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Due to the surging popularity of these and other online games, Atari is gearing up for a 21st-century relaunch that will see it make a shift towards web-based gaming. "There is a vision for Atari to create console-quality games that you can play inside a browser," explains David Miller, Atari's UK head of marketing. "The UK is a very active retail market, but you're gradually going to see more migration online, spurred by the likes of Xbox Live and PlayStation Network."

When Atari launched in the early seventies, console-based gaming was new and generated hours of entertainment, regardless of its drawbacks. Space Invaders was impossible to complete as the aliens just moved lower down at a faster rate until there was no way you could kill them all. Meanwhile, Game & Watch devices brought Donkey Kong and Super Mario Brothers into portable formats, even though replacement silver button batteries were impossible to find. Demand for new gaming experiences was such that when Nintendo released its GameBoy in the late eighties, 118 million units were sold worldwide in no time.

Today many of these handheld consoles would pass as museum exhibits alongside other relics of the eighties, such as the DeLorean, Subbuteo sets and Fighting Fantasy gamebooks. But names like Atari and Nintendo still carry clout in an industry that is predicted to be worth £32 billion by 2011.

Indeed, gaming has undergone unprecedented change in recent years, and the stereotype of sweaty teenage boys playing shoot-em-ups in their bedrooms has been buried.

Ever since games first went online in 1996, helped by the launch of sites including gamesville.com and uproar.com, the internet has fostered a return to simpler gameplay. With no built-in save facilities, web-based games had to be accessed easily, grasped quickly and played through to completion in one sitting. "Xbox Live Arcade and Nintendo Wii didn't build a new market for consoles, they just noticed that the market was broadening and created products to match that," says Matt Annal, managing director of Nitrome.

The concept resonated. By 2007, the industry was pulling in revenues in excess of $2.25bn (£1.62bn) across a range of formats including PC, Mac, mobile and Xbox Live Arcade platforms. That was exacerbated last summer when Apple launched its App Store and SDK technology, giving software developers access to the iPhone community. Now, with games still dominating the download charts of more than 15,000 available iPhone apps, it is hardly surprising that casual games are believed to have a global take-up of more than 200 million people.

This has brought a wealth of new opportunities for advertisers. High-street retail games are being challenged by new micropayment models, where online players are charged a fractional cost for a full-games or updates. Space Invaders for the iPhone, for example, can now be downloaded for just £2.99.

Yet the price of online games is being cut further as advertisers begin to warm to the concept. King of Shaves, BBC, McDonald's, Bic and Cadbury are just a few of the brands that have entered the advergaming market in recent years. Benefits include access to a global audience at a fraction of the price of traditional media, and the opportunity to create engaging experiences that foster a very different relationship between consumer and advertiser.

Will King, founder of King of Shaves, explains: "We are a brand with global aspirations. When it comes to online games, our aim is to deliver a brand experience that will raise product awareness throughout the world and allow us to take on our competitors with a fraction of their marketing budget." The gaming site, kingofgames.co.uk, still attracts around 400,000 users a day more than three years after its launch.

Advocates of advergaming believe it can trump normal digital advertising through a more interactive relationship that - if gameplay is strong enough - can resonate with audiences for up to six weeks.

Brands can experiment with advergames in numerous ways, including creating a game with direct references to their brand. "These work particularly well for brands launching products," says Atari's Miller. Examples include Mercedes, which showcased the heavy-weather credentials of its CL 63 model in a game where players had to generate drift by driving the car on a snow-laden mountain.

Advergames work on a basic principle of value exchange. "Human beings automatically buy in to things that are entertaining" says Chris Kempt, founder of Kempt. "Rather than interrupting or desperately vying for attention, brands can now foster dialogues with audiences in a tone which is the virtual equivalent of buying them a round of drinks."

Andrew Sanders, digital sales director at IPC Ignite, which owns mousebreaker.com, says to create a successful advergame, marketers need to "relax their attitudes towards brand engagement and be willing to try something different".

