App monetization: 3 basic concepts every publisher should understand

by Jacob Grate on Jan 24, 2017

If you’re an app developer or publisher who is new to monetization through mobile ads, it’s not unusual to feel confused or overwhelmed by trying to digest all of the information available on the subject — particularly when so much of it is written by people already familiar with the concepts and the jargon. Some education is required up front in order to understand how your ads are performing and the meaning of the data you’re looking at. The landscape is constantly evolving, so keeping up with the latest strategies is an ongoing process, even for those who are veterans to the practice. As someone who works with publishers and developers on a daily basis, I see some common themes that they often struggle to grasp or apply correctly.

Here’s what every dev should be familiar with as they get their feet wet with monetizing their apps:

The fundamentals of how ad networks work…and what “performance-based” means

In order to put together any solid monetization strategy, it’s important to truly understand how ad networks operate. An ad network is essentially a market full of supply (publishers looking to sell ad space for revenue) and demand (advertisers looking to promote their app by buying that ad space). The ad network uses data to find good matches between ads (demand) and inventory (supply) so that the publishers can generate good revenue and the advertisers can reach their goals or KPIs. In this age, since the results from advertising on mobile are now trackable/attributable (unlike with television or billboard ads), it’s the norm for mobile marketers on the demand side to use lots of granular data to help inform their advertising decisions. Because of this, most leading advertising platforms, including AppLovin, enable these marketers to buy ad space on a performance basis. This means that publishers’ earning potential from selling ads in their apps is contingent upon the success advertisers can find there. If they can acquire quality users from your app, then they will be willing to pay higher rates for your ad space.

Placement quality is key

As indicated above, in a performance market, advertisers often pay for installs (or down-funnel metrics such as post-install events) rather than impressions or clicks. This means that compared to other ad networks where advertisers pay flat rates per impression independent of down-funnel performance, ad revenue depends on many more factors. In this type of setting, there needs to be an emphasis on quality over quantity, since the bulk of the revenue comes from the impressions that the user actually engages with. Therefore, it’s best to place ads within the natural flow of the app so the user is more likely to be receptive and thus more likely to convert on an impression, such as a rewarded placement in a game that offers the player a respawn after a death, or a placement that offers bonuses in regular intervals.

For interstitial ads, placements that occur at natural stopping points after a task is completed rather than before or in the middle are more effective. You also don’t want to overwhelm or frustrate the user by showing too many ads too frequently. Not only will good placements generate more ad revenue and better eCPM performance, they will also improve the user experience of your app, which will help with retention and increase future earning potential.

User behavior is critical to performance

It’s also important to understand patterns in how users typically interact with mobile ads over the course of their session within an app. For performance-based networks, it’s nearly universal across any vertical, format, or placement that ads shown earlier in the user session (at the top of the “waterfall”) are more likely to have higher click-through-rates and conversion rates than ads shown after the user has been in the app for a while. This applies both on a per-session basis and per their overall usage of the app. This means that fresh new users tend to generate more revenue than users accustomed to the app. Also, any given user will be much more likely to convert and generate revenue on the first ad you show them than the third, fourth, or fifth ad.

Following this logic, you can expect to generate much more revenue and have a higher eCPM showing 10,000 ads to 5,000 users (2 per user) than 10,000 ads to 1,000 users (10 per user). Because of this, you’ll want to expose as much of your audience to the ad placement as possible, rather than just serving impressions over and over again to a smaller percentage of your users. Additionally, having a higher impression volume will allow ad networks to have more data to work with to optimize towards higher eCPM.

Understanding your users’ behavior and what they respond to is key to monetizing your game. Optimizing the placement of your ads based on what you know about your customers will increase earning potential without sacrificing user experience.

There’s no doubt that if you’re just starting out monetizing your app, learning the nuts and bolts of how to make good money can seem daunting at first because aspects of it are complex and the industry changes quickly. But if you’re familiar with the basics of how ad networks work (and with what “performance-based” means), the concept that ad placements affect quality and therefore how much money you earn, and the notion that understanding user behavior is crucial to success, you’ll be well on your way.

Jacob Grate is an analyst for Growth Partnerships at AppLovin.

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