Computer games are poised to become big businesses for advertisers, as more and more companies pay real money for virtual ads posted in the cyber-worlds created by gaming companies.

Analysts predict that the market for in-game advertising is set for explosive growth, with Yankee Group predicting that the sector will jump by 500 per cent to reach $732m by 2010.

In a highly fragmented media environment, the analyst firm said that video games present a "promising window of opportunity" as a growing advertising medium.

As television advertising loses its effectiveness, advertisers must reach a largely segmented audience with discerning tastes.

According one of Yankee Group's latest Decision Notes, advertisers are finding greater value and return on investment from in-game advertising.

The report estimated that advertisers spent approximately $56m placing ads in video games in 2005, up from $34m in 2004, and that the market shows no signs of slowing.

By the end of 2006, the number of titles with in-game ads is expected to have more than doubled. Yankee Group anticipates that around 200 titles will contain in-game advertising, representing nearly all the major video game platforms.

As the market becomes more lucrative, it will have a significant impact on the business operations of video game publishers such as Activision, Ubisoft and Electronic Arts, the research note predicts.

Although console-based in-game ad serving is dominated by independent networks today, Yankee Group predicts that Microsoft, Sony and Electronic Arts will bring in-game ad serving in-house and come to dominate this segment of the market.

"Although the in-game advertising market is still relatively untapped, the promising business model will lead to swift market development," said Yankee Group senior analyst Michael Goodman.

"However, competing effectively in the interactive gaming market for the video game and advertising communities will require careful attention to the intricacies of the industry."