In spite of this growth, the industry is still rife with common misconceptions about the relationship between gamers and brands. Going into 2022, stakeholders in the in-game advertising industry are looking to raise awareness about the reach and effectiveness of their services and help non-endemic brands ingrain themselves further into the gaming space. The in-game advertising market is projected to grow by nearly $11 billion over the next three years, according to Technavio’s In-Game Advertising Market by Platform and Geography report. Here’s the story of how the modern in-game advertising industry took shape — and how some industry observers predict the space could evolve in the future.

01

The early days

In-game advertising has been around for almost as long as the game industry itself. The original in-game ads were hard-coded directly into games, and were usually the result of developers or their hired agents directly wooing skeptical brands to place their products into the game.

Samuel Huber, CEO, Admix, an in-game advertising infrastructure company that serves publishers and advertisers: For a podcast a year ago, we tracked down pioneers in in-game advertising, and I think the oldest I found was in the mid-80s — someone trying to inject brands into a Nintendo game. There was a Pepsi campaign in 1999, I think, where you could collect cans instead of coins. It was just trying to integrate the brands in a native way. So, brands have always tried to reach that audience, but it was very much like, “oh, let’s do a campaign on this game, or a campaign there.’ It was very manual; the game developers had to actively implement all of this stuff, literally designing the cans of Pepsi and putting them in the game. It was more creative work than advertising in any scalable model.

James Draper, CEO, Bidstack, an in-game ad provider that connects developers and brands: The first in-game advertising was back in the ’80s. I think the game Zool was the first one where a product, Chupa Chups, was up there in the background of a platform-based game. This guy was almost like a broker — he would go out to advertising agency groups to try and broker deals, then go to game producers one by one and try to bring brands into the storyline.

Natalia Vasilyeva, vp of marketing, Anzu, an in-game ad firm that recently partnered with Roblox creators to bring ads into the platform: The beginning of it dates back to the ’80s, when we had the first hard-coded ads in games — Chupa Chups was advertising in games. We saw hard-coded ads and case-by-case activations; obviously, there was no programmatic. 

02

Middle ground

In-game advertising is a booming business going into 2022; over the next 12 months, 81% of media buyers plan to scale up in-game spending, according to an Admix report. But things haven’t always been this way. Between the early days of the industry and the modern renaissance, several companies tried to build in-game advertising into a sustainable business, attaining varying levels of success and technological innovation.

Vasilyeva: There were some predecessors, and there were some companies that were successful in the early 2000s. One of them was even acquired by Microsoft. So Microsoft took it seriously and tried to leverage the technology to build it. They didn’t succeed, as you can see, for a number of reasons. I would say the major block was still technology — the lack of technology, lack of scale, lack of the right mindsets. We can talk about [early in-game ad firms] Double Fusion or Massive, the one that was acquired by Microsoft. By the way, the CEO of Double Fusion is our strategic advisor — it’s worth trying to learn from mistakes. 

Draper: From 2003 to 2010, there was a bit of an arms race between three different companies, one of which was called Massive Inc. Between 2003 and 2006, the industry was pretty much themselves, which was good and bad. In terms of trying to standardize an ad format and get the advertising world to buy into it, while at the same time getting the game producers to sign up to this thing, they did a very good job. But then they sold to Microsoft for at least $10 million back in 2006. When they started with the XBox, that opened up the opportunity for Sony. So two companies, Double Fusion and IGA Worldwide, gunned after the Sony part of the marketplace. It all got a bit chaotic. The technology wasn’t ripened enough, from a programmatic standpoint; the supply side wasn’t quite there; and obviously the gaming side and its connections to the internet were just not as it is today. Both sides were a bit immature, basically, and they all died off by 2010.

Huber: There were a lot of companies along the way, like Massive, who sold to Microsoft, and then Microsoft killed it. There was another one called IGA; I think they sold as well. RapidFire — they’ve kind of been around, but not [the company hasn’t updated its social media since 2017]. So there’s been a lot of promises every five years or so, but no one’s really built it from a tech point-of-view.

03

Technological developments

As technology began to catch up with gamers’ thirst for consumption, in-game ad firms made a comeback, adapting newer and broader adtech applications such as programmatic advertising to function within game worlds.

