The mobile app market is heating up, both for paid and free apps. And we’re seeing numerous app developers and content publishers jumping into the market every day looking to make money on this opportunity. If you can get consumers to pay for your app, great. But with all the free apps already available for smartphones and tablet devices such as Apple’s upcoming iPad, many newcomer apps will likely have to be free, too, in order to compete.
But free doesn’t mean you don’t make money on your app. It means you need to be smart about your ad strategy. At present, there are four different approaches you can take on advertising, and the best approach will vary, depending on the size of your company, your goals, and other factors.
Long Tail Ad Networks
Choosing a single ad network is the easiest and simplest option, and more often than not, the least lucrative, too. Examples of long tail ad networks include AdMob and InMobi. The advantages of using a simple ad network like AdMob are that it is simple to integrate with the app and that developers can start earning revenues quickly. The disadvantages are that CPM (revenue per 1000 impressions) can be low, especially for small developers, and that low fill rates — the ability to serve ads on desired pages — can make eCPM (effective CPM) even lower.
RunKeeper, a Boston-based fitness-tracking app for the iPhone, offers both a free app and a paid app. RunKeeper Pro, which sells for $9.99, runs advertising free. CEO Jason Jacob told me his company’s focus is on converting users of the free app to the paid version rather than on making more money from the free app. Given their strategy to spend fewer resources on the free app, AdMob is a good fit due to the ease of integration.
High Quality Ad networks
If you have high quality content, you might consider a rich media ad network such as Greystripe or Videoegg. These ads are generally better looking, take advantage of the unique capabilities of a smartphone (accelerometer and video for example), and therefore command higher engagement from users. Creating and integrating such ads is more resource intensive than integrating with a simple ad network like AdMob. However, developers can use these ad networks to get higher CPMs, albeit at a lower fill rate due to limited inventories.
“We work with a lot of brands and facilitate app sponsorships, but the bulk of what we do is sell and deliver rich media,” said Michael Chang, CEO of Greystripe. Greystripe’s technology allows ad agencies or advertisers to take existing online Flash ads and reformat them to run on iPhone, iPod Touch, and iPad. So ad agencies and advertisers can create the ads in Flash like they normally do for online campaigns and then deliver them in mobile.
This can result in very powerful and engaging formats (you can see some here). Last year, Burger King used Greystripe’s technology to create an interesting “GS.Tailgate” in-app ad called “The Scent of Seduction”. It allowed users to burst bubbles by touching the screen. Greystripe reported that 13.9% of users interacted with the ad and spent an average of 16 seconds interacting with it.
A “Teaser ad” for the Navy was created using VideoEgg’s AdFrames technology and is used in an application called Scrambled. The teaser looks like a banner ad, but when a user taps on the ad, it switches to a full-page view. VideoEgg offers its ads on a cost per engagement (CPE) basis.
Ad exchanges allow publishers to integrate with several ad networks at once. They can offer much higher fill rates than an exclusive ad network. However, this might require a little more work on the publisher’s end, since publishers must optimize their apps to dynamically change ads based on which ad network is bidding the highest. Another downside to ad exchanges is that they can sometimes result in lower ad quality (since ad networks can choose to display only remnant ads — the ads they weren’t able to sell elsewhere) and correspondingly low CPMs.
Mobclix, which has partnerships with several ad networks, allows apps to change ads automatically, therefore addressing one potential downside of using ad exchanges discussed above. Mobclix evangelist Megan Berry told me the company has close to 100% fill rates.
Interestingly, AdMob is missing from Mobclix’s partners list. A leading ad network such as AdMob likely prefers not to integrate with an ad exchange because the exchange can allow publishers to switch AdMob with another ad network. However, Mobclix does allow AdMob integration through an open allocation (for certain percentage of time, publishers can choose to run AdMob), even when AdMob is not part of the ad exchange.
Getting an advertiser to sponsor your app directly can get you the highest revenue. It also allows for better integration of the app with the sponsoring brand. However, the app has to be a good fit with the particular brand. Developing and managing relationships with brands is both difficult and time consuming. Sponsored advertising is also expensive and therefore only suited to very large campaigns. Such an option is best for publishers with a dedicated sales force.
While some of the high quality ad networks mentioned above can work with advertisers and publishers to create rich ads for sponsorship based apps, Medialets‘ technology is particularly well suited to sponsorships. Medialets takes advantage of hardware features such as vibration and accelerometers. For example, Dockers’ shakeable ad featured dancer Dufon, a freestyle dance expressionist, dancing around the screen wearing Dockers Khakis in a game called iBowl.
In another Medialets ad for the TV drama series Breaking Bad, when a user taps on the teaser ad, a full screen page reveals an interactive periodic table of the elements and asks the viewer to pick three elements (see sequence of screenshots above). As the user chooses, a test tube gradually fills with ominous and bubbling liquids. Once the test tube is full, the viewer is then asked to shake the iPhone to mix the concoction to see how well the user knows his or her chemistry. Upon shaking the phone, one of five full-screen animated “chemical reactions” (bubbling, burning, crystallization, etc.) immediately occurs. The full-screen reaction fades away to reveal the Breaking Bad Season Three poster. The poster features options to replay the chemistry game, play the series trailer, download the AMC app, or purchase the television series directly on iTunes.
The variety of advertising options can be daunting to publishers and developers. The good news is, if you know your demographics and understand the pros and cons of each option, you’ll be better equipped to choose the right option. And as you gain scale, you can switch to a new option that will help you better grow your revenues.
Like this story? Want to learn more? On April 14-15, our fourth annual VentureBeat Mobile Summit will tackle the six biggest growth opportunities in mobile today. The invitation-only Summit will gather the top 180 executives at the scenic Cavallo Point Resort in Sausalito, Calif., to discuss issues like this. Request an invitation.