In brief: Microsoft is actively working on new tools to enable developers to embed and sell in-game advertising space. While advertising in mobile gaming is nothing new, the offering would specifically target console (and potentially PC) players in free-to-play games. Microsoft has no intention to take a piece of the new ad revenue but instead focuses on building out a strong network and platform to provide more opportunities for free-to-play game developers to connect with potential advertisers.

Sources close to Microsoft recently told Business Insider that the new feature would provide a marketplace for ad placement companies to work closely with developers to secure space and place ads in free-to-play titles. The move would expand Xbox's in-game advertising model, historically limited to Xbox dashboard ads or specialized ads purchased and placed through third parties.

Despite its intent to increase advertising, Microsoft claims it understands potential user concerns. It will look for ways to incorporate the new advertising model without upsetting users with overly intrusive advertisements.

The concept of in-game advertising is certainly nothing new. Some of the earliest in-game advertisements date back to gaming's humble beginnings back in the late 1970s and early 1980s. The practice has since evolved, moving away from Adventureland's black and white text to more direct, visually appealing approaches to engage hard-to-reach audiences. Today's advertising model has evolved into a much more sophisticated system that isn't solely reliant upon product-centric titles or static images.

In addition to technical advances, in-game advertising practices have experienced a significant surge due to pandemic-related gaming becoming a go-to social function for millions worldwide. Users are typically provided with an opportunity to earn in-game currency or items in exchange for viewing advertising videos or clicking on specific advertisement links. Some platforms, such as playerWON, provide hands-on and, at times, intrusive in-game advertisements or commercials. Others, such as Anzu, are attempting to take a more subtle and less-intrusive approach by selling advertising space such as billboards and backdrops in the game environment.

The Redmond-based technology giant's recent moves support speculation that the company is interested in developing an extensive advertising network and platform. The recent steps to purchase Activision adds a ready-built advertising network to the company's portfolio. The company also acquired AT&T's former advertising marketplace, Xandr, in December of last year.

Sources close to Business Insider expect that the new advertising capability will be live and available by Q3 2022. Microsoft has not officially confirmed or denied the plans, stating, "We are always looking for ways to improve the experience for players and developers, but we don't have anything further to share."