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Hmm, not sure if "extracts profit margins" is the right terminology. In mobile games, you could have a lifetime value of a user that is higher than their acquis

Hmm, not sure if "extracts profit margins" is the right terminology. In mobile games, you could have a lifetime value of a user that is higher than their acquisition cost. This generates a model where you can spend money to make money. In this instance, advertising is fuelling user acquisition which fuels profit.

icebraining 9y ago
The question is whether the whole mobile game industry makes more money by advertising, or whether those games that advertise just make more money at the expense of others. Imagine that in a world without ads, game revenue is: Game A: 600, Game B: 600, Game C: 600 But then A spends 300 on ads: Game A: 1200 (-300), Game B: 300, Game C: 300 In this case, game A "spent money to make money", but the overall industry's revenue was the same, and part of the profits now went to ads. And it makes sense: advertising doesn't give consumers more money to spend, so the size of the pie is fixed, all they can do it redistribute it, extracting a slice in the process.
- arjie 9y ago
  You're assuming perfect market saturation: every consumer has a max spending budget for this good that they're constantly up against and it's just how they distribute it that matters. This seems unlikely to me based on personal experience (if there's no game I like I play no games) but if you have better data than I do then I suppose you're right. For instance, my younger brother is a fan of the Darksiders game series. I saw an advertisement for the new instance of the game. I told him about it. When it reaches a price he wants he'll buy it. But until it does, he's not going to sit around buying other games just to fill up the budget.
  - icebraining 9y ago
    Maybe not other games, but surely he spends the money somewhere. Hence the claim that ads extract profit margins from all other industries.
    - arjie 9y ago
      Do you, really? For most of the people I know, our entertainment budget is fairly flexible. If I'd spend £100 on something and if I wanted it, I'm probably not going to spend £100 on my second choice thing. In fact, I may not spend anything at all and just choose to spend my time on things I've already spent money on like going out to skate or something. Mostly the cash budget is substantially higher than the time budget so people aren't going to buy a thing they don't like just to fill the time. If ads help with allocation closer to people's real preferences, they're a good thing.
      - icebraining 9y ago
        This is not restricted to the entertainment budget, the claim was that ads extract from all other industries. Unless you're burning the £100 you're not spending, that's still true. If ads help with allocation closer to people's real preferences, they're a good thing. Maybe, but is there any evidence that they actually do?
        arjie 9y ago
        Ah. Clearly I misunderstood. If you take everything (including the savings account industry) then yes, advertisements just lead to reallocation. But that's just what money is for: it's to allocate to things you want. If that's the claim, then I'm going to bow out of this discussion because I think it's unproductive since the purpose of practically all things one does is the allocation of resources. Since it's not a distinguishing feature of advertisements, I think it's a pointless discussion.
      - mirimir 9y ago
        > If ads help with allocation closer to people's real preferences, they're a good thing. Except that's not what ads are about. Ads are about selling stuff. People smoked cigarettes to be sexy, and then got cancer. Maybe they did get some extra sex, but I doubt it.
      - CuriouslyC 9y ago
        Advertising in the real world is unquestionably negative. Almost all advertising works by creating a sense of lack where none previously existed, or co-opting your decision making process by creating gratuitous associations. Advertising that accurately reflects the merits of a product in an unbiased way doesn't "work". I am not opposed to the idea of advertising, but what we have now is really a form of manipulation rather than information.
- coralreef 9y ago
  Hmm it is entirely possible to attract new users and access more disposable income (bigger pie). This is backed up with empirical data; aggregate mobile game and app store revenues are growing every year. So while advertising doesn't give consumers more money to spend, it can persuade them to spend higher portions of their entertainment budget on games.
  - icebraining 9y ago
    Yes, but that only changes the "gaming industry" to the "entertainment industry". The overall point remains.
    - coralreef 9y ago
      I don't understand what that "overall" point is anymore. I thought the point was "whether the whole mobile game industry makes more money by advertising, or whether those games that advertise just make more money at the expense of others."
      - icebraining 9y ago
        The claim made above was "Ads over time extract profit margins from all other industries." The mobile gaming industry was used as an example, but even if they grow their pie by reducing some other industry's, the claim is still true.

