Ads up, games down: The ugly, profitable details about Xbox Live advertising
Xbox Live is the online platform for the Xbox 360 that allows people to play against each other online, chat across games, and manage their friend list. Xbox Live is also a for-pay service, costing around $5 a month depending on where and how you purchased your subscription. Microsoft has successfully created a service that offers much of what other services like the PlayStation Network and Steam give away for free, but the company didn’t stop there. The other way Xbox Live is being monetized is the sale of advertising. People who don’t play video games would be forgiven if they turned on an Xbox 360 and didn’t realize it was a device used to primarily play games. The first screen you see on the Xbox 360 Dashboard is often a mixture of ads for all sorts of goods and services, and many times games are in the minority of ad slots. The latest redesign increased the ad space that can be sold to advertisers, and that in turn increased this problem. Let’s be clear, it is a problem. Game discovery is terrible in the current design of Xbox Live, and the usability of a system that used to be about games is suffering in order for Microsoft to make money on ads. Sadly, this issue isn’t going away: Ad sales simply bring in too much money to ignore, and revenue is growing. How much revenue does Microsoft bring in Xbox Live ad sales? Let’s find out… together.
Microsoft is selling eyeballs, not time
To understand how much money Microsoft makes from Xbox Live advertising, we need to take a step back and understand how advertising works with digital content. Magazines and newspapers sell ads by the page, and you can estimate how many people those physical ads will reach based on circulation numbers. When it comes to Xbox Live and your favorite web sites, advertising is sold in terms of how many people see the ad on the page, and the information can be tracked relatively accurately. These are called impressions. Advertisers buy clumps of people who will see their advertisement, and the cost for these ads is measured by what's called the “CPM.” The acronym means cost per thousand, with the M being the Roman Numeral for 1,000. If a site sells advertising space at a $5 CPM, the advertiser pays $5 for every 1,000 people who see the ad. I contacted Microsoft and asked for their ad rates for Xbox Live, but they were unwilling to share that data directly. Thankfully, a source who would like to remain anonymous leaked the ad sales data from October 2011 to June 2012. Microsoft sells ads on the Xbox 360 Dashboard at a CPM of between $19 to $23, depending on the ad placement and the type of ad. You’ll pay an extra 20% for animated or video ads, and if you’d like to select specific demographics for those ads, you’ll pay an extra 15% per “targeting criteria,” with the maximum bump being 30%. So if I’m running a video ad that I want to send to two specific and overlapping target markets, I’m paying between $28.50 and $34.50 to Microsoft for every 1,000 people who see my ad. The more money I pay, the more people who see in my ad, and the longer it runs. The amount of money spent on the ad also impacts where it's placed, with better placement given to more extensive, and therefore expensive, ad campaigns. I tracked down someone who had purchased ads on Xbox Live to find out more about the process. This source also wanted to remain anonymous, for the obvious reasons. “The bigger your spend, the better placements your ad will appear in,” they said. “And they are pretty expensive; for every view I get on Xbox Live, for the same money I get twice that almost everywhere else.” The minimum spend to put your ad in the kind of rotation that might get someone’s attention, according to the source, is $40,000. Many companies spend much more when they buy an ad for their product. “$250,000 will get you a good run for about three weeks,” my source stated. “If you do multiple campaigns like one for a trailer, one for a demo, etc., that's where you start crossing the $500,000 mark.” Keep in mind this money simply puts your ad in rotation, as Microsoft sells multiple campaigns at a time and, if you aim your campaign at your target market, you’ll be increasing the amount you spend on your advertising. Creating an ad campaign can be confusing, but Microsoft helps the process; you tell them how much you'd like to pay for ads, and they help you design your campaign on Xbox Live and explain what you're getting for that money. I spoke to another source who spent $50,000 on an advertisement, and he had nothing but praise for Microsoft’s ad team. “They were super easy to work with and were great about getting back to us in a timely manner,” he said. “Some of the best interaction we had with MS was their Advertising division.” It gets crazier: The data shared with the Penny Arcade Report shows that Microsoft estimates 16 million impressions for an ad during a holiday, so an ad with a $21.50 CPM would cost you a stunning $344,000 to control that spot for the day. You can also buy half-day increments. Microsoft estimates that ads during a normal weekday in the first part of the year enjoyed 9 million impressions, with 15 million impressions over the weekend. Based on these numbers, Microsoft estimates that it would cost $193,500 to control the entirety of an ad spot for your average Monday with what's called a “road block” ad. Start layering on the features, however, and that price can begin to rise very quickly. It would be hard for any company pass up this amount of revenue, and the number of ads being sold is only limited by the amount of ad space Microsoft can fit on your screen; the amount of marketing a design can deliver to the audience may trump both aesthetics and ease of use for gamers. “If you notice the dashboard redesign added in more spots for ads than were on the blades so they have more inventory to sell,” my source explained. I contacted Microsoft and asked how much advertising revenue impacted the profitability of the Xbox 360. “We don’t share this information publicly but we can tell you that, since 2010, the advertising business has grown 142%,” I was told.
