How Mobile Game Ads Actually Make Money — Explained Simply

Here is a question with a more interesting answer than it looks.

You download a game. It costs nothing. You play it for a month and never pay a penny. The people who made it are a real company with real salaries and an office and an electricity bill. Where does that money come from?

The short answer is advertising, and most people know that much. The longer answer is a chain of about five companies, each taking a portion, and it is worth following the whole thing because the shape of it explains almost everything people find strange about mobile games — including why the ads look the way they do.

There are only two, and most games do both.

Selling things inside the game. Extra lives, a new character, removing the ads, a pile of coins. Nobody has to buy any of it, and the overwhelming majority of players never do. Games of this kind tend to earn most of their money from a small fraction of players who spend a lot — which is why so much design effort goes into that small group, and why the rest of us are sometimes treated as scenery.

Showing ads. Another company pays to put a message in front of you. The developer gets paid for the space. You pay nothing and see an ad.

That second one is what this piece is about, because it is the one almost nobody has explained properly to people outside the industry.

Here is the part that surprises people. The company paying to show you an ad is usually another game company.

It goes like this. A studio has a game. They want more players. Buying advertising is the fastest way to get them — so they pay to show ads inside other games, hoping some of those players install theirs. Meanwhile, their own game shows ads from somebody else doing the same thing.

So mobile advertising is, to a striking extent, an industry selling to itself. Games buy players from other games. Money circulates between studios, with a portion peeling off to the companies in the middle at every step.

That explains something you have probably noticed: nearly every ad in a mobile game is for another mobile game. It is not a coincidence or a lack of imagination. It is the structure of the business.

The clearest way to see how this works is to follow the money from the company that spends it to the company that banks it. Four parties stand between those two points, and each of them takes a share for what it does.

The exact split depends on the network, the country, the format and how much the publisher is negotiating with. In our experience it moves enough between deals that any single percentage quoted as the industry norm is describing one arrangement rather than the market. What is stable is the shape: several parties take a portion, and the app showing the ad ends up with the largest share of what remains.

It is also worth noticing what the advertiser is buying. They spent that dollar hoping to gain a player. If the player eventually spends more inside their game than it cost to acquire them, the trade worked. If not, it did not. Nearly every decision in this industry comes back to that one comparison.

Now the part that is genuinely remarkable, and that almost nobody outside the industry knows happens at all.

The ad you see was not chosen in advance. It was decided in the instant between you finishing a level and the ad appearing — and in that gap, an auction took place.

Roughly: the game tells the network it has a space to fill and offers a little information — the kind of phone, roughly where in the world it is, what app this is, sometimes an advertising identifier your phone provides. Several advertisers' systems consider that and respond with a price they are willing to pay. The highest bid wins. The winning ad is sent to your phone and starts playing.

All of that completes in a fraction of a second. Your phone waits; you do not notice; several companies have exchanged money.

This is why two people playing the same game at the same moment see different ads. There was no schedule. There was an auction, and they had different outcomes.

Once you can see the money, several irritating things about mobile advertising stop being mysterious.

Why there are so many. Ad revenue is counted per showing. Twice the ads is roughly twice the money, minus however many players get annoyed enough to quit. Every free game is somewhere on that trade-off, and the ones that feel relentless have chosen a different point on it than you would have.

Why they are for other games. Covered above — it is mostly game studios buying players from one another.

Why the ad often is not the game. An advertiser is judged on installs. Certain ads produce more installs than an honest depiction would, so some advertisers run those instead. It works on the number they are measured against and fails on nearly everything else, which is a subject we have written about at more length elsewhere.

Why you get asked to watch an ad for a reward. Because a player who chose to watch is worth more than one who was interrupted, so networks pay more for those slots. You are being offered a genuine trade, and it is generally the most honest ad format on your phone.

Why removing ads costs a few dollars. The developer is estimating what you would have earned them over time and charging roughly that. If it seems cheap, that is because the per-person number is genuinely small — the business works on very large numbers of people, not large amounts per person.

Neither column is villainous. They are different arrangements with different consequences, and the second one is why so much is available at no cost at all.

It is fair to notice that the second column creates a pull toward showing more ads than players would prefer. It is also fair to notice that the alternative, for most of these games, is that they would not exist.

There is a well-worn line that if you are not paying for the product, you are the product. It is memorable and it is not quite right, at least not here.

What is being sold is not you. It is a few seconds of your attention, rented, in a specific app, at a specific moment. Nobody bought you, and in the ordinary run of mobile gaming nobody is buying your personal details either — the advertiser bidding on that slot typically knows the country, the device, the app, and whatever identifier your phone chooses to expose. That is less than people fear and more than nothing.

The honest framing is a trade rather than a theft. You get something free. Somebody rents seconds of your attention. Whether that is a fair exchange depends on how many seconds, how disruptive they are, and whether you were told what you were agreeing to — which is a reasonable thing to be annoyed about when it goes badly, and a different complaint from being sold.

It is also worth knowing that the controls are real. Phone settings that limit ad tracking do change what advertisers can see, and paying the few dollars to remove ads genuinely ends the arrangement.

None of this was inevitable. Mobile games used to cost money, and the shift to free happened quickly and for a reason worth knowing.

The early app stores sold games outright, usually for a pound or two. The problem was not the price — it was that a stranger browsing a list of thousands of names had no way to tell whether any of them were any good. Paying first and finding out afterwards is a bad deal, so people mostly did not, and studios competed by cutting prices until the number was too small to build anything with.

Free removed that problem entirely. Anyone will try something that costs nothing, so the hardest step in the whole business — persuading a stranger to take a chance — disappeared. What replaced it was the job of earning money from people already playing, which is where both advertising and in-game purchases come from.

That is the trade the whole industry runs on. You no longer risk money on a game you have not played. Instead you pay in attention, or occasionally in purchases, and only if you stay. For most people it is a better arrangement than the one it replaced — which is worth remembering on the third ad in a row.