Category: Affiliate Marketing Tips

“In previous years, there was some apprehension around in-game advertising; as a gamer, if I go out and purchase a $60 game, and then I end up getting served pre-roll, mid-roll or intrusive ad experiences, I will probably not be very happy,” said Mascali during Digiday’s Gaming Advertising Forum on April 20. “So publishers have been really protective of that.”

Times change, however. These days, publishers, like many other media owners, don’t want to be reliant on a singular income stream. Not if they want to create games that are regularly enjoyed by hundreds of millions of people, across devices at lower entry price points. And there are few better ways to offset the capital risk of development and the ballooning costs of user acquisition than advertising.

Yes, it may sound strange, but it’s not necessarily a surprise. Diverse business models and tiered price points are one of the main reasons the gaming industry has swelled into a far bigger economic juggernaut than Hollywood and the music industry. Advertising is just another recurrent revenue stream to game publishers — one that means they’re not having to constantly be reliant on asking gamers to spend a bit more money on their brands.

Not that any of this is necessarily new. For years, games developers have dabbled in in-game advertising, but it was always the exception, not the rule. In part, because the demand just wasn’t there from advertisers for games developers to believe advertising was worthwhile. Sure, there were marketers queuing up to get their brands in the latest versions of FIFA and Madden, but the interest in the sector wasn’t as widespread as it is now — especially once it became clear that gamers weren’t as averse to being advertised to while playing or watching games as previously thought.

“Creating a three-hour brand experience, where people are leaned in and completely engaged — that’s totally different than a 15-second TV commercial,” said Stephanie Perdue, vp of brand marketing at Chipotle, during her talk at the Gaming Advertising Forum. That paved the way for a nascent but fast-growing investment in gaming that included immersive in-game experiences, she continued, such as a massively popular Roblox experience, in addition to more targeted partnerships with streamers and influencers like Karl Jacobs.

“Once you think of it as a media channel, a way to create bespoke, unique content, I think you can go even further with unique brand experiences, depending on what the platform is,” said Perdue.

Going further isn’t straightforward. Games are unlike any other medium marketers advertise in. Measurement is uniquely difficult due to the placement of ads inside ever-changing three-dimensional virtual environments, though the Interactive Advertising Bureau and Media Rating Council are on the cusp of releasing updated measurement standards. The market is increasingly fragmented, with intrinsic in-game ads, more fleshed-out metaverse experiences and influencer partnerships representing only a few of the many different ways brands can reach the gaming community. And while gamers are more accepting of brand involvement than many marketers assume, there is still a fine line between a palatable in-game ad and an ad that warps the gameplay experience.

“There’s a hell of a difference when you put it in a game like Forza, where it’s native to the experience and arguably enhances realism,” said Jason Chung, an assistant professor of sport management and executive director of esports at the University of New Haven. “Versus, am I playing Red Dead Redemption 2, and then Smith and Wesson is going to put in a mid-roll ad?”

Still, companies are emerging to help marketers connect the dots. Ad exchanges such as Frameplay, Bidstack and Anzu have developed a significant inventory within free-to-play games, taking steps to educate brands about the opportunity and create new tools and metrics to measure their offerings. Agencies are jumping in, bringing their gaming and esports knowledge in-house to better help connect game developers and their inventory with brands that fit their vibe. While the largest agencies are still learning how to navigate the gaming advertising landscape, those that are able to firm up these relationships through direct integrations and curated marketplaces will have more control over the distribution of impressions, and thus an easier time delivering more incremental revenue to their clients.

As big game developers compete to establish themselves as media owners, the smaller and mid-sized independent publishers might suffer most from this shift in the landscape. 

“Quite frankly, a lot of the publishers that are not Microsoft and Sony will not be happy with it, because you’re cutting directly into their revenue stream,” Chung said. “If I play a game of NBA 2K, I’m pretty sure [2K developer] Take-Two has put enough advertising in there to make Madison Avenue blush, so good luck to them.”

Game developers might not have a choice. Microsoft’s in-game ad business has reportedly been in the works for years, but cultural and economic shifts during the COVID-19 pandemic have since transformed gaming into a pillar of popular culture. As developers race to adapt to this change, gamers could be in for an explosion of in-game advertising before the hype subsides.

“If you add in too many layers, you’re going to end up like the early days of TV, where entire programs were sponsored by a tobacco company or a laundry soap company,” Chung said. “People revolted against that and said, ‘we don’t want to be exploited this way,’ which is why we moved to the advertising system that we have now.”

True, this downturn is in line with the wider stock market, but now some question the fortunes of the current crop of public ad tech companies — a cohort whose number increased exponentially during 2021 — as valuations have cooled from their early heady heights.

Earlier this week, The Trade Desk, easily the poster child of the sector, posted Q1 revenues of $315 million, representing a 43% increase. The demand-side platform was also eager to highlight the increasing prominence of high-growth sectors, such as CTV, in its media mix, citing it as its “fastest-growing channel” during the period.

Albeit, market conditions have seen The Trade Desk’s market capitalization halve from the lofty heights of its peak $40-plus billion valuation in recent weeks. And, similar to Alphabet, the DSP’s stock price slipped after it issued Q2 guidance of $364 million, just short of analysts’ expectations, in its latest disclosure.

OpenPath strides ahead

A big part of The Trade Desk’s narrative since the beginning of 2022 has been the DSP’s effort to cut down on inefficiencies in the programmatic ecosystem, a.k.a supply path optimization, a key way for it to drive value for advertisers, and investors.

