Not surprisingly, companies like Google and Apple have already positioned themselves to capture as much of this money as possible. Through an extension of its AdSense program, Google offers marketers ad placements across a range of popular Web-based games, while Apple has built support for in-game advertising into its iOS mobile operating system; developers just have to allocate some screen real estate for ads when designing a game, and Apple takes care of serving up the actual ad.
In their most amazing feat yet, games designers generate revenue from selling virtual objects that have almost zero marginal cost of production to players through storefronts built into the games themselves. ABI Research estimates that these in-game purchases are responsible for about a third of today’s mobile-game revenue, and will be responsible for nearly half by 2016. So-called “freemium” games are entirely supported by these in-game purchases, including Zynga’s string of hits such as FarmVille and CityVille, which have tens of millions of monthly active users across multiple platforms.
A consequence of the growing demographic familiarity with video games is the trend of gamification, which borrows techniques from entertainment software to persuade users to persist at things they might otherwise be lax about, such as paying attention to corporate training, eating healthy foods, or staying loyal to a particular television show.
For example, media companies are working with startups like AdaptiveBlue that have online services that award users virtual badges for things like watching television shows or attending a movie showing. As well as building a fan base, these gamified services encourage viewers to watch when a company is most likely to be able to capture value from an audience—such as during a live broadcast or on an opening weekend, through rewards that are only available at specific times.
Games are also turning up as part of the workday. Startups like Redcritter now sell gamified project management software. Under the rubric of “serious games,” large businesses (as well as government agencies and especially the military) are using video games for training purposes.
But the biggest impact of gamification could come from its ability to dissolve the barrier between the virtual and the real. Companies like Striiv, for example, offer a device that attaches to a user’s keychain and counts their steps: as someone with the device walks, he can explore a fantasy island displayed on the device’s screen. The goal is to encourage users to live healthier lives—a notoriously difficult problem. Seeing an opportunity to cost-effectively increase the health of consumers, insurance companies like Humana and Aetna offer, or plan to offer, Web-based games with similar purposes.
As businesses move to take advantage of gamification, there is a danger of diminishing returns. Simply slapping a particular badge reward system onto a marketing campaign may generate a good initial response, but people are likely to lose interest. Instead, companies will likely have to continue investing in gamified systems for a sustained payoff, creating new games that embed their message within a story, so that whatever activity a company is trying to encourage is a natural by-product of playing the game.
Video games have ceased being an end in themselves; they are a front in the battle to dominate technology platforms and delve into consumers’ psyches. Could anyone have predicted the role of the games-machine-cum-smart-phone after seeing the blocky Pong machine of 1972? Perhaps the story of the first prototype, which had been installed in a bar near Atari’s base of operations, might have given a clue. After a few days, the bar owner called Atari complaining that the game was broken. The cause? Customers had stuffed so many quarters into the machine that it was being shorted out.