Online games can help you reach elusive male demo, but watch intrusiveness and privacy issues.

One of my claims to fame while growing up on the mean streets of Stamford, Conn., is that I was the first of my friends to own an Atari 2600 video game. For a brief, but shining moment, the Chapell family rec room was the Mecca of Stamford’s video game community. Having the game at my house gave me a considerable advantage. And I quickly rose up in the ranks to become the neighborhood champ at both Space Invaders and Frogger.

Now, many years later, and completely cured of my youthful gaming addiction, I still play every once in a while. And I’m constantly amazed by how far the technology has developed. Whether I’m driving my Crazy Taxi through the streets of San Francisco, or guiding Spiderman as he sails though the canyons of mid-town Manhattan, I am absolutely amazed by how realistic looking and sounding games have become.

As video games become progressively more lifelike, they also become more expensive to produce. And in order to augment what have traditionally been razor-thin profit margins, the video game publishers have increasingly turned to advertising. Video game ads were originally composed of simple product placements. For example, instead of having the main character drive a generic car, he’d drive the new BMW.

Video game product placement is analogous to the way products are inserted into movies. However, video game product placements have the added benefit of direct interaction between gamer and product. The gamers are able to have their character interact with a product in much the same way as the gamers interact with the same product in real life. And according to a recent study conducted by Activision and Nielsen Media Research, the majority of gamers have had a favorable reaction to product placement in their games.

Now the industry is moving towards the next stage of game advertising -- ad networks. As more and more gamers are playing opponents remotely via the Internet, advertisers can use that connection to dynamically serve ads into games. The premise is very similar to the way ads are currently served onto Web sites. The leading company in this area is New York based Massive Inc.

But you need to be mindful of both the value proposition and the potential privacy risks surrounding video game ad networks.

What's the value proposition?

I can see how an ad network would make sense for publishers looking to augment their revenue stream with additional ad dollars. I can also see how this makes sense for advertisers, who are always looking for new ways to reach the coveted 18-34-year-old male demographic.

According to Nielsen Media Research, television viewership is in decline for males 18 to 34, particularly those who are active video game players. And the ad networks provide an additional way to reach them. Moreover, an ad network can provide advertisers with much more flexibility in timing their campaigns, and allows for frequency capping.

My question is: what’s in it for the gamers? Are they receiving enough value to justify the intrusion of additional ads? Ultimately, I realize that the gamers will have to accept that there will be more advertising. However, any publisher releasing a new game into the marketplace will be wise to err on the side of caution when integrating ads into their titles.

One argument in favor of advertising is that it enhances the gaming experience. The Activision/Nielsen study indicates that 70 percent of heavy gamers think that well-crafted product placements can actually make the game more realistic. For example, imagine a game character holding a generic cola beverage. Now imagine that character holding a Coke. The latter is a more realistic depiction of life. Conversely, if the gamer is playing a Star Wars game, he’s not going to want to see Darth Vader walking around with a Coke, because that just wouldn’t be realistic. So, the product placement model, in the right context, seems to be a hit with the gamers.

The question, though, is whether banner ads will be as big a hit with gamers. Massive Inc. has recently conducted a study focusing on perception. And while the results indicated a positive perception of in-game advertising, the study didn’t distinguish the perception of banner ads from product placement.

Michael Dowling, general manager at Nielsen Interactive Entertainment, isn’t so sure the gamers will be as receptive to banner advertising as they are to product placement. Dowling says, "the process of having ads served into games may make the gamers feel intruded upon.”

Dowling also notes that many gamers are very technologically savvy, and some of them may even figure out ways to circumvent (or block) the ads served in by Massive. So this is a real concern, as game publishers don’t want to kill the goose laying the golden eggs.

I like that Massive conducted research to gauge consumer perception of their offering. Too many companies seem to release technology products into the marketplace without gauging consumer perceptions. I’d like to see some additional research that distinguishes banner ads from product placement, and determines if there is any difference in gamer perceptions toward the two ad mediums. I’d also like to see additional research to determine whether gamers might feel intruded upon by ad serving, as Dowling suggested.

What are the privacy issues?

Based upon a conversation with Richard Skeen, VP of advertising sales for Massive Inc., it seems like that company has thus far adopted a conservative approach to issues of consumer privacy. And that’s good, given that a single incident could have a catastrophic effect on this nascent industry. Having said that, here’s the Chapell view on privacy for video game ad networks:

• Are they collecting personally identifiable information (PII)? Yes. Some games require registration. Massive, for example, will use the PII for ad serving purposes provided that the gamer has opted in. I would caution Massive against collecting any PII. Each game title has a fairly unique demographic anyway, and to get into the business of targeting ads further using PII is a high-risk, low-reward proposition. It’s high risk because there are all kinds of perception issues regarding the use of PII. And it’s low reward given that most game titles have a fairly well defined audience already. So I’m not convinced that adding PII into the analysis will really result in better-targeted ads, and at least right now, isn’t worth the risk.
  
  
• Are any data being shared across multiple game titles? Massive has no plans to engage in this type of tracking, although developing an in-depth profile of willing gamers must be tempting. Similar to my last point, I would advise Massive and the game publishers to shy away from sharing any data across game titles until gamers have built up a level of trust and comfort with the game network concept. Perhaps they can wait and see how the Web publishers deal with these issues before moving forward with similar plans.

Bottom line: What’s in it for the gamers?

Dowling says that in general, the gaming community wants to participate. “They want to be on the inside of the development of the gaming industry,” he says.

So the key will be to convince the gamers that the advertising is at worst a necessary evil, and at best that ad revenue will be used to fund new and original game concepts. In-game advertising is here to stay. If the gamers are willing to buy into the idea that ads make for a better experience, then the transition towards partially ad-supported games will be a much less bumpy ride.

Alan Chapell is a consultant focusing on privacy and data collection strategies -- helping clients to build customer loyalty and mitigate risk. He has been in the interactive space for more than seven years with firms such as Jupiter Research, DoubleClick and Cheetahmail. Mr. Chapell is the New York Chapter Chairman of the International Association of Privacy Professionals, and he publishes a daily blog on issues of consumer privacy.