069 – Games Without Advertising: A Potential New Business Model, Part 1

[00:00:00] Santiago: Hi, and welcome to the IDEMS podcast. I am Santiago Borio, an Impact Activation Fellow, and I’m here with David Stern, one of the founding directors of IDEMS.

Hi, David.

[00:00:16] David: Hi, Santiago. Looking forward to a discussion today. What’s the topic?

[00:00:21] Santiago: The topic is basically advertising, specifically motivated by advertising in games. I am a gamer at heart. I have loads of games in my mobile phone and I am sick and tired of adverts in games.

[00:00:39] David: Can you just pay to get rid of them?

[00:00:42] Santiago: I could, but if you add up all the games that I have and pay to get rid of all the adverts in all the games that I play, it would add up to quite a bit of money that I can’t quite afford. Advertising has been a classic revenue stream for all sorts of media and content for quite some time.

[00:01:06] David: Advertising is one of the big models for being able to distribute content freely. And it’s an extremely profitable one.

[00:01:16] Santiago: But is it free?

[00:01:18] David: It depends. It’s free at the point of access. It means that you’re actually contributing, because you’re actually creating payment. They’re receiving payment. And you as a consumer are consuming freely and you’re paying with your time and the fact that they are aiming to influence your habits. And this is all part of what’s so interesting, these business models at scale have been so well established now and they’re hard to beat.

[00:01:48] Santiago: I don’t want to derail the discussion so early, but the BBC is quite unique in their lack adverts.

[00:01:56] David: Absolutely, and it’s paid for by a licence which is a bit controversial in different ways. This isn’t a level playing field because it doesn’t need the advertising revenue, because it’s got a blank subscription from everyone in the country.

[00:02:15] Santiago: Yes, and they do advertise in international content.

[00:02:18] David: Absolutely, in international content it has advertising, and that’s an important revenue stream for the BBC.

[00:02:25] Santiago: But, going back to games we had a discussion with Chris Marsh recently, one of our colleagues in IDEMS, who is…

[00:02:33] David: He’s our software lead.

[00:02:35] Santiago: The discussion was motivated by my interest in gaming, we have our app builder, I am quite interested in creating games.

[00:02:46] David: Absolutely, I’m interested in supporting this.

[00:02:48] Santiago: And you said, we should do it through our app builder. If we’re doing games for mobile phones, we might as well try to see what we can do with our app builder and what improvements we can make to our app builder so that we can create more games. And let me clarify, these games are normally logic games. They are not the immersive world style games.

[00:03:14] David: We’re not yet having the ambition to become a full gaming studio, I would argue. But logic, mathematical logic games, or anything which is a brain game, I think there is a case to be able to say these are really important educational resources. I believe, as I think you do, that one of the real powers of games is the educational potential, if done well.

[00:03:46] Santiago: Yes, and the development of critical skills.

[00:03:50] David: Which is educational.

[00:03:52] Santiago: Yes but going more specific on to what area of education. Anyway, let’s not get into that debate. Maybe that’s another episode.

We had that meeting with Chris yourself and myself. We fantasized a bit on what this could become. And you were adamant from the start that you didn’t want advertising. And I presented the model of advertising for example, like many games do, extending lives or buying new lives to try the puzzle again. And both you and Chris were quite blunt in saying that is not an option for us.

I wanted to hear a bit about your views, or IDEMS’ position in terms of advertising in this regard or in this sense?

[00:04:46] David: Let’s be clear. Games as part of what IDEMS becomes has always been something I would have desired. Producing educational games, things that I consider to be educational games, even if education, as you say, is not necessarily traditional education, just critical thinking. I consider Wordle an educational game, I consider Sudoku, I consider any number of puzzle games, which are out there, which are very successful educational games.

[00:05:16] Santiago: Simple games like noughts and crosses we have used in educational contexts before.

[00:05:24] David: Of course. There’s so many of these. You know, let me take a more… Candy Crush as an example, I would consider as an educational game.

