In its pursuit of the mobile gaming market, PubNative, a German app-focused supply-side platform (SSP), is tentatively exploring the possibilities of VR. Speaking to Faultline this week, the company’s founder and CEO, Ionut Ciobotaru admitted that his “interest is just exploratory.”

“For now, VR just doesn’t have the critical mass to be monetizable for ad companies,” he added.

The company has set gaming as its next key market for growth in the world of mobile ads, announcing in April that it was expanding its offering to include ads in VR games. But with only a handful of VR games currently live on its platform, the company is simply testing the waters in terms of consumer demand.

There are a few barriers to VR games becoming a keystone of PubNative’s revenue. Small margins mean the company must operate at scale, only working with apps that have over 5 million users. Many VR games simply do not have those numbers yet, with huge growth inhibited by the need for users to purchase a headset to play.

Secondly, most VR games are expensive to develop, and often opt to make users pay, rather than risk making a return on ad revenue. While excited by the creative potential of the platform, Ciobotaru admitted, “We’re a few years off.”

Founded in 2014, PubNative’s first focus was supplying ad inventory for social media and messenger apps, before quickly moving on to what Ciobotaru called “content” and “entertainment” apps — uses like weather forecasts, drawing, music.

It was not until the company was acquired by Media and Games Invest (MGI) last year that it began to focus on advertising within mobile games. MGI is the holding behind large games developer, Gamigo, as well as owning smaller companies such as WildTangent and Aeria Games.

Ciobotaru argued the move has served PubNative well, telling Faultline that gaming is currently the fastest growing sector in mobile advertising, “we’re expanding into gaming, it’s our main focus area for growth.”

Ciobotaru explained that PubNative’s existing mix of clients were well suited to in-game ads. Brands make up around 80% of ad inventory, with the other 20% being “performance” advertisers.

The latter is a term used to describe companies that want an immediate consumer reaction — be that a click or an app download — as a result of the impression, rather than a brand that just wants to boost its awareness among the general public. Ciobotaru argued that brands that simply want “eyes” — rather than immediate responses — are better suited to gaming, as they can be creatively embedded into gameplay.

To meet the new technological demands brought by the gaming sector, PubNative acquired the development department and ad technology of fellow Berliners, TVSmiles, in December 2019.

Aside from VR and gaming, recent activity has — unusually — centered around CTVs. PubNative is about to launch AdCast, a software development kit (SDK) that allows advertisers to alter mobile app ads if they are being streamed to a TV via Chromecast, Fire Stick, or similar technologies.

Ciobotaru explained how AdCast was developed after PubNative noticed a gap in the market. “We were already working with app developers and saw that no one was monetizing the process of streaming the phone to the TV. Mobile is the hub for nearly every connected device”, he explained.

On the impact of the pandemic, Ciobotaru said that growth had been slowed, but had not stalled completely. “Most reports say brand budgets have been slashed by around 20%. We’ve seen more like 30%, but it has been minimized by good growth year on year.” The lull has yet to pick up and Ciobotaru expects it to continue for another two or three months as economies slowly accelerate.

Luckily for a company that is setting its sights on mobile gaming ads, gaming of all kinds has exploded under lockdown. Labeling the sector a “safe haven” from the turbulence experienced by the rest of the ad industry, Ciobotaru said that gaming companies he knows have not seen a dip in users, with many seeing a slight increase.

While more eyes on screens certainly is some light relief, we could not help but point out that this is creating its own problems. With 30% fewer buyers, there is far less competition for ad inventory, but far more inventory available due to the rise in gamers. As a result, surely the cost per thousand impressions (CPM) has shot down?

Ciobotaru accepted that CPM has sunk in recent weeks, but that its impact has been largely offset by an increase in volume in the marketplace. It sounds like a small hit has been taken, but nothing to deter long term growth in the market.

On the bright side, Ciobotaru said that the standstill brought by Covid-19 has in many ways eased the recent merger that is Verve Group. Unifying MGI’s recent acquisitions, PubNative is now grouped with Verve, an American location-based mobile marketing platform, and Applift, a Berlin-based mobile growth performance marketing company.

PubNative started with native advertising — advertisers provide the assets (logos, designs, script) and then publishers decide how they are integrated into the user experience. This is still most of the company’s business, and it is one of the largest SSPs for native mobile advertising.

Although based in Berlin, Ciobotaru explained how when the company started, his first aim was to infiltrate the US mobile market. Picking up clients such as Tango, Skype and Pinger within the first two months, the company was able to scale easily in the uniform market of the states. He admitted that scaling in Europe proved much more of a struggle, inhibited by both GDPR and the variation in markets between countries.

The company has grown each year, with this year’s most recent quarter seeing a growth of 30% year on year. PubNative now employs over 60 staff and serves clients in over 120 companies.

PubNative’s SSP is connected to hundreds of demand-side platforms (DSPs). At any one time, there are tens of thousands of advertisers competing to buy real-time impressions on mobile applications.

Ciobotaru estimated that PubNative’s SSP processes a few hundred thousand impressions per second, with adverts reaching a few hundred million users per month, creating impressions in the billions.

VR gaming ads a long way off profitability, says PubNative - Rethink

VR Gaming Ads: Testing the Waters; An Interview with Faultline was originally published in AR/VR Journey: Augmented & Virtual Reality Magazine on Medium, where people are continuing the conversation by highlighting and responding to this story.