How Casual Games Can Become Money Machines?

On the heels of ECD Systems CEO Jack Hart’s article exploring the methods of growing revenue for casual games, IGA Worldwide said it has signed an in-game advertising deal with casual games publisher Merscom. Chapel Hill, N.C.-based Merscom makes downloadable titles for the PC, as well as Nintendo DS games — the kinds of games that might experience pressure to grow ever more polished (much like the giant console games did) as competitors try to one-up each other with better graphics and better sound design, thus necessitating higher budgets and schemes like in-game advertising.

How casual games will deal with advertising content is still up in the air. In-game advertising has worked beautifully for some titles, but of course it’s all about context — seeing Best Buy (BBY) signs in the world of GTA III makes sense; seeing them in World of Warcraft, not so much.

There is a reluctance to repeat the mistakes of others. At Casual Connect conference in Amsterdam earlier this year, Microsoft (MSFT) Casual Games’ studio manager Chris Early cautioned against going crazy with in-game ads. “If we get to the point of getting like commercial television on cable channels where ads are so intrusive of the experience,” he said, “then people won’t play anymore.”

Very true. And right now the market for so-called “casual games” is bifurcated. We have, essentially, two groups, with some blending in between: On the one hand we’ve got pay-to-download games, usually installed to a PC, although Xbox Live Arcade games install to your console. The bulk of revenue in this camp comes from purchased downloads, and its consumers have demonstrated more sensitivity to in-game advertising. There’s also the sliver of retailed games — again, same in-game ad sensitivity problem. In the second camp are all those free web games on, Kongregate, and other sites that rely mostly on good old-fashioned page views to sell advertising. There is some room here for in-game advertising, but implementation is tricky. Each game, often designed by an independent developer, would likely have to have ads customized to fits with its theme.

And then there are micro-transactions, honed to perfection primarily by casual MMOs like MapleStory and Habbo Hotel, although some titles on Xbox Live Arcade are experimenting with pay-to-download additional content as well. Is there any reason that micro-transactions can’t edge their way into both downloadable games and to free web-based games? The fact that I actually spent a real U.S. dollar on Facebook to send someone a gift — and I am a rational person! — seems to suggest that there is a future for eking out a little bit of money, bit by bit, from casual gamers, especially on sites like Kongregate where it could be tied to the social networking aspect. (“Buy your customized leaderboard for $1.00, feature it on your blog” or “$1.00 to challenge a friend head-to-head” — anything that adds persistence to the network.)

Hm, these are thoughts to bring up with the people who are currently in the trenches of casual game development and publishing. How far have they gotten in making revenue models as innovative as some of their titles?