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Real-time bidding is ending mobile performance advertising golden days

Image Credit: Barry Haynes

This sponsored post is produced by PapayaMobile/AppFlood.

Performance advertising historically has attracted mobile ad network advertisers, but with the maturity of the mobile ad industry, we’re witnessing the consolidation of ad tech – a trend that gaming studios need to watch.

With consolidation fueled by a movement away from performance-based advertising and toward Real-time bidding (RTB), the golden days of of performance-based or Cost-Per-Install (CPI) advertising is nearing its end. .

At AppFlood, we keep a close eye on major ad-driven tech companies. This includes those gearing up for IPOs and others that are busy buying up or merging with others, fearing that they’ll miss out on the rising brand-driven mobile ad spend. Research firm eMarketer estimates that brand-driven ad spend could rise to as much as $8.51 billion this year — and 95 percent jump year-over-year.

The mobile ad network brand rush has arrived

When it comes to ad tech, Wall Street is all about profits – or the lack thereof. To Wall Street’s credit, if you eye Mopub’s revenue – which was published in Twitter’s latest S-1 amendment due to its recent acquisition by the social network – Mopub was in the red in 2012, with a net loss of $8.14 million on $2.69 million net revenue.

At the end of the first six months of 2013, Mopub’s net revenues have improved threefold, but runs a $2.82 million net loss. Jumptap, a leading mobile ad network and competitor to Mopub that was recently acquired by Millennial Media, fared no better in 2012, with $13 million in losses on a revenues of $63 million.

What does this all mean?

Download-driven advertising is proving to be a difficult business to scale. Current mobile advertisers – generally performance-based — have a tendency to jump from network to network with lower than average ad spends (an average of $50.75) per campaign. Of course, realistically, ad spend on any ad network looks like a hockey stick, with the biggest spenders at the head of the long tail.

Comparatively, Brands come in with an average per campaign mobile advertising budget of $242,750according to IAB – nearly 5000x times the per campaign budget of current performance-based mobile advertisers. And brand ad spend is on a promising upswing, as spend money shifts to mobile and low CPM prices are attracting new mobile advertisers. These global brands are now at the center of attention, and just about every mobile ad tech company wants to get in on the action.

What insights can we learn from the strategic buyouts?

In the short window of four months, Twitter scooped up MoPub. Yahoo bought out AdMovate in an acqui-hire. SingTel’s Amobee bought Gradient X for its RTB tech. Criterio and Media6Degrees shored up its mobile ad tracking tech with the acquisitions of AD-X Tracking and EveryScreen Media, respectively. We can’t forget about Millennial Media, which gave Jumptap the exit for which it was so desperately looking.

Analyzing the motivations of each ad-tech acquisition, it’s a no-brainer what these companies were after. The acquisitions were an opportunity for parent companies to quickly scale essential brand-friendly ad tech like programmatic buying and demographic data that are now standard. After all, brands have loftier advertising expectations that include demographic targeting data than the CPI game studio advertisers who just want to get more installs at the lowest cost possible.

At the same time, with more acquisitions, there’s a consolidation of the mobile ad industry that will shift the mobile ad network landscape toward programmatic buying and change the ad-spend allocation. With bigger tech companies turning their attention to where the bulk of the ad spend is — the brands — and acquisitions taking more performance-based ad networks out of the picture, mobile ad networks once catering to performance will pick up RTB to jockey for a piece of the brand ad spend.

The 2013 Kleiner Perkins Caufield Byers Internet Trend report shows that the supply of ads outweighs the demand by $16 billion, and it explains Accordant Media’s study from earlier this year that found that programmatic trading had driven down average CPM costs of online advertising by 21 percent during 2012 — and then an additional 21 percent in Q1 2013. But at the end of the report, it adds that the decline is temporary, keeping mind the expectation of “expanded inventory across video and mobile channels.”

Temporary low CPM costs aren’t all that bad. The added benefit of cheap traffic is this will drive more advertisers toward programmatic mobile advertising, whether it’s an app developer or a brand who’s been given the green light to allocate more of their ad spend on mobile RTB. In turn, performance will begin to fall out of favor.

In fact, with the decline of desktop spending in favor of mobile, we may even be already seeing what the effects of mobile RTB on performance advertising might look like in the coming year. According to IAB’s half-year 2013 Internet Advertising Revenue report, performance-based revenue has slightly declined since 2012, while CPM revenues increased during H1 2013 to 33 percent.

Ad publishers will make more money, and game developers can grow

Akin to a gold rush, brand-motivated ad-tech acquisitions by Yahoo, Twitter, and Millennial Media will drive smaller mobile ad networks toward brand-centric RTB and targeting features in a bid to remain competitive, or make themselves attractive for an acquisition.

This great news for the mobile ad industry, game studios and other app developers seeking to distribute and monetize their apps. As performance-based mobile ad networks turn their attention to brands, the increasing competition for inventory on these hybrid (brand and performance-based) ad networks will begin driving up bid prices and ad spend, which ultimately means more money per conversion and more money in the pockets of mobile ad publishers.


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