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With the launch of iOS 14.5 in April, Apple asked users upfront if they wanted to be tracked for advertising purposes, and roughly 56% of people are opting out. This makes them harder to track for ad purposes, according to a study by mobile marketing and measurement firm AppsFlyer. That’s creating challenges for game and app publishers and forcing them to rethink their mobile business strategies.
In its App Monetization Industry Outlook report, Facebook queried a bunch of game and ad industry experts to predict with will happen with app monetization through 2025. The report is a collection of thinking on how to adapt to the forces pushing for privacy over targeted ads that rely on user data.
Facebook consulted with 25 thought leaders in the industry across ad tech, industry analysis, and game publishers. These included experts from Admob, Admost, Glu Mobile, Tapjoy, Newzoo, AppLovin, Fyber, Mail.Ru, AppsFlyer, Omdia, 89 Trillion, IDC, Deconstructor of Fun, Chartboost, MoPub, IronSource, and Zynga.
The here-and-now picture is pretty clear. In the report, Fyber chief revenue officer David Simon refers to IDFA as a “chaos grenade,” creating both pain and opportunity. It has the potential to hurt in-app purchase revenue, which accounts for the bulk of overall app and game revenues and is often enabled by the careful individual targeting of users with ads that is much harder to do now.
The push for ad revenue
Given that chaos, Facebook also came up with near-term practical recommendations for businesses looking for sustainable monetization in the wake of the IDFA changes. One of the solutions is to monetize through advertising instead of relying on in-app purchases for revenues. Omdia predicts in-app ad revenue will rise 21.3% in 2021.
While the IDFA change put pressure on revenues, eMarketer noted a positive — time spent on mobile games increased by 9 minutes per day per U.S. adult in 202, and most of those games will hold into 2022.
Market researcher IDC estimates that mobile game revenue is $156 billion, and about $26.8 billion of that — or 17.2% — is ad revenue. This imbalance suggests an opportunity to increase ad revenue.
Facebook also predicts that in-app bidding for ads can be improved over an older method dubbed waterfall mediation.
With waterfall mediation, ad networks were ranked according to historical ranked CPM (or cost per mille, a measure of the cost an advertiser pays for a thousand impressions), not by who is offering the most per impression. This limited competition, so mobile game publishers and developers were not receiving the best return for their ad inventory.
With app bidding, there are open, real-time auctions between ad networks and other demand sources — enabling more competition among ad buyers, where the highest bidder wins. This results in more revenue going to publishers and developers for each ad impression served to players in their mobile games.
Real-time app bidding will save publishers money, as well as time they can use to test new ad formats and ad frequency and master the use of rewarded video ads to drive engagement.
More monetization tricks
While most successful gaming companies already understand the value of building a balanced app economy into their game, more businesses will shift their teams to combine user acquisition, monetization, and development in a single process, Facebook predicted.
Facebook also believes more companies will have to focus on monetization from the beginning, as well as more effective use of monetization of ads, in-app purchases, subscriptions, and paywalls. New formats such as native in-game ads and battle passes are also expected to grow.
Facebook expects that by 2022 we will see more opportunities for gaming marketers in the form of greater focus on creatives, user acquisition, measurement, and media mix modeling. As marketers explore and grow in their understanding of player motivations, for example, they can leverage the creative part of ads to connect with new, diverse audiences.
Suzy Hay, a business product marketing lead at Facebook, said in the report that she’s seeing an evolution of app business models to account for current market forces. One of the things that should happen is a balancing of revenue sources between in-app purchases and ads, the report said. For the future, IDC expects in-app ads to grow revenue by 17% per year from 2020 to 2024.
In 2022 and beyond, Facebook believes mobile cloud gaming will catch on with formats such as Instant Games on the Facebook platform. These use cloud datacenters to enable no-download, low-friction games people can enjoy instantly. These have often used HTML5 as a format in the past, but the various types of cloud gaming should enable players to enjoy deeper and more graphically rich games instantly, the report said.
Rick Kelley, a vice president of global gaming at Facebook, said in the report that advertisers need to tap into the motivations of why people play games and what experience they want inside the game. He said we’ll see advances in measurement so advertisers can understand how much time the user spends with an ad, who the viewers and players are, how to scale user acquisitions, and how to drive more profitable ad viewership.
Annie Coonan, a product marketing lead for app solutions at Facebook, said in the report that gaming companies should start thinking about ways to measure incrementally across their marketing channels and move away from the last click. Augmented reality should also enable more immersive experiences for games and apps over time. By 2025, virtual reality will also be coming into its own, predicted Facebook, which owns the Oculus VR platform.
Facebook said publishers and developers should focus on optimizing efficiency for the things they can measure in a post-IDFA world, such as using Apple’s SKAdNetwork. They should also build engagement with players and refine their ad strategies, the company said. They should also move to app bidding instead of using complex waterfalls and remove as much friction as possible in the app-install journey. And they should build industry partnerships for cross-platform efficiencies.
Game and app developers should also build trust with players by focusing on quality content, use data to understand where players most want an in-game reward or purchase option, include social features to build community with an audience beyond the game, create for a diverse audience, and prioritize the player experience.
Refining the ad strategy means bringing together monetization, acquisition, and development plans. It also means building non-personalized ad experiences, leveraging format innovations, diversifying monetization across different types of revenue (such as in-app ads), measuring everything, testing, and iterating.
“Be more focused than ever on your game’s quality,” 89 Trillion partner Han Qiu advised in the report.
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