Huber: Programmatic advertising really was born in 2010. On mobile, it really hit around 2014–2015. And before that, you didn’t really have the ability to scale campaigns, because you’d have to go straight to the publisher, and it was almost a direct relationship. There was no way to build a scalable ad distribution, there was no open real-time betting network — everything was different. Five years ago, I guess that technology kind of existed already, but gaming just wasn’t front of mind for advertisers. It was considered niche, and Fortnite and Roblox were not as big as they are now.

Vasilyeva: With the rise of digitalization, and with the rise of programmatic, everybody kind of switched to performance marketing, and we forgot about old and time-proven brand awareness. Now, it’s the first time that brand-awareness advertising is possible in digital worlds, though it’s super, super nascent. There are a lot of gaps that we’re kind of on the way to improving.

Fran Petruzzelli, CTO, Bidstack: The evolution became far more complex, bringing more programmatic standards into gaming. There’s a lot of hurdles, a lot of technological evolution. Programmatic advertising, by its very nature, is built for the internet and for mobile; it’s built for the standard formats. It’s not built for a dynamic environment which is fast-moving, or moving in any way, really. It’s very much built for a static web page. And so we’ve had to help fit the standards that you find in the game around the metrics that you see in the standard world — things like adapting technology to work with mobile phone displays and ensuring that the brands are aware of how another could be seen. 

04

Increasing brand interest

The growth of in-game advertising has led to an influx of interest from non-endemic brands that kept a wide berth from the space in the past.

Matthew Warneford, CEO, Dubit, metaversal game developer: Funnily enough, we’re actually talking to an insurance company right now. You can kind of forget this idea that we’re trying to sell the product — we’re not selling products, what we’re doing is building a connection to that brand. 

Huber: That’s the shift that happened in the brands’ minds over the past couple of years: thinking of gaming not just as a creative outlet, but as a channel where you have 2 billion people playing every day. If you’re 18 to 34, it’s like 20 to 25 percent of your time online. So that’s a big blind spot for brands to not target them. It’s more about the audience behind it and how they behave — you know, 2 billion players is 2 billion potential consumers.

Edward Castillo, managing partner, Admazing, mobile-focused in-game advertising firm: A lot of clients have asked us, from both endemic and non-endemic brands, what our participation is in this type of vertical moving forward.

05

A new type of e-commerce

With gamers becoming accustomed to owning completely virtual objects, in-game advertising is no longer a vehicle to get players to purchase physical goods. These days, virtual commerce is a burgeoning industry in its own right, with in-game ads helping drive the consumption of entirely digital items, such as the virtual garments sold on DRESSX.

Warneford: When I was young, a lot of premium brands would bring out perfumes or fragrances, and they were all reasonably affordable price points in comparison to buying Chanel clothing, or whatever it might be. One of the reasons they do this is that it’s about starting that brand affinity early on: I can’t yet afford to buy Calvin Klein clothes, but I can buy the perfume once a year, and I start to build that connection with the brand. I think there’s an element of that through the sale of virtual goods; there are some interesting psychological effects around making a commitment to something and purchasing something.

Huber: Gaming is a very rich experience, now that we’re serving ads in the spaces that we create. But we could easily sell products, and that’s something we are testing. You can imagine that, further down the line, we will have formats that are more like experiences, and the ability to sell products that could even be NFTs within the game.

06

Stepping into the metaverse

In the race to build the metaverse, leaders are emerging from the gaming space, and in-game advertising is no exception. Many of the in-game ad companies of today are looking to become the in-metaverse ad firms of tomorrow.

Petruzzelli: The reality is, the nature of what we do is that we’re actively involved in that ecosystem from day one. The way players interact, the way skins can be exchanged, and players can interact with the game environment — effectively, that is what the metaverse is. I think in-game advertising is intrinsically linked.

Warneford: The interesting thing about the metaverse is that anybody can build inside of these platforms; it’s not constrained to, ‘oh, you’ve given me a bit of ad space over here that I can put a square banner into.’ I can build what I want in Fortnite, Roblox, Rec Room, blah blah blah. Brands follow where people are, so I’m pretty sure brands will follow users into the metaverse. And so the question becomes, how much is a user in the metaverse worth to a brand?

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