Many games offer to show you an ad-free experience if you're willing to pay a little bit of cash, and that's great for the gaming company. Are ads useful for games that aren't as wildly popular? Well, ads can also make money by disappearing. That's all fine and good for games that have a ton of people playing them. While some games do use the click model (where advertisers pay the gaming company if someone clicks the ad), there are other games - like 'Flappy Bird' - that use a pay-per-view model of ad revenue - meaning that every time someone sees the ad, the company makes dough. But when most people are prodded more ('How, exactly, does having a free player look at ads make money?'), the answer might get a little more vague ('Uh, you click them sometimes? I think?'). If you were to ask most people how Internet money is made on free sites or games, you'd probably get a confident answer: ads. And they're doing it in a few different ways.
They're using your hard work and dedication to keep the lights on. picture yourself as a little hamster in the wheel of the gaming company. While you cheerfully crush candy or farm. And the fact that you would ask how they do it just points to how well it's working for them.
Ah, my naïve little game-guzzling friend: Free games make money by selling you.