Some people may disagree with this statement, but frankly if there is one platform where most of the radical innovation in video game design is happening, that platform is the World Wide Web. For every innovative Wii game in the market, there are dozens of innovative Flash games.
It's not only because the barriers of entry and the production costs are lower, it's also a platform open for experimentation. You can throw something out there, discover that you wanted to change something, change it on your server, and boom, it's available for everybody else.
If you were at the Experimental Workshop at GDC, you probably have seen that a lot of the games shown in the workshop were made for the web.
It's pretty tricky to monetize those games, though. But there are some ways of paying the bills. Some people are going the way of non-exclusive licenses. Sites such as Miniclip, Addicting Games, and others have been paying for one-time fees for licensing games. Sometimes they'll ask for exclusivity, and they are willing to pay a premium for that.
Some developers such as Nitrome and Paul Preece (creator of Desktop Tower Defense) have been able to license out their content while keeping it on their web sites. They have amassed a good number of players per month on their own web site, and they run various kinds of ads around and before their games start. So, in other words, by licensing the game out they cover most of the development costs, and they also make money from their own audience.
Some of the tools to use to put ads in your games are Google AdSense, 24/7 Real Media, and MochiAds. Here is a nice integration of Google Video Ads in a game. With most of these services, you won't make tons of money unless you get a lot of traffic (and I'm putting a lot of emphasis in a lot).
MochiAds is probably the one to keep a close eye on. The technology allows you to embed your ad inside your game, so regardless if someone takes your game off your site and puts it somewhere else, it will still print ads from MochiAds inside your game, and you will still make money. They also provide MochiBot, a technology that lets you track all kinds of things, from where your game is played from, to how many people reached level nine.
Developers should also keep an eye on sites like Kongregate, which have been sharing ad revenue. Their traffic has already surpassed two million monthly visitors. Two projects to also have in your radar are Whirled and ourWorld. Three Rings, creators of Puzzle Pirates, is behind Whirled. It's a virtual world with social networking features, and I believe it will be a very solid platform, as those guys have been working on online games for years. ourWorld is made by FlowPlay. They have a great avatar and virtual world technology, and they were one of the few companies to be selected in the TechCrunch 40.
I'm also going to include Facebook and the other social networks in this category. Even though a lot of people will consider them a different beast, they are still games on the web. And I'm going to partly agree with those who are not that optimistic about this.
I believe that social networking is proving one thing: that casual gamers want to play against their friends (something that a lot of casual gaming veterans doubted), and that the shelf life of a successful social networked game is much higher due to its viral effect that helps it to keep momentum.
But if you are a game developer and you tie your game to just one social network, you are shooting yourself in the foot, as you are losing a lot of the potential audience that uses the other networks. Your best bet is to see how can you create a web game that can be either be accessed from inside a social network and out of it, and make use of the features a social network has...
...which is what companies like Zynga and Mytopia are doing. Zynga has created almost a dozen games that run on Facebook. But today in their Texas Hold'em game a Facebook user can play against a MySpace user. They have also created a "social bar" that any developer can add to their game. This bar sits on top of every game in the Zynga Network and tells a player what games his/her friends are playing. It's a good way of promoting games, as it's likely that you will play games your friends play.
In the case of Mytopia, they claim to have eight games (mostly parlor games) that run on the three major social networks, but at the time of this writing we couldn't check it out for ourselves as our access account has not been validated.