icebraining 9y ago

The question is whether the whole mobile game industry makes more money by advertising, or whether those games that advertise just make more money at the expense of others. Imagine that in a world without ads, game revenue is: Game A: 600, Game B: 600, Game C: 600 But then A spends 300 on ads: Game A: 1200 (-300), Game B: 300, Game C: 300 In this case, game A "spent money to make money", but the overall industry's revenue was the same, and part of the profits now went to ads. And it makes sense: advertising doesn't give consumers more money to spend, so the size of the pie is fixed, all they can do it redistribute it, extracting a slice in the process.

arjie 9y ago
You're assuming perfect market saturation: every consumer has a max spending budget for this good that they're constantly up against and it's just how they distribute it that matters. This seems unlikely to me based on personal experience (if there's no game I like I play no games) but if you have better data than I do then I suppose you're right. For instance, my younger brother is a fan of the Darksiders game series. I saw an advertisement for the new instance of the game. I told him about it. When it reaches a price he wants he'll buy it. But until it does, he's not going to sit around buying other games just to fill up the budget.
- icebraining 9y ago
  Maybe not other games, but surely he spends the money somewhere. Hence the claim that ads extract profit margins from all other industries.
  - arjie 9y ago
    Do you, really? For most of the people I know, our entertainment budget is fairly flexible. If I'd spend £100 on something and if I wanted it, I'm probably not going to spend £100 on my second choice thing. In fact, I may not spend anything at all and just choose to spend my time on things I've already spent money on like going out to skate or something. Mostly the cash budget is substantially higher than the time budget so people aren't going to buy a thing they don't like just to fill the time. If ads help with allocation closer to people's real preferences, they're a good thing.
    - icebraining 9y ago
      This is not restricted to the entertainment budget, the claim was that ads extract from all other industries. Unless you're burning the £100 you're not spending, that's still true. If ads help with allocation closer to people's real preferences, they're a good thing. Maybe, but is there any evidence that they actually do?
      - arjie 9y ago
        Ah. Clearly I misunderstood. If you take everything (including the savings account industry) then yes, advertisements just lead to reallocation. But that's just what money is for: it's to allocate to things you want. If that's the claim, then I'm going to bow out of this discussion because I think it's unproductive since the purpose of practically all things one does is the allocation of resources. Since it's not a distinguishing feature of advertisements, I think it's a pointless discussion.
    - mirimir 9y ago
      > If ads help with allocation closer to people's real preferences, they're a good thing. Except that's not what ads are about. Ads are about selling stuff. People smoked cigarettes to be sexy, and then got cancer. Maybe they did get some extra sex, but I doubt it.
    - CuriouslyC 9y ago
      Advertising in the real world is unquestionably negative. Almost all advertising works by creating a sense of lack where none previously existed, or co-opting your decision making process by creating gratuitous associations. Advertising that accurately reflects the merits of a product in an unbiased way doesn't "work". I am not opposed to the idea of advertising, but what we have now is really a form of manipulation rather than information.
coralreef 9y ago
Hmm it is entirely possible to attract new users and access more disposable income (bigger pie). This is backed up with empirical data; aggregate mobile game and app store revenues are growing every year. So while advertising doesn't give consumers more money to spend, it can persuade them to spend higher portions of their entertainment budget on games.
- icebraining 9y ago
  Yes, but that only changes the "gaming industry" to the "entertainment industry". The overall point remains.
  - coralreef 9y ago
    I don't understand what that "overall" point is anymore. I thought the point was "whether the whole mobile game industry makes more money by advertising, or whether those games that advertise just make more money at the expense of others."
    - icebraining 9y ago
      The claim made above was "Ads over time extract profit margins from all other industries." The mobile gaming industry was used as an example, but even if they grow their pie by reducing some other industry's, the claim is still true.