One of the hot new ways to make money with games and virtual worlds is advertising. Or at least that’s what a lot of companies want all game developers to believe. If visit website of any of the in-game ad network providers such as IGA Worldwide or Double Fusion, they have a bunch of press releases out on more and more games including ads, and what a wonderful world has become to the developers.

Nielsen and IGA also published a study in June where they found 82% of gamers didn’t mind contextual ads in games. Curiously Nielsen.com doesn’t have any more information about the study (contrary to the press release) so I don’t know what games and methodologies were used to get the result. I would assume if this was on a racing game, the game would probably feel more real with real ads, so getting such a good result would be quite natural. Had this been about slapping a Coke board on a building in Thunder Bluff, I doubt the score would have been in this league.

Now, it seems the current message being broadcasted to game developers is that putting ads into your game gives you free money. Unfortunately, it’s not that simple. Andrew Chen blogged an excellent piece about maximizing ad revenue a couple weeks back, which specifically deals with what websites can do to get more dough. If you’re doing bulk advertising (banners in any for, be it adwords or video streamed to a medium rectangle), bringing in serious money requires serious volumes, which, if you read Andrew’s posting, changes how you make the money on a given network.

Websites can tackle this by integrating multiple networks of choice, but I as far as I know (and I don’t know much), there aren’t enough of them for in-game advertising to allow for this to happen for games. With relatively little competition, the networks can require exclusive deals, and I’d be surprised if the CPM rates of the networks varied enough to call for this type of an optimization. Further, I’m not sure if too many game developers even think of this level of sophistication when integrating ads into a game, given that most websites don’t probably do this. Anyway, this probably means that the average developer who integrates into the current networks should not expect a fat check in the mail, no matter what anyone tells you.

Talking about economies of scale, part of the reason Google is so darn effective in the online advertising is that they can sell targeted advertising to anyone willing to spend any money at all in ads. Joe Bob’s Auto Garage from Oklahoma can decide to spend a hundred bucks on people searching for local auto dealers and it’s possible. With in-game ads, I doubt getting access to those dollars will come any time soon, which probably cuts off a very significant portion of businesses putting money into advertising. And if your ad dollars come from a small set of big companies, you won’t get a single ad in your game if they don’t happen to like the content. Modern online advertising has a long tail, and the way to cash that is by serving Google Adwords.

Coming to think of it, it might be worth starting a business that offered developers technology that offered compatibility with any in-game ad network and enabled the developers to change the integration on the fly, rather than relying on a single network. This could be the beginning of making smaller scale ad-funded games a lot more viable than today.

Now, even if advertising in games is it’s infancy, there’s movement ahead that might make in-game ads a lot more appealing and lucrative in the future. PlayNoEvil had an extremely interesting speculation about upcoming ad war between Google and Microsoft. Given that games can offer a lot deeper exposure than most websites, if there’ll be disturbances in the force on the web, advertisers might suddenly start to flock to media where ad-blockers and browser incompatibilities are nowhere to be seen. We live in interesting times!