Amazing: Ad Platform Company Discovers that Users Prefer Free Games With Ads!

It is surprising, amazing, I cannot believe it! Gaming and now ad platform company WildTangent commissioned a survey from IHS Technology, and discovered that 71% of gamers prefer free games with ads over paid games. Next dairy companies will discover that users prefer milk, and Apple will discover that users prefer iPhones.

Even without the vaunted expertise of IHS, I think any of us could have predicted that users prefer free games with ads over paid ones, provided the number of ads is unobtrusive relative to the cost of the paid games. The definition of unobtrusive, of course, can change and directly affect the survey results. I suspect the numbers might have been reversed, and worse, if the question had been, "do you prefer paid games for $1.00 with no ads or free games with ads that consistently take up 50% of the game real estate space and block the game every 60 seconds?"

Nonetheless, taking the numbers as accurate, one might be tempted to conclude that it is better to release your new game for free rather than sell it for, say, $2.99 on the App Store or Google Play.

And you'd be wrong.

Here's why. What matters is not the ratio of users who prefer free with ads over paid. What matters is that ratio multiplied by revenue per user. As Nassim Taleb pointed out in discussing how to bet on the market, it is expectation that matters, not probability.

Let's take the survey at face value and say that 71% of users prefer ad-supported, and therefore 29% prefer paid with no ads. Let's also assume that your game sells for $2.99 on the App Store. As of this writing, mobile CPM (cost per thousand impressions) is about $3.00. If each person who plays your game for free plays it 20 times (quite a lot), then they will see, at most, 100 ad impressions.

So for every 1,000 potential customers:

• 710 will take it only if free, providing 14,200 plays, 71,000 add impressions, which, at $3.00 CPM, gives $213.00 in revenue.
• 290 will take it paid, multiplied by $2.99 per user, gives $867.10 in revenue.

I am just a lowly consultant, but I am pretty sure that, for the same potential market, any business owner would prefer $867 in revenue over $213 in revenue.

Of course, these numbers change dramatically, depending on the free vs paid ratio, CPM, number of plays, time of play, number of impressions, and price.

But before assuming that it is the ratio that matters, first figure out how it affects your bottom-line. Or find someone who knows how.