Last week, The Trade Desk announced a further five media owners to its earlier SPO initiative OpenPath — BuzzFeed, Forbes, Los Angeles Times, MediaVine, and Red Ventures — taking the total number of publishers involved to more than a dozen.

When it first unveiled OpenPath in February this year, The Trade Desk proposed direct integration with publishers with media owners including Condé Nast, Gannett, Hearst, and Tribune among the initial cohort of participants.

The Trade Desk has claimed that “more than 100 publishers have expressed an interest” in the scheme which has also seen the DSP switch off Google’s Open Bidding, a further indication of the pair’s rivalry.

In a series of supporting statements from the publishers recently inducted to OpenPath, the scheme was described as “progressive” and one that will “help improve transparency and performance” of programmatically traded media.

SMB publishers line up

Eric Hochberger, CEO and cofounder of Mediavine, added that his company’s server-side integration with The Trade Desk represented a first for the industry. “OpenPath helps ensure monetization opportunities for independent publishers across the web, including the more than 8,700 currently working with Mediavine,” he added.

Similarly, Lulu Phongmany, a consultant that helps publishers such as Digital Trends integrate ad tech to maximize revenues, described OpenPath as “a gift from the ad tech gods,” particularly small-to-medium-sized players.

“While large publishers have bigger budgets to spend on advertising technology and staff, medium-sized publishers aren’t as lucky [as the bulk of their budgets are invested in content production,” she said in an emailed statement. 

“OpenPath would allow them to tap into premium programmatic dollars without as heavy a lift with regards to supply chain optimization. The publisher can focus on bringing a quality audience to the table and The Trade Desk can focus on bringing quality advertisers,” Phongmany said.

Global placement ID tests

However, the development of OpenPath is not without its critics with some interpreting it as a power move from The Trade Desk as demand- and supply-side players form (seemingly) divergent alliances.

“OpenPath aims to remove the inefficiencies often present in the programmatic supply chain for digital advertising, including opaque and harmful privileges of the walled gardens,” reads a press release promoting the latest round of inductees to the program.

Although, some point out that it would appear duplicative/competitive of some of the key relationships the industry’s agency holding groups are simultaneously forming with SSPs — a tier of the industry that stands to be disintermediated by DSPs integrating directly with publishers.

Since late 2021, The Trade Desk has been implementing an SPO policy known as “global placement ID”, or GPID for short, according to separate sources who requested anonymity due to client sensitivities, to assess the most efficient path to premium publishers’ inventory.

“Then, every month, The Trade Desk picks five high-efficiency paths to that publisher,” said one source, who noted how the cadence of The Trade Desk’s supply path reviews is becoming more rapid. “It works in a number of ways such as reducing the overhead costs of listening to the full bid stream but strategically, it also reminds the exchanges who’s in charge as it asserts their power in the supply chain,” added the source, noting that it can irk media agencies that have brokered preferential deals with SSPs.

Speaking with Digiday earlier in the year, Will Doherty, vp of inventory development at The Trade Desk, acknowledged the ad tech company’s GPID efforts were a “logical” means of performance comparison and that other DSPs were likely to emulate it.

Meanwhile, a separate source who requested to speak on background, further told Digiday how GPID has generated “probably more palace intrigue than it warrants” when explaining how the SPO method functions. Per the source, GPID “is still in its early days” and uses an identifier, which is not attached to an individual user, to enable The Trade Desk to assess the “object permanence”, a.k.a just how unique an SSP’s inventory is. “And then once you can compare like-for-like inventory, you can actually see which path level is the most performant for advertisers,” added the source.

Potential conflict?

Meanwhile, multiple holding group sources (all of whom requested anonymity) spoke of the umbrage some on Madison Avenue felt at how The Trade Desk’s SPO efforts were communicated to the market. Indeed, some SSPs noted that such an approach could potentially shortchange publishers.

It’s understood that the DSP has been meeting with clients in recent weeks to articulate the benefits of OpenPath. Meanwhile, SSP sources further highlighted how they help publishers maximize and yield for their inventory by optimizing their first-party data in a manner that provides balance to the ecosystem.

Speaking separately, Jeffrey Hirsch, chief commercial officer at PubMatic, noted that SPO demonstrates that buyers want choice and control over the way they buy digital media. “While there is benefit in providing buyers with alternative paths to supply, it is important that they ultimately remain in control,” he noted in an emailed statement. “We’ve partnered with many global agencies and advertisers to implement highly-integrated SPO deals designed to give buyers the level of control they want and drive better ROI for their campaigns.”

Romain Job, chief strategy officer, Smart AdServer, further added, “Publishers are increasingly prioritizing the activation of their own first-party and third-party data. They tell us this is the key reason they will stick with the SSPs that operate transparently and add value to the programmatic transaction.”

The industry’s second-largest DSP

In a recent note to investors, Tom Triscari, a programmatic economist at Lemonade Projects, concluded that The Trade Desk’s take rate, the fee it takes for every dollar spent with it, was in the region of 19%, after it reported net revenues of $1.2 billion, on gross spend of $6.2 billion last year.

He further noted how many in the industry used it as an alternative to Google, which owns the largest DSP in the industry in terms of spend, and that its relationships with media agencies helped generate “a good chunk” of its $1.2 billion in spend. “Another explanation is an ability to take on managed service work from overloaded and understaffed agencies,” wrote Triscari. “The money has to go somewhere.”