Microsoft is exploring how to put ads in games – can it please players and brands?

Microsoft is investigating the world of in-game advertising, and could use it as a way of increasing access to its games streaming membership the Xbox Game Pass. For our Deep Dive into Digital Advertising, we ask if the tech giant, which already boasts a huge ad business, could introduce them to the historically-resistant gaming space.

Microsoft, which owns Xbox and soon an extensive mobile gaming network under new acquisition Activision Blizzard, recently surpassed 25 million subscribers in its ‘Netflix for Gaming’-style subscription Game Pass. It’s been on an acquisitive streak for original titles to offer subscribers (starting at $10.40/£7.99 a month). But perhaps, like Netflix, it needs ads to fund its future (we explore that here).

Microsoft is identifying adtech companies and agencies to work out in-game ad inventory, according to Insider. It owns and operates a huge slew of titles, but only a slim minority currently have biddable inventory – especially on console and PC.

Microsoft already delivers ads into lobbies and Xbox-owned media, with help from adtech giant Xandr, which it recently acquired from AT&T. Microsoft will be considering how to expand into the world of natively-integrated ads – as, it appears, is rival PlayStation.

That’s no surprise – recent research suggests that 93% of media buyers intend to run in-game advertising by 2025.

In-game inventory often reflects real-world outdoor ad space such as billboards, bus stops and hoardings. What differentiates the virtual versions is that they can be bought programmatically and targeted to any single player rather than a street of people. Bidstack was doing this as early as 2018 in Football Manager stadiums, for example. Tech providers are finding ways to ensure the viewability of this inventory, and the standards are still being established.

As a functional ad medium, in-game advertising has made huge strides in the last five years. Its maturity is partly the reason for much of the excitement around the metaverse (even if brand safety remains a worry).

Scale and cohesion

Sam Huber, chief executive and co-founder of Admix (a company monetizing mobile game worlds) doesn’t think Microsoft will be able to scale these in-game ad solutions.

“Xbox Live has around 100 million monthly active players – how many play free-to-play games, and how many of these games will implement ads? This leaves us with a small network. Console won’t scale to become a competitive media channel, the real opportunity for in-game is still a hundred times larger on mobile.”

For this reason, Admix is focused on mobile. He says Microsoft would need to unify its broad platforms and find a way to tie console IDs to mobile IDs for scale, targeting and campaign attribution.

“It‘s an isolated network that can’t be easily connected to the wider ad ecosystem, it won’t provide a competitive ROI for most brands ... except niche brands and other Xbox games.”

He also believes that “no console gamer ever woke up asking for ads.” Mobile gamers don‘t “love” them but they acknowledge a “silent contract” that a free game will carry ads.

Andrew Morgan, co-founder of Trade House Media, disagrees with the scale issue. Microsoft‘s Forza Horizon 5 hit over 15 million players within its first two months of release, indicating that it can have scale enough for brand advertisers to take notice. The issue is that players might take notice...

Morgan says: “Hardcore PC and console gamers have very different expectations of the sanctity of their gaming space when compared with casual and mobile gamers, who have been conditioned over many years to understand and appreciate the value exchange of receiving free game content in return for viewing ads.”

He also points out that the Game Pass already “represents incredible value for gamers” and the introduction of ads into AAA games that gamers are already paying full price for would receive a “visceral reaction.” There is, as the Insider piece noted, “irritation” with ads. Titles have made advertising missteps before, be it UFC 4 or Street Fighter 5. Finding the correct context to introduce ads is vital.

James Whatley, newly-hired chief strategy officer at gaming-native creative agency Diva, points out that the advertising opportunity in PC and console is worth around $87bn globally. He says: “Sony and Microsoft can help build a familiar bridge for those brands who are still exploring this ‘new‘ world.”

To sell players in, the ads have to be “useful to the end player ... if they are intrusive, they‘ll be dead on arrival.” He‘s not worried – he believes Microsoft and Sony put “players at the heart of everything they do.” They‘ll not risk losing them.

He says: “Whether the ads appear as a branded billboard (unobtrusive) or as a ‘watch-to-earn’ piece of advertising (useful), then they will pass. But mess up, and both the platform and the brand will get burnt.”

He sees rewarded ads as a means of replacing in-game microtransations and pre-roll video easily filling the loading times on cloud gaming – especially if the creative is entertaining and relevant (like another game or a movie trailer).

But this is just the first stage of in-game advertising. Down the line, he sees adtech offering something more than “‘just’ advertising.”

No comparisons

Itamar Benedy, co-founder and chief executive of Anzu, thinks it is unhelpful to compare the scale of the mobile and PC/console environments. “We need to see this platform as a premium space where players spend vast amounts of time and are fully engaged in the experience.”

He believes these players are more desirable to advertisers than their mobile peers, if they can afford a new console – they‘ve likely got a disposable income worth pursuing. It also may be a generation of gamers hooked on the ad-free experience. In the world of TV, Benedy points out that 24% of Xbox players use their consoles to access ad-free (for now) Netflix, Amazon Prime, Disney+ and Apple TV+.

They’re unlikely to be warm to intrusive, interruptive formats.

“With large screens and AAA games, console players are also fully immersed in the gaming environment, with no distractions or second screening, offering advertisers a unique opportunity to reach a highly-engaged audience. This is a natural next step for Microsoft. In-game ads, if done correctly, don’t disrupt the user experience and, in many cases, can enhance the realism of games.”

In exchange for this addition, titles could come with “smaller or no price tags.” Gamers don’t particularly love current commercial models in gaming either – loot box monetization is regularly lampooned and the increased pricing of the current gen wasn’t well received.

Benedy believes that when well done, product placement can also be deployed. Power-ups could be reskinned as cans of Coca-Cola, for example.

“You need branded content that makes the game more realistic. Fake ads have been used in games for years. Think about the last racing, sport or city roaming title you played.”

Ultimately gamers are a vocal bunch – any monetization efforts that ruin experiences will be immediately panned, as will any brand funding them.

Read more from The Drum’s latest Deep Dive over at our Digital Advertising hub.