## Kantian Ethics For Game Ads and Beyond is Probably a Good Idea

The ASA has banned misleading ads from Playrix’s Gardenscapes. Running the same creative in user acquisition hits diminishing returns fairly quickly as the creative “clears the market” for users attracted to that creative. To broaden appeal, why not simply advertise the game as existing in a entirely different genre? This opens up a whole new segment and drops CPIs significantly. Of course, advertising gameplay that doesn’t exist surely means these users will exhibit extremely poor KPIs. However, there’s a broader implication to these ads and one that harms the entire game industry.

The harm is described in Akerlof’s Nobel Prize winning paper on car lemons:

If users start to have an expectation that a given game ad does not truthly describe the game in question then they’ll be less likely to click. This means higher UA costs even if your firm does not engage in these type of ads.

A similar problem is starting to creep up in PvP games. Developers have started to be confronted with the uncomfortable reality that PvP is a zero-sum game: for someone to win, someone else has to lose. And of course, when players cannot progress they churn. Supercell has heavily introduced bots in Clash Royale as a response.

Of course, players cannot identify if they are indeed playing a bot or a real player. This steals one of the compelling aspects, if not the compelling aspect, of PvP away from players: outsmarting another individual. But like the lemon problem above, if this trend continues then players will start to question if they’ve dominated a real opponent even if the particular game doesn’t use bots. Games that use unmarked bots start an industry expectation that diminishes the experience for all.

There’s a good moral rule here to help us and it’s from an 18th century philosopher called Immanuel Kant. Kant advocates for something called the Categorical Imperative. This claims that if we were to universalize a given action and it would result in a “contradiction” then that action is immoral. Consider lying: if everyone were to lie then the world would not function, therefore lying is immoral. Or consider being lazy: if everyone were lazy then nothing would get done. It’s a no-holds-barred approach to consider moral action, but thankfully we’ll use it a much more narrow scope.

If unmarked bots were to be universalized, PvP games would be irrevocably harmed. If misleading ads were to be universalized, then players would stop clicking on them all together. Both of these situations violate the Categorical Imperative and align with outcomes that benefit the entire industry. The Categorical Imperative makes for a simple and rule based approach to consider the “greyer” parts of developer action.

## Players go to their highest valued LTV: Ads are Beautiful Pareto Exchanges

Previously, I wrote about ads as a way to monetize non-payers, but there’s more to the ad exchange and what I’ll coin as ‘portfolio pumping’. It’s like portfolio theory, but not really.

These terms reference two growing phenomenon in F2P games. King is at the forefront of portfolio pumping, in which a given firm pushes a player from game to game within the firm’s portfolio.

Unlike portfolio pumping, ad exchanges push players to another firm’s games. Companies like Scopely are more fond of ad exchanges.

Frequently, the ads being served are for competitor games. Why would a company show ads for its competitors? In addition, why would firms want players to move from one game in their portfolio to another? I argue the underlying explanation is Pareto Efficiency which is just a fancy term for trade.

$churned player LTV < ad revenue$
$acquired player LTV > ad cost$

It tends to be the case that a given company will engage in both ad buying and selling. The outcome of these ad exchanges are migrations of players to the games in which they have the highest LTV; the initial allocation doesn’t matter. This process takes place in high-speed auctions where firms are constantly in the search for the maximizing the equations outlined above. The decision rule for portfolio pumping is similar, but we add some special conditions, mainly the probability of simultaneous play.

$P(rLTV_{i} + nLTV_{i}) + P(nLTV_{i}) > rLTV_{i}$

Where,
$P(rLTV_{i} + nLTV_{i})$ is the probability of playing both games simultaneously. We add up both of the LTVs in this case.
$rLTV_{i}$ is the remaining LTV in the old game for the ith player, while nLTV is the LTV for the new game for the ith player.

This must be bigger than $rLTV_{i}$ for profitability.

Of course, there are ways to play with this. Wooga tried altering portfolio game prompts during a player’s lifespan but found no effect.1 King continues to portfolio pump but dropped ads in Candy Crush Saga.

It’s a goddamn gorgeous process that should litter econ textbooks like lighthouses and lemons.