Are In-App Advertisements Profitable?

Are In-App Advertisements Profitable

Is ad-integration the way to maximize profits for your application?

In August 2021, Uber began showing ads in its core app in an attempt to find new avenues for revenue generation. The company aims to earn US$300 million in revenue from ads by 2022. The first company to be featured in Uber’s core app advertisements is Marriott Hotels. The ads pop up on user screens after they book a ride with the app. The ad rollout is a pilot test, with only 25% of users in the US seeing ads at the moment. By 2023, mobile applications are expected to generate US$935 billion from paid downloads and in-app advertising.

With a big-league company like Uber adopting in-app advertising, let’s try to understand why this new revenue stream might be a profitable move for budding app developers.

Why should you use in-app advertising?

When a developer invests their time, money and energy into creating an application, they would naturally want to reap the benefits of their hard work. If the application they are developing isn’t a paid one, then developers can choose to incorporate advertising into their app to generate revenue.

There are a wide variety of in-app advertisement formats that can be used when considering how to monetize your application. Some of the most effective ones include:

Rewarded video ads

These are ads that give users the chance to get virtual rewards (like in-game money) for viewing advertisements. 

Rewarded videos ads positively affect the amount of time a user spends on the app. The gaming company Cook Apps experimented with rewarded video ads, and they found out the session length (amount of time spent on the app) rose by 211%  if they are placed soon after the user has exhausted all their in-game lives (or chances).

Other experiments, such as the test by Bulgaria-based game developer NoSixFive, showed an increased effective cost per mille (eCPM) from the adoption of rewarded video ads. eCPM reflects how much revenue an app will earn per 1000 impressions.

The average eCPM rate for rewarded ads is between US$3-US$17.

Interstitial ads

These are full-screen video ads that appear during transitional points in an app like when you complete a level or when you defeat a boss character.

The use of interstitial ads leads to an increased conversion rate (the rate of users performing a desired action like watching the complete ad). They give the advertisers access to 100% of the user’s attention. A case study in the successful integration of interstitial ads is the Hong Kong-based app developer Bravolol. Within 12 months of incorporating interstitial ads into their apps, the company saw a tenfold increase in their CPMs (the rate that advertisers pay per 1000 impressions; the difference between eCPM and CPM is that CPM is understood in the context of advertisers and eCPM is understood in the context of an app’s revenue).

The average eCPM for interstitial ads is between US$4-US$6.

Native ads

These are ads that blend into the content of the application. They make it hard for the users to differentiate between the app’s content and the advertisement. Hence, native ads are considered advertorial in nature.

Native advertising has been proven to be more effective than traditional display ads (or banner ads that are constantly present inside the app). A study conducted by Sharethrough/IPG Media Lab found that people were 53% more likely to look at native ads than banner ads.

The US-based game development company Mindware Consulting has been successful in using native advertising to their benefit. Using native advertising, the company saw a 600% increase in its CPM

The average eCPM for native ads is US$10.

With in-app advertising bearing such positive results for companies, it is clear why Uber has taken the decision to adopt it. In-app advertising is expected to grow at a compound annual growth rate of 19.96% between 2021 to 2028. However, the former CEO of Uber Travis Kalanick believed that adding advertisements to Uber will disrupt the user experience

Kalanick’s views on advertising resonate with a lot of users. According to research conducted by Hubspot, around 64% of the people studied find ads annoying and intrusive which must be considered when thinking about the number of ads you put in your application. How the decision to adopt ads turns out for a company like Uber will be a way for app developers to gauge how to effectively adopt in-app adverts without adversely affecting the user experience. 

Header Image Courtesy of Unsplash

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