growth rate exceeding all other entertainment industries, making it super-interesting from a mass media POV (Suggested Reading: Gaming: A $300 Billion Business Opportunity).
NBC has already started to collaborate with Anzu, an in-game ads firm (13). More advertisers are likely to flock to the industry, especially if we consider the Q1 reports of the tech giants. All Facebook, Google, and Amazon reported a substantial decrease in their online ad revenue since last quarter (14).
Industry watchers believe all major gaming companies will soon develop their private ad marketplaces.
With the recent developments, Microsoft is in a position to gain a first-mover advantage, gaining ad spending that would have otherwise gone towards Amazons’ Twitch or Sony’s PlayStation. In other words, Microsoft might just become the dominant market leader in gaming.