Why a gaming company would want to own an ad network
Imagine that some huge proportion of your business success relied on factors largely out of your control.
Wouldn’t you do whatever you could to get as much control over as many of those factors as you could?
Exactly.
Now you know one of the key reasons why a gaming company like Zynga wanted to buy an ad network like Chartboost. Another two: maximizing first-party data and maximizing revenue share of every ad dollar spent on Zynga (and now Take-Two) properties.
I had the opportunity recently to chat with Zynga’s chief product officer Scott Koenigsberg and Chartboost CEO Rich Izzo on my TechFirst podcast, and just cross-posted the conversation to Growth Masterminds, Singular’s growth marketing-focused podcast. One of the very clear take-aways: a key driver of mobile adtech acquisition is gaining more control over your own destiny as a mobile publishing company.
And, of course, being able to increase monetization efficiency via vertical integration.
“One of the things that drove us to do this acquisition was we were looking for ways to take more control over our ability to monetize players and our ability to acquire players …
We’re also looking to vertically integrate into these channels, where, quite honestly, there’s a loss of data and obviously there’s a lot of dollars that get taken along the way by intermediaries.”
– Scott Koenigsberg, chief product officer, Zynga
Titans of adtech
I didn’t mention Zynga, of course, in my new titans of adtech post a few months ago.
That was focused on players like Unity, ironSource, AppLovin, Liftoff+Vungle, and Digital Turbine. But many of the same market mechanics driving consolidation in mobile-focused adtech companies are also driving app publishing studios and ad networks together.
(And of course both ironSource (Lion Studios, Supersonic Studios) and AppLovin (Machine Zone) of course, have bought, own, or have invested in studios and apps.)
Ad networks buy apps for data, among other things.
Game publishers buy ad networks for control. Plus data, sure, and revenue. And probably a few other reasons — particularly when they want to be acquisition targets, or to go public — but primarily for a degree of control over one of the hardest and most crucial parts of their businesses that they cannot otherwise really own: user acquisition.
3 big problems, and becoming the master of your own destiny
Growth marketers see a lot of data as they promote and advertise their apps. Ad networks see much, much more as they participate in the auctions.
Even if the mobile marketers are very, very sophisticated and have extreme volume.
“We have a very sophisticated ad stack, right? We actually built our own ad server … we have one of the largest inventories in mobile gaming … we have banners, we have interstitials, we have rewarded video … we’ve been doing this for a long time and we have one of the more sophisticated waterfalls, I think, of anyone in the market …
“But we’ve never seen kind of the underbelly … of what really happens in the background … and if we can combine that data — our first-party data and behavioral stuff and contextual stuff — with what Chartboost does on the monetization side, we can theoretically get to better ad yields and provide better experiences for our players.”
– Scott Koenigsberg
Owning an ad network obviously helps app publishers with user/player/customer acquisition. Seeing more and knowing more makes you smarter.
There are three big problems in mobile game publishing, and they’re pretty much the same problems as any app or, for that matter, any business:
- Make something awesome
- Entice people to engage with it
- Derive value either directly from them or indirectly via their usage
Combining an app publishing empire with an ad network actually helps in all three phases: directly in the second and third, and indirectly in the first. The second and third are most obvious, of course: acquiring users or players, and monetizing them.
But there are some subtleties: it’s not just about owning the means of selling ads for acquisition, it’s also the data that you can combine with in-app player data to get smarter. Apple Search Ads, for instance, is having a moment right now not only because it is intent, and intent is a powerful indicator of motivation, and not only because it’s built right on top of the only machine for installing iOS apps on the planet. It’s also been the biggest success story in mobile advertising because Apple combines first-party data — using differential privacy methodologies — from in-app usage of Apple News and Apple Stocks and Apple Music and combines that with both search and contextual data when deciding which ads to show you in the App Store.
(The new Singular ROI Index will be coming out shortly; you’ll see some interesting data in there about how big and how important Apple Search Ads has become.)
Owning the whole stack means that you can optimize for exactly what you need, because you can optimize the algorithms rather than just use someone else’s.
“Now we actually have the ability to use our machine learning and data science capabilities to work directly with Chartboost and their teams to say, ‘Okay this is the type of user we want to acquire and this are the behaviors we look for, and by the way, this is how they may or may not act in our game.’ And then we’re looking for more of these people or a diverse set. And so it gives us a lot more capabilities.”
– Scott Koenigsberg
And that de-risks, Koenigsberg says, one of the hardest and riskiest parts of mobile gaming: user acquisition and scaling.
It’s a slightly different story on the monetization side.
In terms of monetizing users in owned apps via other company’s ads, it’s not like copying and pasting in a mediation network and optimizing yield. Because each dollar of advertising in mobile adtech gets split up in a lot of different ways and significant parts of them don’t make it to the game or app that attracts the audience and generates the impression in the first place.
In fact, according to an ISBA study, publishers only receive about 51% of advertiser spend.
But if you own more of the adtech stack … maybe you can increase that to 70%, or 80%, or even higher. And that in turn changes your user acquisition dynamics: more expensive users are still LTV-positive, because you’re making more money from them. (Oh, and by the way, even though they’re more expensive, you’re buying via your own platform, so knock off 10-20% for internal accounting because you make money even when you’re spending it.)
Better apps via advertising data
There’s even a benefit for the part of an app or game publishing giant’s business that seems least likely to be enhanced by owning an ad network.
And that’s #1 above: making great games.
Any game publisher can run pre-development ads for an idea they have about a game or an app. No game or app exists yet, but a few thousand dollars might provide good insight into whether or not it would be successful, and what user acquisition costs might be. Owning an ad network doesn’t change that, but it does provide more and richer data about how potential users are reacting to the idea.
Plus, of course, all the existing data you accumulate as a game studio and ad network combined about what types of games and ads generate profitable growth can be used in your product development phases, or in your app acceptance phases as you decide whether or not to publish some other development studio’s game.
So it’s all about platform?
Everyone wants to own a platform, because the value of a true platform increases exponentially over time because others build on it. Think Windows. iOS. Android. Amazon’s AWS. Salesforce. You name it.
Whether combining acquisition with monetization with a species of content fortress — all the games that you own and publish, and all the games that you don’t own but enter into a publishing agreement for — is a true platform or not is debatable. But the extra value unlocked via vertical integration and making that available for every app you publish is pretty clear.
And control, of course:
“Being able to control that experience from end to end and access all of the data, that’s — this is the concept of a platform and creating efficient marketplaces, and changing the very fragmented ad landscape that exists today.”
– Scott Koenigsberg
And yet more control:
“It goes back to that platform that I spoke of where we have full visibility and control over the experiences that we’re providing our players and we’re not necessarily beholden on third parties for success.
– Scott Koenigsberg
And more scale:
“I think there’s also a move toward the consolidation of buying power, meaning the more inventory that you’re able to offer to buyers at scale will be really meaningful for them and will make sort of not necessarily a one-stop shop, to Scottie’s point, but a really meaningful shop that folks in this space that are looking to do user acquisition need to stop into and participate.”
– Rich Izzo, CEO of Chartboost
Which is interesting and natural: any gaming publisher, like any other kind of business, is going to do those kinds of things that trend to them having more control over the factors that make up whether or not they will be successful. And, of course, to those things that enable them to have more ability to maximize their ability to compete, and to maximize revenue.
Right now, after decades of explosion in adtech innovation and fragmentation, that’s where we are. And that’s why we’re seeing ad networks owned by gaming studios and gaming studios owned by ad networks.
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