The State of Advertising-Monetized Apps What App Owners Need to Know to Maximize Revenues
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From this document you will learn the answers to the following questions:
Smart app developers are using ads that engage what?
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What is one of the main challenges that apps have to meet?
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1 The State of Advertising-Monetized Apps What App Owners Need to Know to Maximize Revenues Executive Summary Despite widespread fears that ad blockers would creep from mobile web browsers into mobile apps, and thereby kill off banner ads and other ad types, the mobile advertising market has experienced a boom that is forecast to continue to explode through Smart app developers are learning to monetize their apps more effectively by using ads that engage the customer as part of a native app experience, while others are using video or evolving interstitial forms to deliver revenues and engage users. 2015, as this short paper makes clear, marked a dramatic turn in how consumers and advertisers evolved their mobile apps to both enhance the user experience and maximize brand reach. The US is leading the way in this new wave of highly effective advertising, and the rest of the world has begun to follow suit. To optimize ad revenue while maintaining strong app-user loyalty, app owners must ensure their mobile app delivery infrastructure is designed to meet the requirements and challenges of the new modes of advertising, particularly in ensuring that ad calls load quickly over the world s mobile networks. As the saying goes if your ad doesn t display, you don t get paid. We ll take a look at specific mobile advertising trends, both across and within specific industries and what advertising-monetized app developers need to do to retain their hard-won and increasingly demanding users. Introduction The mobile advertising ecosystem has never been more attractive to app developers and advertisers than it is today saw a substantial jump in app downloads, with the average smartphone downloading 53 apps. At the same time, spending on mobile apps reached $40 billion, as new payment solutions became increasingly convenient for consumers. App acceleration for a mobile-first world
2 This has helped make for a tremendous ad revenue opportunity. Consider recent mobile advertising revenue statistics from emarketer: Mobile accounted for 52.4% of total digital spending in 2015, while desktop advertising s share continued to decline Mobile s share of ad spending surpassed that of print in 2015, totaling 16.6% and 15.8%, respectively Mobile advertising grew by 59% in 2015 to $30.45 Billion, and is forecast to grow another 38% in 2016 to $42 Billion, then topping $50 Billion by 2017 i Mobile app owners and developers, including those who focus on monetizing free games, video apps, news and sports apps, shopping apps and others via advertising have an unprecedented opportunity to make significant revenues for their apps with advertisements that go beyond simple banner ads, which are already declining in both popularity and spend. i emarketer, Mobile Advertising and Marketing Trends Roundup, December Page 2 of 13
3 Formats that consumers find far more engaging, such as rich media, interstitials and video advertising to say nothing of native ads provide app developers with a winning path for maximizing app revenue without relying heavily on paid downloads nor in-app upgrades. Native Advertising Takes Off Within the surge of mobile advertising (and with increasing trepidation about looming ad blockers), native ads have become the favored vehicles for attracting consumers attention. Yet what are they exactly? To understand native in-app ads, it s best to be clear on how they are defined. We like VentureBeat s simple definition: Native advertising is a paid-for ad that appears on a publisher s mobile app and blends in with existing content. ii At its most creative, native advertising blends seamlessly into the user experience of the app, providing an ad that is nearly indistinguishable from the host app s normal content, without unduly and unfairly masquerading as editorial content. BI Intelligence reports that native ad spending surpassed $7.9 billion in 2015, and will grow to $21 billion in iii This growth has native advertising outpacing all other mobile advertising formats. In fact, a recent study by HIS found that nearly two-thirds (63.2%) of all mobile display ads will be native by 2020 and will account for $53 billion in advertiser spend. iv Within the app market, the fastest growth is occurring with the segment known as third party in-app native advertising. This is native advertising that is operated and served by a third party into an app developer s/publisher s inventory. The recent IHS research shows that third-party advertising will increase an average of 70.7 percent a year and reach $8.9 billion in v North American app developers are leading the way in third-party in-app advertising, says the IHS study, both in absolute and relative terms. Also noteworthy, Asia Pacific (not Europe) will increase usage of these ads the most between now and 2020, with a compound annual growth rate of 177 percent. vi Why Native In-App Advertising is Starting to Boom Consumers are spending 85% of their online time on their mobile devices, which amounts to 2 hours and 51 minutes per day on non-voice activities. vii ii iii iv Eleni Marouli, The future of mobile advertising is native, IHS Technology, March v Ibid. vi Eleni Marouli, The future of mobile advertising is native, IHS Technology, March vi emarketer, Mobile Advertising and Marketing Trends Roundup, December Page 3 of 13
