Gaming app makers face a conundrum over how to monetize their product while keeping gamers plugged in. Advertising that rewards players with in-game virtual gifts could be the answer, according to a new study.
Developers of free games have been reluctant to experiment with advertising in their apps, fearing users could ditch them for one of the other half-a-million gaming apps available. But so-called value-exchange advertising, which allows gamers to receive free in-game goods in exchange for interacting with a brand's advertisements are one the rise.
Perhaps surprisingly, players are welcoming the change. The majority (86 percent) of the 500 gamers surveyed by IHS and WildTangent preferred free games with ads over paid games without them. Four-out-of-five said they liked receiving free virtual goods from clicking on ads, providing a big opportunity for game makers to make money.
"The research shows that gamers embrace value-exchange ads, which demonstrates the progress the industry has made with advertising in, and around, video games," Christine Arrington, IHS senior games analyst, said in a statement.
Game makers have typically charged users for apps, or adopted the "freemium" model, where customers make in-app purchases of premium content. Popular games such as Angry Birds offer users extra features or tools to help them in the game if they pay.
The amount consumers spend on in-game purchases is set to rise 5 percent over the next three years, according to IHS, as is the amount spent on mobile devices. But the solution to the monetization problem is not simple, despite gamers being positive about value-exchange advertising, according to analysts.
"It depends on how it is deployed," Heloise Thomson, gaming analyst at Enders Analysis, told CNBC in a phone interview.
"There are some games that will pause your gameplay and hit you with an ad, that is really annoying. But when it something that is part of the game and rewards you, that seems fair."