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App-Install Ads Are A Mainstay Of The New Mobile Economy

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The mobile economy has grown enormously over the last few years.  There are millions of apps available in the Apple Store and on Google Play and billions of people around the world are now using them. With these users spending a greater and greater amount of time and money on mobile, the mobile advertising business has exploded.

eMarketer forecasts that in the U.S., mobile ad revenues will grow from $19.15 billion last year to $65.87 billion in 2019. Who is spending this money? Who is making it? How can businesses of all sizes and in all industries use mobile ads to drive engagement and grow their business? To the outsider, the mobile ad business can seem dizzying in its complexity. To provide some insight, I’d like to focus on one key type of mobile ad that has proven to be very valuable to app developers both large and small: the app-install ad.  These ads have become a significant part of the overall market: Business Intelligence estimates that they constituted 30% of all mobile ad revenue in the U.S. in 2014.

App-Install Ads – The Basics

An app-install ad is a mobile ad unit that directs the user to download a mobile app from an app store.  You are likely to see ads like these every time you check your Facebook feed on your phone or use a Yahoo mobile app. App-install ads on Twitter, for example, look something like this.

Notice how the ad to download Spotify is placed in the feed below a tweet from someone the user is following. The ad text is the same size and font as that of the feed, making it appear less disruptive.

This type of app has become very popular among large ad platforms such as Facebook and Twitter as well as for app developers looking for ways to stand out and rise above the noise. Major mobile publishers and ad networks like these ads for several reasons:

  • One, they are “native,” which is just a fancy way of saying they can be presented with a similar look and feel to the relevant content in a feed which is less obtrusive to the user. With user retention being such a challenge for app makers, these native experiences can reach users in the app while retaining the look and feel.
  • Two, with a simple and clear call to action, they drive higher performance in terms of click-through rates than other types of mobile ads (average CTR of 0.98% on Facebook in 2014 compared to 0.24% for all ad types – BI Intelligence Report Jan 2015).
  • Three, ROI is easy to measure because analytical tools can track user behavior after the app is downloaded.  In this way, app developers can see directly if a user’s spending exceeds the cost of the ad used to acquire that user.  They can even estimate lifetime customer value or LTV in a way that enables them to determine which ads and ad platforms lead to the highest quality users.

These ad units are typically purchased on a cost per install (CPI), cost per click (CPC) and cost per impressions (CPM) basis.

Facebook Leads The Way

Facebook launched app-install ad units in late 2012, and these ads have been a key part of Facebook’s massive growth in mobile ad revenue.  Going from zero less than three years ago to $2.9 billion in Q2 of 2015, mobile now represents 76% of Facebook's total ad revenues! App-install ads are believed to constitute approximately half of all Facebook’s mobile revenues.

Facebook has become the most important app-install ad channel in the market, because of its deep user information and highly sophisticated targeting capabilities.  Facebook has driven hundreds of millions of app downloads, and its CPI and CPM rates are significantly higher than industry averages. In addition, because of install ad’s higher click through rates and clear ROI measurement capability, these ads carry higher price tags than other Facebook ads, providing a boost to the company’s topline.

Who Is Using App-Install Ads?

App install ads have proven to be valuable to any consumer-facing business that has a mobile app as its core product or uses a mobile app to drive customer engagement.  Primary among the first category are the large mobile game developers, such as Machine Zone (Game of War), King.com (Candy Crush) and Supercell (Boom Beach, Clash of Clans). These companies generate hundreds of millions a year in revenues and are willing to spend top dollar to acquire quality users who will make repeated in-app purchases.

E-commerce is another area where install ads are effective: by getting consumers to use their app rather than a mobile website, etailers can provide a better customer experience, increase loyalty and ultimately convert into higher sales. Hotel Tonight, which offers discounted rates for last-minute hotel bookings, uses app install ads as a primary customer acquisition channel.

The Rise of Mobile Ad Networks

What about smaller mobile app owners who would like to monetize their traffic?  And app marketers who can’t afford to pay the high rates on Facebook?  New mobile ad networks and app distribution platformshave emerged to serve this large and growing segment of the app economy. These platforms match buyers and sellers of mobile ad units and help marketers create the ads and structure campaigns, maximizing value for both parties. There are now hundreds of such platforms that specialize in certain markets, regions, and ad types. For an app developer looking to market a new product, these platforms are highly competitive with the big platforms and many provide the same kind of analytical tools that help measure lifetime value and ROI. [Full Disclosure: I am the founder of one such platform.]

Many in the mobile ad business view video as the key that will unlock the door to major brands spending TV-like budgets to build brand awareness in mobile. While this is certainly exciting, I believe that the performance and measurable ROI of the humble app-install ad will lead to continued demand. BI Intelligence agrees, projecting app-install ad revenue to grow from $4.6 billion this year to $6.8 billion in 2019. The app-install ad has become a cornerstone of mobile advertising, and it is here to stay.