4 Brands and advertisers are concurrently improving their ad targeting, attribution and ROI, making mobile a highly trackable success story for them. Yet, it s the consumer response to mobile ads, and in particular native ads, that makes native advertising so attractive to them. A recent study from Opera Mediaworks and comscore tracked US mobile user responses when shown a mobile native video ad. This is a video ad that looks much like other videos embedded within the app. These mobile users showed a 5 percentage point increase in their desire to purchase the advertised product, a 6 percent increase in mobile ad recall and 7 percent increase in their likelihood to recommend the advertised product over the stats collected for non-native advertising. viii Consumers engage with native ads 20-60% more often than they do with standard banner ads. ix Let s take a look at how native in-app advertising is working within two different industries, and specifically focus on the latest developments. I. Native Advertising for Mobile Gaming More than half of the US population became mobile phone gamers in 2015, according to emarketer. Even more telling, people spent more time playing games than watching videos for the first time ever in x It s likely true that most mobile gamers dislike ads. However, what they do like is video, interactivity and any help they can get in obtaining better success within the game. In-app ads that leverage those characteristics can be very successful for both brands and app developers. Leading advertisers are developing rewards-based advertising which provide the audience with a tool or a free pass to move up a level within a game in return for viewing an ad. Rather than interrupting the user during normal game play, for example, the brand actually transforms itself in the eyes of the player. MediaBrix CEO Ari Brandt explains the concept well: You could be playing a game and you re stuck, and then you get a message that looks native to the game and it says, It looks like you could use some help. Coca-Cola wants to help you. Click here and Coca-Cola will give you a boost to help you clear the level. The user not only appreciates that you ve acknowledged their state of mind, but beyond that you re coming in and offering to help. xi viii Opera Mediaworks and comscore, The Impact of Native Mobile Video Advertising on Brand Metrics, September 10, ix Eleni Marouli, The future of mobile advertising is native, IHS Technology, March x emarketer, Mobile Advertising and Marketing Trends Roundup, December xi emarketer, For Advertisers, It s Mobile Game Time, July 9, Page 4 of 13
5 Playable ads are another type of native in-app ad that can pay off huge for users who would rather feel entertained than targeted. In April 2016 the programmatic demand-side platform CrossInstall announced PrePlay, which are playable ads that let users try a game before an app directs them to the itunes or Google Play stores. For users to return to a game, they have to experience and enjoy the first session. Playable ads remove this first step so the first point of contact happens before the download, said Jeff Marshall, CrossInstall cofounder and chief executive officer. He noted that 30 percent of users that clicked on PrePlay ads ended up installing the advertised app. xii As for video ads, leading mobile game publisher Zynga has banked heavily on 15-second video ads. In fact, they have become the number one ad product in all Zynga mobile games. Julie Shumaker, Zynga s vice president of ad sales told emarketer in a recent interview that consumers who download free games are much more likely to watch a 15-second video ad than consumers who just purchased an item for sixty dollars. xiii This demonstrates the ability for free and freemium apps for gaming, publishing, news and sports to leverage advertising in ways that other industries, such as retail apps, cannot. Finally, native in-app ads that integrate advertised products into the actual gaming experience are proving successful. Some brands are advertising on the CrowdStar Covet Fashion game, for instance. In the game, players win virtual clothing and accessories from over 150 brands, and they can also purchase real clothing items that they like from within the app. As these examples in the gaming industry demonstrate, native in-app ads that keep players immersed in their app environment have the best chances of driving ad-monetized success for app developers and brands. II. Native In-App Ads for News, Sports and other Media Unlike gaming, mobile apps for news, sports and other media have fewer options for immersion and integration when it comes to ads. As such, when we look across mobile app categories, native in-app ads are not yet the most widely used, but are growing quickly (see chart below from InMobi). xiv The ESPN app user tends to be our most engaged user. It s someone who has self-selected to download the app, often times putting it prominently on their home screen. xii Mike Minotti, Maybe you won t hate in-app ads so much if you could play them, VentureBeat, April 6, maybe-you-wont-hate-in-app-ads-so-much-if-you-can-play-them/ xiii emarketer, For Advertisers, It s Mobile Game Time, July 9, xiv InMobi. State of Mobile App Developers 2016, February Page 5 of 13