Where did all the games go?
This laser-like focus on advertising means that the space that used to be used to promote and share new games is gone. “Since the last big 360 Dashboard update, the presence of games, specifically unique XBLA has been severely demoted,” a developer who spoke on the condition of anonymity said. “This ain't really cool, because promoting XBLA games is really difficult. Your audience is people who own an Xbox AND have it connected to the internet AND realize there are unique downloadable games on there (i.e. it isn't just a Netflix and Madden machine) AND jump through the hurdles of adding MS moonbucks to their account AND can find actually your game on the console.” Trying to get someone to jump through all those hoops is proving difficult, and it’s directly impacting the money developers can make on the system. “Unless there's a link to your game on the front page, which is both tremendously expensive and will rarely last even a week, actually finding the games is a nightmare,” the developer explained. “Currently, you have to navigate past Home ... Social ... TV ... Video ... and finally to Games. Under Games, you need to select Games Marketplace. From there, you have to completely ignore everything under 'Spotlight' (which quizzically includes Games Showcase, Express Yourself, Most Wanted and New In Fun Labs, plus a giant ad right in the middle, and good luck figuring out what any of those things mean) and select a completely different submenu called simply 'Games' and then either select New or A-Z.” Even describing the process is exasperating. “Can you imagine trying to explain that to someone who wants to buy your game? There isn't even a simple search bar to just put in the title of something and find it that way!” (A quick note: as Microsoft points out below, you can use the Bing search bar on the Dashboard to do exactly that.) He pointed out that the Dashboard layout seemed to be designed by committee, with no strong vision of how to make it work well. “Without a single really strong leader with a powerful vision of improving the Xbox content experience, I don't see this improving much, if at all,” he said. “And as someone who basically relies on being able to sell XBLA games to, you know, pay rent and eat, that's really disheartening.” He also said that other services do better in terms of game discovery and promotion, including the PlayStation Network. “Steam is probably the best though, given its very searchable and is focused exclusively on games,” he said. “And at the very least, it's clear Steam has a clear vision and objectives that put the developers and the audience at the fore. With the Xbox Dashboard, it seems Mazda ads rank above games of all stripes in prominence. Kinda sad, that.” I asked Microsoft about the inability to find games, and was offered a pat answer. “A core principal for advertising on Xbox LIVE is to invite not interfere with the user experience and we diligently work with brands to ensure they deliver engaging experiences that are relevant and add value to the Xbox LIVE community,” a representative told me. “More broadly, we are also working very hard to make it easy for subscribers to find the entertainment they are looking for. One example of this is Bing Voice Search on Xbox, which is getting even easier to use. Now you can search for your favorite entertainment using simple voice commands.” Microsoft is certainly enjoying an online service that brings in revenue in two ways, but imagine if the company were to actually promote unique games like Spelunky. It would be wonderful if you were exposed to a new game or experience every time you turned your gaming console on, versus being met with advertisements. Xbox Live, and the Xbox 360 Dashboard, aren't services Microsoft is providing to help you find and enjoy new content, they're a delivery mechanism that allows the company to sell its audience to advertisers in groups of 1,000.