Sawickipedia

More Ad-Supported Thoughts

The amount of ad-supported content is growing and growing.  Advertising is both a practical solution to the challenge of micro-payments as well as a subsidy to expand the coffers of content creators so they can invest in more content.  And increasingly the online landscape is breaking down into two buckets:

• Consumers = Free Ad-supported
• Business = Premium paid subscription

Think of all the wonderful things that are free through advertising Google, Myspace even desktop applications like Zoho as I mentioned before no longer require a $200 to $500 check to Microsoft.  And the list of ad-supported offerings isn’t decreasing – its growing.  Every day something new is offered.  And thankfully I am working with a number of comanies looking to offer ad-supported offerings to consumers.

What is interesting is that there are two hugely popular categories of content that have yet to really figure out there ad-models online: music and casual games.  Casual games are games are represented by games like Bejeweled, Zuma, Diner Dash and Sudoku and firms like Real Networks, Popcap, Oberon Media, and Playfirst.  The business is a billion dollars worldwide annually (yep that’s a billion) but what’s interesting is the business model that dominates the market.  They use what’s commonly referred to as the Try and Buy model – that is you can download typically either a time or level limited version of the game for free and if you want to finish the game you typically pay $19.95.  What’s amazing is that 98-99% of all downloads don’t result in a sale.  Yep 98-99% of games played are played on a free ride.  Now we can put away the world’s smallest violin – that’s not a bad thing necessarily.  Sampling is a great way to get sales and in most online transaction scenarios my own experience tells me a 1-2% conversion rate is actually pretty good.   No point is not to rail on the 2%, it’s to show how the business can increase its revenue by using advertising to monetize the other 98%. 

If advertising were included in the free download – much like advertising is included in other forms of free content – television, radio, etc. – the gaming business could grow dramatically.  Let’s take a look at the math – at a $20 price point with a 1 to 2% conversion rate – the revenue per download is $0.20 to $0.40.  With a $10 CPM or $.01 per ad shown, it’s easy to see how in a 30 minute to 60 minute trial game session how a user could be shown 10 to 20 ads.  That’s an easy $.10 to $.20 of pure profit.  Across the hundreds of millions of downloads and suddenly it’s easy to see how the Casual Games business could grow from $1 billion per year to $2 billion per year.  And as such you can why companies like Real Networks and Try Media are working on how to monetize games with advertising.

Music is an intersted space as well.  Traditionally the free offering has been ad-supported radio and now with the online business there are so many new ways to try ad-supported music.  Two of the most interesting to me are Ruckus and Spiral Frog which are working to offer ad-supported downloadable music - giving people the two things digital music listeners seem to want – control and portability.   There is alot more innovation coming in this space as well.