For those looking for something less risky, brands can also opt for display advertising in a number of different formats. Ads either sit quietly on the frame of the game while in progress, or are served up as an interstitial or video pre-roll at relevant moments, such as between levels or while the game is loading. "Online gaming audiences usually arrive at sites with a degree of boredom and are looking to be entertained," says Simon Jones, managing director of GameJacket. "If advertisers can be compelling enough there is a real opportunity to catch audiences in a receptive mindset that differs from traditional media exposure." Figures validate this. According to comScore, last year 8.6 billion display ads were viewed by the US online gaming community, nearly a 30 per cent rise on 2007. Additionally, banner ads and advergames are the two formats most accepted by gamers in return for free experiences, according to a survey by MTV Networks.

Buoyed by this, online publishers are dangling carrots in front of marketers by creating portals that specialise in targeting specific demographics. Dutch-based portal spilgames.com hosts European gaming sites designed for families and young people. IPC's Mousebreaker is finessing an audience of 18 to 39 year-old men, while the UK's leading site, miniclip.com, attracts around 43 million unique users.

"Advertisers know that games are globally accessible," says Martine Spaans, manager of game content at Spil Games. "But their value is clearer when they are properly channelled to the correct target group."

The benefits for marketers are clear. "Eighty per cent of a marketing budget can now be spent on creating content that resonates with its audience and 20 per cent on getting it out there," explains Jim McNiven, managing director of Kerb. "Until now, traditional media has dictated it as being the other way around."

Yet there are a number of issues that will ultimately determine if advertisers will take the bait. First, is the brand getting in front of enough of the right people? Or is it just providing generic hit-and-hope entertainment? While few would argue with the figures, there is little to suggest that those who play the games will have any direct effect on a brand's bottom line. Brands must either have aspirations for international awareness or assume that some proportion of their audience is predisposed to gaming. If not, they are just providing free entertainment.

Second, too many online games appear underpinned by short-termism. Of course, advocates would argue that a few minutes of a meaningful relationship with a brand is more than most TV ads could ever ask for. Yet unlike TV and conventional digital advertising, advergames appear to be built around a throw-away factor.

Finally, the way many advergames are pimped via portals that are desperately vying for attention almost devalues their self-worth. It is hard to imagine a brand eager to associate itself with a portal which purports to target, in the words of a salesman from one leading site, "those looking for frivolous ways to kill time".

Many of these concerns explain why, though brands are trialling online gaming, few have yet to invest sizable sums. Digital and gaming agencies still need to convince marketers of its worth.

"To reinvigorate its brand, Atari has to answer fundamental questions asked of online games," says Adam Billyard, a gaming consultant and former Atari developer. "How does it make money? What payoffs do the games offer beyond a high-score? And can they be designed to have a comparable lifespan to console games?"

Only one question remains. In the future, will all gaming be online? There is evidence to suggest so. Nintendo, PlayStation and Xbox have online options, and how long high-street console games can realistically compete with that sector remains to be seen. "Casual games will show accelerated growth, especially in this economic climate where they offer a predominately free alternative to expensive console games," says Pieter Kooyman, global advertising manager at Miniclip.

Rob Corradi, director of Neon State, believes that the differing agendas of the sectors will see both competing separately in their respective markets. "Console gaming is designed for long-term gameplay in a social environment, whereas advergames are generally accessed individually with shorter-lived experiences."

Atari's Millar adds: "People have been playing games for as long as we've had civilised society. You could argue that the practice of going to HMV to stock up on video games will be phased out as we get greater bandwidth in the home, but the routes to that content will invariably remain."

In 1978, the popularity of Space Invaders caused a run on the 100-yen coin, spurring the Japanese government to quadruple its production and sparking an economic crisis. With today's recession deepening, gaming's resurgence may well see audiences flock online as part of plans to survive their own economic woes. l