6 Figure 2 Nevertheless, leading publishers like ESPN and The Guardian are pointing the way for mobile app publishers seeking to maximize in-app ad revenue. David Coletti, Vice President of digital media research and analytics at ESPN, says that advertisers like mobile because of the combined scale and personal contact. Says Coletti, You can build a tremendous amount of scale. It s such a personal device and your attention is solely focused on that screen. There s very little distraction when you re staring at your phone. For an advertiser, that s valuable and compelling. xv Publishing industry leaders point out that in-app promotions are becoming popular, as they enable brands to attribute increased traffic to specific audiences. Attribution used to be a drawback with basic mobile browsing. Yet within apps, brands know exactly where consumers originated when responding to an ad. One of the most recent developments in monetizing ads in publishing apps is called header bidding. Header bidding technology lets a publisher offer an ad impression to several different ad exchanges simultaneously. They do this via real-time bidding, or RTB, prior to making calls to their ad server. RTB can be manipulated so that publishers maintain the choice to allocate ad impressions to either header bidding or other monetization methods. The Guardian is trialing header bidding in The publisher s main concern, which is also the main concern expressed by Google, is that header bidding can slow load times and app responsiveness, due to, among other things, the integration of multiple third-party SDKs from various ad exchanges. Real-time bidding (RTB) is a means by which advertising inventory is bought and sold on a per-impression basis, via programmatic instantaneous auction, similar to financial markets. With real-time bidding, advertising buyers bid on an impression and, if the bid is won, the buyer s ad is instantly displayed on the publisher s site. xv emarketer, Mobile Advertising and Marketing Trends Roundup, December Page 6 of 13
7 Programmatic Advertising s Impact on All App Publishers Programmatic advertising leverages technology to automate the buying, selling or fulfillment of ads, and emarketer says it is becoming the standard for marketers looking to simplify the media buying process. They back this claim with data that shows US mobile programmatic ad spending topped $9 billion in 2015 and accounted for more than 60 percent of total US programmatic display ad spending. This contrasts with the old method by which publishers negotiated direct insertion orders with the brands themselves. For those who say programmatic advertising is being driven by desktop, emarketer disagrees. They say that mobile web and mobile app publishers are primarily fueling programmatic s growth. Mobile app developers are redesigning their UIs in the style of Facebook s popular in-feed units. The less prominently an ad is labeled as an ad, the higher the response rate. Research shows that native ads experience a 57 percent higher clickthrough rate when using subtle background color versus those using bold background shades. When the font of the sponsored label is consistent with the rest of the site, the CTR is 64 percent better than when the font style is unique. xvi Mobile programmatic s ability to include video ads and now native ads has made it much more acceptable to brands, as they know consumers respond far better to video & native ads than they do static ads. Challenges to Successful Native In-App Advertising Mobile app developers face two major challenges to optimizing their admonetization strategies, and both focus on the user experience. User engagement has always been critical to monetizing apps, whether through in-app purchases, paid download volume, and now, in-app advertising. This story has not changed. Any ad monetization strategy must involve the use of ads, partners and technologies that leave the user experience intact. Only this can ensure strong user retention, loyalty and revenue optimization with advertising. As a result, these are the two main challenges to serving the highest-roi ads without sacrificing user experience. 1. The differing capabilities of ad networks 2. Performance of app delivery infrastructure for real-time, rich media and native ads Let s take a look at each challenge individually. Challenge #1: Variations in Ad Networks Technology Savvy InMobi s recent survey of nearly 1,100 mobile app developer professionals highlighted the critical areas that ad owners & developers considered when looking to partner with the different ad networks. xvi Lucia Moses. The state of native advertising in 5 data sets, Digiday, June 10, Page 7 of 13
