Ed: We are restarting our “MoComment” section, which has guest essays and commentary from industry players. If you’re interested in writing about an issue related to mobile content industry, send us an e-mail us at rali AT moconews.net. Previous essays are here.
Matthew Bellows is the GM at Floodgate Entertainment, a leading mobile games developer. Previously, he was the founder of Wireless Gaming Review and the Director of Business Development at Engage, an Internet advertising network.

Ad Supported Mobile Games have recently been called everything from “inevitable” to “the best hope for innovation in the medium” but the truth is far from that. In fact, the middlemen who are trying to aggregate ad inventory in mobile games face two sets of problems: the ones that the Internet ad industry has already struggled through, and the ones that the broader mobile games industry is finally coming to terms with.

The problem is not getting mobile games to show ads in. Both Greystripe and Hovr already have scores of games from dozens of developers. There are enough independent developers to keep mobile game content flowing for a long time.

If their self-reported numbers are to be believed, the mobile game ad networks have also had no trouble attracting customers and teaching them to download. Greystripe claimed 1.4 million game downloads in their first four months. Hovr claimed 200,000 downloads in its first weeks. GetJar.com, which sells ads during the download process as opposed to within the game, claims 1.4 million downloads last week alone!

Now that these companies have a large and growing pool of ad inventory, their problems start. At last week’s GDC Mobile conference, members of the mobile games ad panel claimed they were selling $30 CPMs. A brief look back at the Internet advertising industry from 1998 to 2002 will clearly show that price, or anything near it, is indefensible. For the CPM model to work at any price point, even in the short term, these networks need a critical mass of advertisers willing to spend branding dollars (not direct marketing dollars) on a new, untested medium that will appear in a wide range of content. That’s going to be hard to find.

Assuming for a moment that the networks can find enough of these advertisers, that will increase the attraction for publishers and developers to run ads in their games, thus adding more inventory and further depressing prices.

But it’s much more likely that the entire mobile CPM model will collapse, as it did on the web. Interactive agencies were already burned once by ad networks and $30 CPMs. That’s why the vast majority of web ad buys now are CPC (cost per click) or CPA (cost per acquisition). Both of these models put more responsibility on the content provider, and insulate the advertiser from risk until the viewer takes an action.

In fact, there are CPA campaigns running in games from Greystripe—a $5-off coupon from Speede Oil Change for example. Although the statistics on that campaign are not publicly available, it’s impossible to assume that the effective CPM on that campaign approaches $30.

The long term success of CPC and CPA models rely on direct marketing metrics, a huge volume of impressions, an ad selling system more scalable than that required for CPM campaigns, and a mobile commerce infrastructure (technically and psychologically) to monetize the consumer action. All of these are a long way off for mobile game advertising.

Plus, the ad sales teams for these companies are competing with all the other mobile ad offerings being launched, from carrier efforts, to mobile search companies to WAP advertisers. Even Nokia is announcing a mobile ad initiative. If you are a forward thinking ad buyer with some money to experiment with, who are you going to try your campaigns with—Virgin Mobile or Hovr?

The people who run the new mobile game ad networks are claiming that they will bring in a new user base for mobile games – the price sensitive people who won’t pay $5 for a download. Mobile games publishers, notably JAMDAT/EA Mobile, did extensive research in 2003-2004 on price elasticity, and most continue to do so. If the publishers could “triple” demand, as has been suggested, by lowering prices, don’t you think they would have done that already? Or don’t you think they will try it next month and find out?

If mobile game ad networks were not getting the hype or the downloads they are, their economic challenges wouldn’t bother me very much. My big concern with these companies, however, is that in their rush to build ad inventory, they haven’t paid much attention to the quality of their games.  Carriers went through the “more is better” phase in 2003, and the result was a “one-burned-twice-shy” mobile games customer. Unless the content that mobile ad network provide is good or great, we as an industry will end up burning a whole new group of possible mobile games consumers. While there are some strong developers distributing games with these companies today, I’m pretty sure a normal person would be unsatisfied with the experience of a randomly selected title—even if it is free.

Mobile game ad networks combine the problems of the Internet ad networks with the current issues facing mobile games today. Developers still shoulder the porting, localization and support costs of their games, and they still have to fight for deck placement in each download channel. But now, instead of getting paid during development (from a publisher), or getting paid as a percentage of the consumer price (from the carrier or D2C sales portal), they now have to depend on the success of a 3rd party ad team, and the response rate of mobile consumers.

In every media, cross-publication ad networks exist, and in some they do fairly well. But my suspicion is that main impetus behind the mobile games ad networks comes from more from Microsoft’s acquisition of Massive and Google’s acquisition of Adscape Media, than from the opportunity to build real and sustainable businesses. The mobile games industry has been through a lot of investor-funded value chain experiments in its short history. We don’t need another one right now, especially one so likely to fail.