I don't write ads for Electronic Arts (Nasdaq: ERTS), but there's something about the news that EA wants to sell ad-supported games that brings me back to my marketing and PR days:
Ads. They're in the game.
Yeah, I know. Save your email. I'm aware that I need my day job as a Foolish stock analyst. So let's get to what this news means, beginning with the facts. This summer, EA will release a version of its Battlefield Heroes series as a free download. Revenue will come from in-game sales of virtual gear and via advertising.
Three things strike me about this announcement. First, in-game advertising is a big enough business that Microsoft (Nasdaq: MSFT) spent hundreds of millions to acquire Massive in 2006 and then $6 billion for ad designer aQuantive last year.
Second, distribution-dependent yet ad-supported business models can work when there's a viral component to the product being offered. Just ask the good folks at Facebook and YouTube. Addictive applications and goofy videos bring in legions of users.
Third, in-game purchases are common when the experience is addictive. Witness virtual world Second Life, which has a real-world economy valued in the millions -- enough that the IRS has taken notice.
So has the Korean government, which is layering a tax on in-game transactions annually, which in 2006 accounted for $1 billion in real moola. EA, meanwhile, says that it earns $1 million per month via in-game transactions in its free FIFA soccer game, which was launched in Korea in 2006.
$1 billion?
What the heck took EA so long to make this game available? And when will Electronic Arts and gaming peers Activision (Nasdaq: ATVI), Take-Two Interactive (Nasdaq: TTWO), Nintendo, and THQ (Nasdaq: THQI) begin offering their popular titles for free?
Probably a lot sooner than any of us think.
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