8 As the table shows, investigating six main areas of capability and business practices can save a lot of headaches and missteps with native advertising. These six criteria represent the table stakes for an ad network. If all six criteria do not fit perfectly into an app developer s business model, the app developer should walk away from a deal and seek a partner among the many choices that exist in the ad network ecosystem today. To ensure that an ad network can live up to its promises, app developers should seek answers and investigate the experiences of others by requesting access to three items: sample code, documentation and online support forums. Because most first-rate ad networks are integrated into apps by SDK, they can also be swapped in and swapped out during your normal release cycles based on ecpm performance. Challenge #2: In-App Advertising That Arrives in Time to Be Viewed (and Acted Upon) by Users Once mobile app publishers have identified the right advertising network partners, the focus for ad monetization success shifts to the delivery performance of the mobile app itself. Native in-app advertising succeeds best when ads appear as part of the normal user experience and/or when they enhance that experience. To achieve this, the app delivery infrastructure must be optimized for performance at all stages of the mobile delivery process. A year ago, clients were only doing science experiments in mobile programmatic, said Craig Palli, chief strategy officer at mobile marketing firm Fiksu. They were checking test mobile off of their to-do list. This year, we re seeing the larger brands come in with millions of dollars, because they now realize that if they re not reaching their consumers on mobile, they re ripe for disruption for competitors. What does optimized app delivery mean in the case of in-app advertising? First, the app must respond extremely quickly to changes specific to each user. Consider, for example, that users may be changing their physical locations, or progressing to different areas of an app as they use it. With geo-targeting and level-specific targeting, advertisers will want different targeted ads to be served. The mobile app must perform fast enough to make calls to third-party ad networks and retrieve relevant ads without users noticing any delay caused by the ads. Second, video ads and game-play ads are here to stay. The rich content of these ads can often make them slow to download when traveling from origin server locations, across the Internet cloud and over mobile networks to end users. The app delivery infrastructure must be streamlined enough to minimize network latency and delivery delays as much as possible. Your bottom line is this: user engagement is a tremendous challenge in advertising, and the difference between success and failure is mobile app performance. An ad that remains unserved due to slow app performance Page 8 of 13
9 and latency may leave a gaping blank space within an app s user experience. For app owners, it reall is true that if your ads never arrive, you don t get paid. How to Deliver High-Performance In-App Advertising IT teams, web hosting service providers and content delivery networks (CDNs) have all struggled to make the mobile app user experience equal to that of website users. This is due, in large part, to the gap that exists between service provider capabilities for optimizing website performance versus mobile app performance. Since the late 1990 s CDNs have done a fantastic job of speeding websites to end users on PCs who have robust connections to the Internet. Given that success, many IT teams assumed that CDNs were positioned to do the same for the mobile web and retail mobile apps. So, when publishers in gaming, news, sports, video and other entertainment forms began developing mobile apps, many turned to their CDN to optimize the user experience. Unfortunately, standard CDN services and technologies do little to accelerate mobile apps and the real-time, rich ads they now seek to serve. One can attribute this performance gap to the lack of mobile-first design in CDN technology. CDNs were designed to help speed websites, and as such, to accelerate TCP/IP with a reliance on web technology, not mobile-focused technology. With no mobile-first features, such as a mobile-specific communications protocol or mobile last mile acceleration features, CDN acceleration capabilities dwindle. The high-speed transmission to the edge of the Internet suddenly slows to a crawl over the mobile last mile the most critical stage in the app delivery process. Figure 3 below illustrates the limited value of using a CDN to deliver retail mobile apps. To address mobile app and ad performance, mobile app owners need to focus on today s mobile-first world in which users live. They exist beyond the confines of the legacy PC Internet. To reach them requires the use of mobile-first infrastructure. App owners and publishers that leverage a mobile-first, as opposed to desktop-first, infrastructure will immediately achieve substantial app and ad performance benefits, including the following: Faster speeds over mobile connections Avoidance of weak connections Acceleration from the legacy Internet to end-user devices Avoidance of network issues Cloud acceleration to mobile Page 9 of 13