[00:05:34] Santiago: Oh!

[00:05:36] David: Now, I would argue that if I wanted to have Candy Crush as an educational game, I would actually build it slightly differently, but still, it is something where it’s a problem solving, it’s a pattern matching, there’s elements of mental stimulation. There’s a reason at the back of newspapers, you had puzzles or crosswords. These are good to keep your brain sharp in different ways and I’d argue Candy Crush is an example amongst many others of something which I would put into my sort of bracket of educational games.

[00:06:11] Santiago: Yes, pattern recognition is very important for reasoning skills.

[00:06:16] David: Exactly. But I would argue Candy Crush does not satisfy something that I would want us to develop at IDEMS, because what it’s actually doing is it’s trying to maximize addiction to be able to keep people in, which is not necessarily a bad thing, but to be able to get them to get spending. And then it has elements, therefore, which are maximizing the profit.

And that’s not what we ever want to do at IDEMS. That’s not what we’re set up to do. We’re never set up to maximize profit. We want to set up to maximize impact. And so therefore, if you want to maximize educational impact, then if you have advertising in, even if you control what that advertising is for, fundamentally that revenue is controlling what the impact is, because the whole revenue model of advertising is about getting the adverts to people. And the more people consume the adverts, the better you’re doing in some sense, financially.

So all the incentives are set up around maximising the impact of the adverts, because that’s what’s funding the whole process. And that’s what is fundamentally against what we would want within IDEMS.

[00:07:41] Santiago: I find it particularly frustrating with puzzle games where I lose my lives. I have, say, five lives, I lose my lives, and I have to wait, that’s the addiction that you mentioned. Because I have to wait, but I want to do another puzzle, and I want to give this thing that I failed five times at another go. But in order to do so, I need to watch an advert. Or I need to pay for more lives. And yes, I can see how, if you’re trying to maximize profit, that can be quite successful.

However, you said we’re not aiming to maximize profit, but we are a business and we have to be fundamentally profitable.

[00:08:28] David: Absolutely. So we need to find alternatives. And this would be where, part of the other problem is, actually really good games, good game studios have a lot of money which they’re able to put in to create really engaging things which keep you hooked in different ways and not just have the concept behind, but also the production value.

And that’s expensive. And to make good games, we recognise you need money. And that’s absolutely sensible, just like to make good films, you need money. This is not unexpected, you can’t just have everything existing at no cost. The word doesn’t work like that.

[00:09:06] Santiago: No.

[00:09:06] David: And it shouldn’t. The key isn’t to say that I’m against organisations or business models that use advertising. The problem I have, and the reason this is something which I feel is so alien to what we’re trying to do at IDEMS, is that if you want to maximize something, then, you can’t have it in service of other people maximizing something else.

And fundamentally, in advertising, the incentives are all set around the priorities of the people advertising. The game is just a vehicle to get people to consume the adverts. As a business model, that’s what it is.

[00:09:56] Santiago: Yeah, it’s very interesting. I’ve never thought of it that way. The game is the way the advertisers get the money.

[00:10:05] David: No, the advertisers pay the money.

[00:10:08] Santiago: Pay the money.

[00:10:10] David: If it’s an advert based model. It is serving the advertisers. So you can think of this very differently, and one of the things which is so important with this, if we are wanting to serve the users, then we cannot be serving a different master. And that’s the key. I want to build games, which are educational or whatever, that serve the users. And this comes back to the fact that you said you wouldn’t pay for them because you couldn’t afford to pay for all of them.

[00:10:45] Santiago: No, I couldn’t uh, I could afford to pay for all of them.

[00:10:50] David: You could, but this is the thing.

[00:10:53] Santiago: I refuse to do so.

[00:10:55] David: Yes, exactly. You choose not to. And I think this is very interesting that I as a consumer as well on occasions I choose not to, I would choose to consume ads. Now, this is a very interesting sort of psychology element. Fundamentally, as a consumer, I would choose to use a business model and to prioritise business models, which go against what I actually want to produce as a producer. Ooh, that’s difficult.

