Atari co-founder Nolan Bushnell pushing ads in casual games

SAN FRANCISCO--If you're at all interested in the history of the video games industry and you're at the Game Developers Conference here, then having the chance to talk to Nolan Bushnell is something you can't pass up.

Bushnell is, among other things, the co-founder of Atari, so his video games pedigree is just about as royal as anyone's.

And that's why you'd have to take NeoEdge, the ads-in-games start-up he's now the chairman of, seriously.

I met with Bushnell and NeoEdge CEO Alex Terry Thursday, and the two talked to me at length about their vision for a casual games business model that's different than the one that's been the industry standard for years.

What NeoEdge is doing is building a platform that takes existing casual games like Diner Dash or Blood Ties and "wraps" ads around them. But the idea is to eschew the traditional in-game ads model of banners and billboards and the like and instead to place the ads at the beginning of a game before it starts, and at natural intervals during the game, such as at level changes.

Already, of course, in-game ads is big business, "approaching" a billion dollars in revenue, Bushnell said. But he and Terry feel that NeoEdge has the, er, edge, on the industry's standard bearers, DoubleFusion, Massive and the like, due to its model, that of giving free or extended-trial access to games to players in exchange for their sitting through the ads.

And these are ads that are much more familiar to casual audiences--generally 15- to 30-second video spots.

"Now, we can really create an environment that has some of the same economics and the same sort of relaxation structures as television," said Bushnell, "but in the casual game space."

While players should benefit from the chance to get to play casual games for free, NeoEdge thinks advertisers will benefit from the knowledge that players will actually see the ads, something they can't be sure of on TV or with banners or regular product placement in games.

That's because, the theory goes, TV watchers might get up to go to the bathroom during commercial breaks and regular game players may just ignore the ads they see flying by as they play, say, a racing game.

But because the ads NeoEdge serves are in a video format, are short and are placed strategically before and during games, Bushnell and Terry feel that players will happily sit through them.

Whether that's true is not clear to me, though there are certainly plenty of people who believe gamers actually say that they prefer having ads in their games, either because it makes the game experience more realistic or because, in the case of NeoEdge and others who try employ a similar model, they trade a little ad watching for getting to play games they might otherwise have to pay for.

Personally, I hate this argument, but I do understand that it's probably true, and therefore is the basis for business models that seek to profit from it.

In fact, said Terry, the in-game ads business is growing at 34 percent a year.

While it's not yet profitable, the Mountain View, Calif.-based NeoEdge has already signed up more than 30 game publisher partners--each of which gets revenue based on the ads served to people playing their games--and its ads are being placed in more than 300 games.

"Remember, there's a lot of people who will not put a credit card online," something that would be necessary to buy a casual game, Bushnell said. "So (this) puts them in the monetization stream with their eyeballs."

I'm not sure how much the average casual gamer would enjoy being told they're in the monetization stream, but they do probably enjoy getting free games that might otherwise cost them a few dollars. And of course the watch-ads-get-free-content model is pretty well tested, for example, on TV and the radio.

Terry explained that NeoEdge will work with any game publisher and that while it is focusing on casual games today, it could work with hard-core games if it makes sense to do so.

Still, the company does seem intent on staying with a PC casual games model for the time being, a strategy that would likely keep it off of the Wii or Xbox or PlayStation 3. But Terry said that the technology is there that could bring its service to those consoles.

More to the point, NeoEdge seems happy to be aiming its business at high-income women, the very demographic that devours casual games with such ferocity online. And while that demographic may not have the cache of 18- to 34-year-old men, there's a heck of a lot of middle-aged women who pass huge amounts of time playing casual games. And if you're an advertiser, you probably would love to get your message in front of these women.

I do wonder if the more established companies in the field--the DoubleFusions and Massives--will simply come along and replicate the NeoFusion model if it ends up being profitable. It may be a bit of a technical feat to get the system working properly, but I don't imagine it's not something those bigger players couldn't replicate.

But for now, it does seem that NeoEdge is on to something. Even though I still hate the idea of ads in games and of consumers being unable to get away from them no matter where they go.