10 Figure 3: The Mobile Last Mile The Bane of CDNs Mobile-first infrastructure and performance will become increasingly necessary as app and ad competition continues to heat up. The more features and functionality a mobile app and its associated mobile ads offer, the higher the risk of slow performance. Not only must the app s origin servers deliver high performance, so too must the wide array of third-party calls to obtain ads relevant to the real-time user experience. Suddenly, app performance and native in-app advertising success will become very complicated in 2016, unless app developers leverage the few mobile-first infrastructure service providers with the experience and knowledge to optimize their performance. Introducing Neumob Accelerator The Neumob Accelerator is the world s first end-to-end accelerator for app owners. Delivered as a two-line SDK, the Neumob Accelerator provides a mobile app with instant access to acceleration features at all stages of the mobile delivery process the first mile, middle mile and last mile. By eliminating latency in each mobile delivery stage, the Neumob Accelerator speeds apps and third-party ad calls by a factor of 2x-10x, whether an app, the ad network partners and the app users themselves are located within the same city or on entirely different continents. Neumob Accelerator delivers consistent speed, because we purposebuilt it as a mobile-first product. We recognized that optimal app and ad acceleration require three major elements: Page 10 of 13
11 1. Resource offload in the first mile 2. Middle mile acceleration across the Internet 3. WAN-like acceleration over the mobile last mile to end-user devices By providing optimizations around each element, the Neumob Accelerator achieves the fastest possible download speeds, response times and thirdparty calls for any given mobile app. Figure 4 below shows a detailed breakdown of the acceleration features we designed into Neumob Accelerator at each stage of the mobile app delivery process. FIGURE 4: Accelerating the Entire Mobile App Delivery Process It s important to note how Neumob uniquely circumvents latencies induced by the PC Internet, Cloud and TCP/IP. Neumob has built the only truly global middle mile network of PoP servers to accelerate the Internet-to-mobile last mile handoff. We manage PoPs (points of presence) in over 60 cities on 6 continents. At the same time, the Neumob Mobile Protocol is designed to address high-latency networks and the request/response nature of mobile-based applications while maintaining all the beneficial features of standard transfer protocols. By increasing the TCP throughput and maintaining a pool of open connections, the Accelerator significantly reduces the number of roundtrips between the end user and application server, thereby accelerating mobile app response time and ad-delivery time to provide a LAN-like experience. These characteristics enable publishers and their ad-monetized apps to make the jump from the legacy Internet to mobile users faster than ever. The impact on mobile app performance will be seen through higher levels of user engagement with both app content and native in-app ads. The end result will be optimized ad revenue & reduced churn for app publishers and higher ROI for brands. Page 11 of 13
12 Conclusion Recent trends indicate that the world is already starting to see a slowdown in the growth of smartphone penetration as these devices become ubiquitous in every economy. App owners will no longer be able to rely solely on piggybacking on the growth of the smartphone economy, and will increasingly be measured on their ability to differentiate on either fashion (the app s UI and visual look and feel) or function (the back end infrastructure that allows it to provide a better overall experience than that of its competitors). For apps that monetize via advertising, and particularly the many that have moved beyond the banner ad into rich media and native advertising, this means ensuring that the ads that are served are actually delivered to and are seen by end users. The wide array of third-party calls in today s modern mobile apps, and the unreliability of mobile networks in all corners of the world, make this an unreliable proposition at times and necessitates app acceleration technology built solely with these challenges in mind. With app owners beginning to understand the limitations of infrastructure built in the 1990s for a desktop-first world, it s heartening to know that solutions are rapidly becoming available that address and tackle head-on the new challenges of today s mobile-first world. Page 12 of 13
13 About Neumob Neumob is the leader in app acceleration for a mobile-first world. The Neumob Accelerator SDK speeds up the load times, reliability and performance of mobile apps anywhere in the world, helping app owners keep their hard-won users and drive maximum revenues. The company s innovative, mobile-first infrastructure and global presence combine to accelerate mobile app performance by 2-10 times, whether the app s users are hyper-local in one city or located around the world. Developers simply install 2 lines of code into their app, and instantly gain access to Neumob s worldclass, global app acceleration network. For businesses that need to deliver mobile apps to their users faster, more reliably and more securely to any targeted mobile audience, on any network, Neumob is the answer. Page 13 of 13
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