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Game Theory

The banner ad is dead. Long live the advergame! America’s addiction to video and computer games is leading the way to a new advertising medium with astounding click-through rates, play times, and peer-to-peer potential. What’s your high score?

When Bill Gates recently announced that Microsoft’s Xbox decimated industry sales records during its 2001 debut, he surprised very few tech analysts, hard-core gamers, or indulgent parents. Going for $299 a pop, the Xbox generated $450 million in sales on 1.5 million consoles during the final six weeks of the worst year on memory. And that’s not even factoring in the sales of games like Halo and Dave Mirra Freestyle BMX 2, which retail for $49.99 each … when they aren’t on back order.

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So why, when unemployment is reaching a seven-year high and consumer spending is still faltering, are Americans doling out so much cash, so fervently, for Project Gotham Racing and Tony Hawk’s Pro Skater 2x? The short answer: We’re addicted.

According to the National Institute on Media and the Family, 92% of children between the ages of 2 and 17 play video or computer games. In 2000, 35% of Americans rated video and computer games as “the most fun entertainment activity.” (TV came in a weak second with just 18% of votes, followed by the Internet, books, and movies.) That same year, U.S. entertainment-software sales topped $6.2 billion — nearly three times the gross domestic product of Bermuda.

“Games are now the fastest-growing segment of the entertainment industry, in excess of 20% a year,” says Keith Ferrazzi, CEO and president of YaYa LLC, a Los Angeles-based company that builds Internet games for advertisers. “Games are not just about entertainment anymore. What we have here is a new medium that is fundamentally different.”

YaYa Got Game

That is the premise upon which Ferrazzi, 35, has grown YaYa, a 20-month-old company that creates and serves low-bandwidth, high-resolution “advergames” for clients like Pepsi, IBM, Ford, and Siemens AG. A software company with Hollywood flair, YaYa spent its first year developing a proprietary technology that can stream 3-D console-quality games to millions of players via a 33K connection as well as log and track each player’s every move — from the make and model of your “dream” racing car to your home zip code and birth date.

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CEO and president Keith Ferrazzi

While its cohorts in online advertising suffered dramatic losses in 2001, YaYa expanded its client list and actually hit profitability. It built a trivia game for Siemens, a Pepsi racing game featuring a Britney Spears look-alike, and a game for the Roundarch consulting group that helps chief marketing officers diagnose their companies’ CRM capabilities. Some are fun, some serious, others stupid. But all are significantly more effective than banner ads.

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According to YaYa’s data, the retention rate for advergames is 10 times higher than for broadcast commercials. Between 16% and 45% of consumers who receive a YaYa game via promotional email actually play it — for an average of 25 minutes. Most of YaYa’s advergames allow a player to forward the game to a friend with a message, an all-time best score, and a replay of an especially impressive jump shot or spinout. Some 90% of the people who receive an email challenge play the game and pass it back to the sender with a response. That level of peer-to-peer marketing is virtually unparalleled, especially among today’s generation of tuned out, turned off teenagers.

“Interactive marketing allows a company to enter into a relationship with its consumer right there in the medium,” says Ferrazzi, who left his job as chief marketing officer at Starwood Hotels & Resorts Worldwide to lead YaYa in November 2000. “The emotion of the game is transferred into the player and on to the brand that is powering it — whether that’s Electronic Arts, SEGA, or Coca-Cola. That experience is more like engaging in a conversation than sitting passively in a lecture hall.”

Brand New Rules

For years, video games have specialized in product placement: a Toyota logo on that straightaway, a Mountain Dew banner on this ski jump, a Nike jersey on that quarterback. YaYa games are different. They don’t cram logos into virtual racetracks and basketball courts; they actually craft experiences around given brands.

“Creating an advergame is like creating a commercial,” Ferrazzi says. “It requires you to ask, What is the brand essence? The tenor? What is the message we want to communicate? How are we going to communicate it? How are we going to allow the consumer to interact with our product?”

Those interactions are not always what you would expect. For example, Ferrazzi says that YaYa discourages car companies from creating racing games, which have saturated the market and no longer pique gamers’ interest. Instead, he would advise Dodge to pursue a rodeo game, Jeep a fly-fishing game, and Porsche a Monte Carlo game. “Communicate the lifestyle,” he says.

Multiplayer, Multimarket

Ferrazzi’s lifestyle mantra goes for Doritos and Volvo, Craftsman and Burger King, Nickelodeon and American Express, since the gaming demographic is no longer solely prepubescent boys with an unhealthy infatuation with Lara Croft. According to a “State of the Industry” report published by the Interactive Digital Software Association, 72% of frequent computer gamers are 18 or older. In fact, the interactive gamer’s average age is now 28. And 43% of players are women. Considering that 63.6 million people played online PC games in 2001, it appears that YaYa has only just begun to tap a tremendous market.

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“The most avid gamers are young men and middle-aged women, but we believe that we can create a game for any demographic,” says Ferrazzi. “We’re acting as the R&D arm for the gaming industry. While it doesn’t make economic sense for Electronic Arts or Activision to spend a lot of money figuring out how to get you to play games, my clients pay me to do just that.”

YaYa is working with researchers at NYU, MIT, and elsewhere to study the gaming habits, likes, and dislikes of young girls, minorities, and others. To no one’s surprise, YaYa has already discovered that men and women play very different games in very different ways.

“The way guys play games doesn’t bode well for the future of men,” Ferrazzi says. “Men are very happy to engage in continuous and repetitive play time after time after time. They will go around a racetrack 100 times. For what? For points. Women, on the other hand, abhor repetitive behavior. They like strategic and fantasy-oriented games where the reward grows larger the more you play. Men will go to great lengths to kick somebody else’s butt. Women would much rather collaborate with their friends to achieve a greater score.”

Keeping Score

Serving these diverse markets is one challenge. Quantifying the value of advergaming is quite another. Before Ferrazzi even joined YaYa, he took issue with such traditional advertising metrics as impressions and cost per action. If advergaming is really a revolutionary new medium, he says, why should it play by the rules of a dying one — namely, the banner ad? Why not rewrite the rules while no one is looking?

So with the debut of its software one year ago, YaYa introduced “cost per time engaged” — a new metric that calculates the average length of time a user spends playing an advergame as well as the number of people who play it.

Advertisers seem to like the numbers. On average, a YaYa advergaming campaign costs $150,000. Hardly pocket change, but not unreasonable for a stand-alone ad campaign, or an experiment in interactive marketing. Perhaps that is why, even in the midst of an advertising drought, YaYa is reeling in new clients like DaimlerChrysler and Paramount Pictures. Even AOL and Yahoo have talked to YaYa about replacing the ineffective banner and button ads on their sites with advergames. Could this be the elusive Holy Grail of online advertising? Ferrazzi certainly thinks so.

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“We built this company as a solution to and a retaliation against traditional online advertising,” he says. “Everyone keeps talking about how banner ads suck, but no one else has offered an alternative. We think that advergames today compare to films in the early days of silent pictures. We haven’t even begun to realize their technological capabilities and marketing power.”

Anni Layne Rodgers (arodgers@fastcompany.com) is the Fast Company senior Web editor. Learn more about YaYa on the Web.

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