[00:11:29] Santiago: How so?

[00:11:30] David: Well, I’m perfectly okay using something which is free, and there being adverts on this. I still like Google as a search engine, and I would quite happily skip the first few lines, which are adverts, and then start reading from below those lines.

This is something where, the fact that those lines are what fund the whole process and make everything profitable in different ways, I understand how the world works and I’m quite happy to live within that.

[00:12:00] Santiago: A lot of people choose to skip those first few lines and normally their search result is right underneath and they have the paid one, the sponsored one and the non sponsored one right underneath and they go for the one underneath.

[00:12:18] David: Absolutely. This is what I would always do. I’d see both of them, I’d see the paid one and I’d see the not paid one, and I would choose to use the search engine result. Now, there’s all sorts of interesting questions around this, and I am concerned about my comfort at doing this.

But I do not want to become a Google, not that I have anything against Google in this. I am concerned about the more vulnerable populations for whom those choices need to be learned. So I’ve seen people in low resource environments who are totally sucked in by the adverts and don’t understand what these are doing. And it’s very interesting that it’s often the people who can’t afford to lose who get caught up in these things. And I would like there to be an alternative.

Let me come back to your gaming to explain what I mean.

[00:13:22] Santiago: Before that, I’m going to pose a question. You mentioned low resource environments. Argentina is not a low resource environment, you described it as middle resource, but it’s going through a tough economic time. And there’s loads of paid platforms to watch series, movies and so on. And a new one was just released that contains adverts but it’s free. And it’s become hugely popular very quickly because people just can’t afford paid ones. This advertising is, in this scenario, giving opportunity for people to actually watch the things they want to watch.

[00:14:03] David: But more than that, even Netflix and Prime in the UK have now introduced adverts to supplement their revenue models. Even on paid versions. So if you want to pay to get rid of the adverts, you pay even more. This is new, this is relatively recent.

The role of advertising and adverts in our society is huge. And I’m not trying to say that as a criticism. What I am trying to say is that I mentioned really low resource environments, low resource groups. And that is part of what I’ve seen. But the part that I’m, as a father, most concerned about is young vulnerable groups.

[00:14:46] Santiago: That’s the key word here. Vulnerable groups.

[00:14:49] David: My kids watching adverts are so easily caught up and so much advertising is interestingly well directed at kids. These are all things which concern me in different ways. But the main point that I’m making is that therefore I am interested in IDEMS to see is there another way to serve the audience that you’re actually wanting to serve and yet to provide inclusive options, which aren’t behind a paywall?

And that’s, if you want nothing else, a fantastic intellectual experiment, because I have not seen these business models done well yet. And I believe that they exist, and I believe that they can out compete. And I do genuinely mean out compete, not just compete with. I believe there’s a hunger out there. People are tired of the paywall approach, in the way it is, which is exclusive, and they are tired of advertising, and with good reason.

And I believe there are direct payment approaches, and I think games could be a place to really investigate this. And that’s one of the reasons I’m interested in games.

[00:16:12] Santiago: Where would the revenue come from? Because, as you said, it is expensive to create content. And we have our principle of Open by Default. We want things to be open. We want these games to be freely available. So where would we get our money from?

[00:16:29] David: The key insight is this element that the option of opting out of payment changes the nature of a paywall service. I don’t like to normally use companies, but Netflix, Spotify, Amazon Prime video, whatever, choose your favourite subscription service. And, you know, even Google, for games, they have their option of a paid monthly subscription where you can actually access a whole set of things. So on the App Store, there were these sorts of things.

Imagine such a service, which is a subscription service, it’s the same business model as the subscription services, which didn’t have ads on. Now, some of them have. With Spotify, I think the nice example is you had the ad version, which was free, you had the version you could subscribe to, which offered you ad free content, and you could pay to have higher bandwidth. That would be an example of a service which is sensible.

