Similar to the podcast advertising rage, one wonders if the video game business can realistically support the amount of venture capital pouring into "in-game" advertising companies. One of the press releases indicated that in-game advertising is poised to grow to more than $1B before 2010 while another said it will be $2B+ by 2008, although I can't find the exact research except from DFC Intelligence saying it will be $500M+ by 2009.
There is no question that consumers, especially the always desirable young male demographic, spend ever increasing amounts of time in front of video games, some of which will be web-connected ad environments (the majority of PC's today, and I would think maybe 25% of consoles in 3 years). Although there is an amazing tolerance for advertising where it's not too intrusive, it's hard to see how much of it will make sense in any video game where there is a specific story and environment involved, e.g. in a wild west game or in Halo, how many advertisers could plausibly insert ads, meaning how many Pepsi machines do we really think were around in the 1840's, or in the science fiction future? And who is going to stop to click on the ad, meaning it's more product placement than advertising, which makes it a much smaller market.
On the other hand, it should work quite well in modern games such as Grand Theft Auto and most sports games, where EA has traditionally had product placement and advertising opportunities. And it's true that most game publishers are desperate to find additional revenue sources as development costs explode upwards, especially if the hoped-for $60 price point doesn't hold for next generation console titles.
So assuming that the market will actually develop, let's tally the players in this small but potentially lucrative market:
1. Massive - the grand daddy of game ad networks, I'm told it's raising money at a $200M+ market valuation. Has raised at least $17M in the first 3 rounds, and has a series of video game partnerships. It's apparently up and running although I've never seen an actual advertisement in a game.
2. IGA Worldwide - announced a $12M A round of financing today. Has a proprietary in-game advertising technology called Radial. Has not announced any partnerships. Cleverly owns the URL InGameAdvertising.com
3. Double Fusion - hired Geoff Graber, formerly of Yahoo Games, and announced a $10M A round 11/05 led by Accel, and moved the company to SF from Israel. Has announced no partnerships.
4. There is at least one more currently recently funded in-game ad shop which has not announced its funding yet.
Plus there are players like Shockwave.com who have announced plans to do in-game advertising themselves across their large casual game network, and probably more that I don't know about.
So we have at least 4 well-funded independent in-game advertising providers, plus some who will do it themselves. The key question is what should an ad serving and selling network be worth? It should be some small percentage of the overall advertising market since the vast majority of the value goes to the site or game which is delivering the user. If the in-game ad market is theoretically worth $1B by 2010 (in 4 years), than it's reasonable to assume that the folks who deliver the ads are worth maybe 20% of that number, assuming a competitive marketplace. Therefore, you have the total market value at $200M at most, which doesn't jibe well with the series of announcements so far.
I would assume one will see Massive continue to lead in the console space, while the others focus efforts on sectors such as casual (probably the best place for advertising due to slower game pace, fewer story line issues, and lots of game breaks), mobile, and handheld, but there is already a crowded marketplace on the supplier side.