One of the most prominent trends across mobile gaming over the past few years is the development of internal advertising technology for the purposes of streamlining user acquisition. This commonly took the form of in-housing programmatic mobile media buying, but it manifested in other ways, too:
- Analytics and reporting automation, specifically real-time cohort ROAS analysis and LTV estimation;
- Audience testing and experimentation;
- Creative testing and even production automation;
- Bidding and other campaign parameter adjustments via API with non-programmatic platforms such as Facebook.
I describe most of these initiatives and the way they interlace in The five levels of digital marketing automation. While I have seen some companies make meaningful progress in building “ad tech” through the kind of automation and product development outlined above, the majority of the projects I witnessed either withered on the vine or failed outright. Building ad tech requires a wholly different skillset from building mobile games, and most game developers underestimate the cost of building these systems by a considerable margin (and abandon them when the real costs become clear).
But while it is uncommon to see game developers succeed at building real, durable proprietary ad tech, the opposite is not true: many ad tech companies have successfully expanded into mobile gaming, and that trend is accelerating:
- Unity, the mobile ad network and game engine developer, announced a games publishing program called Game Growth Program in October 2020;
- Applovin, a mobile advertising network, has been aggressively taking majority stakes in gaming studios — some very quietly — for years. Notably, Applovin purchased MZ, the developer behind Game of War, in May 2020;
- IronSource, which operates a mobile advertising and monetization platform, launched Supersonic Games, a studio focusing on the production of ad-based games, in February 2020.
Developments like the three examples above have always made more sense than the obverse: game studios attempting to build ad tech internally. But these activities — layering first- and second-party content atop existing ad tech infrastructure — make increasing sense in the environment that the mobile ecosystem is trending into in 2021.
Ultimately, it’s easier for ad tech firms to integrate first- and second-party content than it is for game developers to build functional, scaleable ad tech. One reason for this is that there exists an abundance of people that want to make games: more small studios with finished games that can be scaled with performance user acquisition exist than do small ad tech companies with viable technology. So simply from a supply and demand perspective, it’s easier for an ad tech company to acquire a gaming division than for a gaming company to acquire an ad tech division.
Other considerations also limit the pain of these types of integrations. Any ad tech division tacked onto a gaming company will build internally-facing tech that isn’t really core to the company’s focus (and will be the first jettisoned in cost-cutting efforts). But a gaming division will be a revenue driver for an ad tech company, meaning it is likely to be properly resourced, and its success will be directly linked to new revenue.
What I believe will drive increased M&A and investment by mobile ad tech companies into content divisions over the next few years is the competitive advantage that proprietary ad serving infrastructure will bring to portfolio strategy, yield management, and user engagement optimization in the absence of mobile advertising identifiers (MAIDs) like the IDFA. As I wrote in The Imminent Ragnarok of M&A in Mobile Gaming Space, I believe that the introduction of ATT and the deprecation of the IDFA is a fundamental market evolution for the mobile gaming space — the third such evolution since the introduction of the App Store — that will catalyze a torrent of consolidation and innovation in the sector.
But simply aggregating studios together doesn’t address the problem created by the deprecation of the IDFA, which is efficient growth and user retention / re-engagement via ad platforms. Inorganic growth through studio acquisitions might help to increase a gaming company’s DAU, but without a strategy in place for targeted and systematic cross-promotion, natural dispersion will erode that DAU, and without the use of the IDFA, acquisition and re-engagement from external sources (eg. Facebook, ad networks, programmatic sources, etc.) will prove challenging.
The combination of core ad tech and proprietary content allows a studio to extract outsized value from content acquisitions by retaining users within a portfolio beyond their natural in-game lifecycles. I have been proselytizing for intelligent cross-promotion and portfolio management for years (as in my GDC presentation from 2016, starting at slide 62), but it mostly wasn’t needed, given the efficiency with which users could be reached on external ad platforms via the IDFA.
That brute force trawling will not work in the absence of the IDFA. What gaming companies need to reckon with is the notion that it’s cheaper to retain a user than to acquire a new one: this historically hasn’t been true — not really, although some companies mistook their inability to monetize users for a generally elevated “cost” in the mobile advertising market. What comes next for mobile gaming in the new epoch being precipitated with ATT will lay bare how much of the heavy lifting of audience management and growth the big ad platforms contributed until now. The need for real ad tech within content companies will become clear.
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