Now imagine that you have the same services but your lowest level, instead of being an ad service, is still ad free, but you have to opt out of paying. This doesn’t work for all services. For me, I’m interested in services which have some societal value. And so the point is that if you focus on the services with societal value, and you offer those same payment structures, and your lowest one, you can have it for free by regularly saying why is this service useful to you, what are you using it for, and why can’t you afford to pay.

Broadly those three questions. Maybe you’d need a few more questions, but you’re providing that data. And I believe that there is a real opportunity to have education content, any form of content which offers a service, a societal service, could be made available in these forms. That’s what I think.

[00:18:55] Santiago: And you think people would pay when there’s an option to opt out?

[00:19:02] David: I think some people will choose to pay when there is an option to opt out because they don’t want to regularly provide the data. They don’t want to have to once a month or whatever it may be, or once a year actually fill in the data.

And so just for that simple reason, if the payment to you is small enough compared to the time you’d spend filling it in, you may choose to pay, especially if you believe in the organisation behind it and so on, and you’re wanting to support the creation of more content.

But let’s just say for a second, and in a lot of the contexts where we work, that’s not the case. You go to Niger, almost no one in rural Niger will be able to pay. Whatever, however low the bar is, they’re not going to be able to jump over that. But the point is, if you’re having a societal impact in that context, then other funders may be able to pay and you’re able to demonstrate impact and impact at scale.

And so this is the key that it’s not about all services offered in this way. There was a question about where that line would lie. But I believe services that have social value, I believe that we can and we should be able to have a business model which is different. And so I want to come back to the original example about creating games.

Did games serve a social value? And I think you and I definitely agree, yes, we believe they do, some games.

[00:20:35] Santiago: Yes, certainly.

[00:20:36] David: Some games, not all games, and that’s the distinction, and this is the line. A game which doesn’t serve, doesn’t act to the benefit of society, I’m not so interested in developing. I’m only interested in developing games that I believe will have a positive impact on society, whatever that may mean. So this place to start is exactly what we know, which is puzzle, it’s thought, it’s critical thinking, games which increase those skills, which we hope, done well, this would be of positive value.

And then, the incentives to design better and better games like that come along with where the funding is coming from. It’s coming from the individuals who value them and either are paying for them themselves or providing the evidence of why they are valuable. And that’s the key thing. At the heart of this whole process is this idea that instead of advertising as a source of revenue, if we could turn social value into a source of revenue, that’s the sort of incentives that might lead to progress, which would be totally different.

And I don’t know what that would look like, but I’m rather excited to see if we can find out. It is this element that the hidden hand of advertising, that advertising has a hidden hand, you are serving somebody that is not directly between you and the product you’re interacting with. You’re serving a third party who, for many companies, they don’t even know what is advertised. It’s irrelevant. But it becomes the important component because the consumption of those adverts is what drives the revenue streams.

And that’s where I believe, I don’t believe that all of society should get rid of advertising in different ways and so on, but I believe that there are ways in which we should be able to build certain products, digital services, in such a way that they are not only advert free, but they are socially impactful by design. And that the incentives really feed back on the positive social impact that they have. And that’s a sort of hypothetical is the wrong word, isn’t it? It’s a thought experiment, but it’s a thought experiment which I believe can play out into very interesting ways. My interest in developing games is around being able to take that thought experiment and actually learn and see from it. I’m a researcher, at heart.

[00:23:33] Santiago: Yeah. It’s a thought experiment that is perhaps more practical than others.

[00:23:40] David: Yeah.

[00:23:40] Santiago: It’s something that we can implement and try out and see how it goes. But I believe this model goes beyond that, this opting out of payments, and it encompasses all sorts of educational resources, not just games.

[00:23:54] David: And not just educational resources. This could apply to so many elements. What if your public transport system worked like that? Now that’s a whole different thought experiment.

[00:24:06] Santiago: That’s a less practical thought experiment, perhaps at this point.

[00:24:09] David: Oh, less practical, yes, less feasible thought experiment.

[00:24:13] Santiago: Let me ask you, because you mentioned having three, four questions, a small number of questions that would presumably give you data on the reasons why people can’t pay or how to improve the resource, the game in this case. I have filled in so many forms with the first answer when a pop up comes up.

[00:24:35] David: What do you mean? You filled in?

[00:24:38] Santiago: There’s a pop up with a survey, if you click the first option, submit. Do you think you can get any sort of reliable data?

[00:24:48] David: So this is a really interesting question and it is a cultural creation. I believe there’s so much data which is unreliable because of the way it’s collected. And I think that the question here about whether you can get reliable data through this or not is a really interesting one. And part of that answer is only going to depend on well, how is the data being used? And how do people know it’s being used? Are they gaining value from actually doing this? At the moment not, but this is again where AI may come in.

One of the problems of course with getting lots of data like this from lots of people is not only is it something which you’re not getting money from those people, but it costs money for anyone to consume that data. Yeah? And actually to have people read those answers. That costs money. That time spent reading those answers costs money. How do you actually convert this into valid research with good approaches?

I don’t think that’s known now. But I think there is an interesting open question about whether it could be done, and whether you could create those cultures. Remember, culture about how you fill in online forms is created by the forms that exist. Most of the forms that exist and that are out there they’re designed in a particular way where I’m not sure I want to give that data in that way. And so how you fill in those forms, the forms I fill in honestly and truthfully are forms that I care about.

[00:26:23] Santiago: The typical unsubscribe form, give a reason why you want to unsubscribe. I don’t think I’ve ever given the right reason.

[00:26:33] David: So the point is the reliability of the data is a function of how the data is used, how it’s perceived to be used. It’s a function of the whole setup. And can you get reliable data? Theoretically, I believe yes, it’s absolutely possible. In practice, will we get good data? Almost certainly not, because we’re not going to get it right in that sort of way. Might we get some useful data? Yes. Might we find that useful data? Probably not. It’d actually be quite expensive to go through and actually dig through and mine into it to get it.

So that’s going to be the harder job. So how do we actually get let’s say AI tools to help us analyse that data? Maybe that’s the important thing, but if we can feed it back so that it’s useful for the user. And this is where, the key then becomes that if the data actually serves the user, now there’s a better chance.

This is what we want to be able to try and get. We want to try and make this so that this isn’t about what’s good for us. This is about actually serving the end users. And in that context, I think there is hope. But I don’t know how to do it. And I don’t think anyone knows how to do this. What I do know is that our current systems are not really set up about serving users, in specifically advert based systems, where they are set up to serve the advertisers because that’s who’s paying for it.

[00:28:07] Santiago: I would like a follow up episode because I still have questions and we’re pretty much out of time. I suppose I’d like to finish by saying, yeah, I’ll crack on, start building the game and try this experiment out and see how it goes. We’ll update you, listeners, in a short while on how things are going.

[00:28:31] David: And if you are looking forward to this game, please set your expectations low. We are not a game studio here. We’re not set out to be a game studio. We are educators, in this, and we are developing technology. And so something interesting may come up.

But it isn’t about the game at this point, there are many other things. It is about the fact that there are really interesting questions around business model, around this sort of thing, where when you’re thinking about trying to prioritise social impact as an organisation, the world looks very different. And we don’t know what we’re doing yet here, but we are trying to lean into that looking at the world differently from a real social entrepreneurial perspective where as entrepreneurs, we need to be fundamentally profitable, but the priority is positive social impact.

[00:29:32] Santiago: That is a lovely place to stop. And I promise there will be a follow up because this topic deserves it.

[00:29:41] David: I look forward to it.

[00:29:43] Santiago: Thank you very much, David.

[00:29:45] David: Cheers.