Second Wave of In-App Advertisers Seeks Customer Acquisition, Not ROI

While mobile games and services providers have led the way in in-app advertising and are now focused on customer lifetime value, the next wave is still building. Susan Kuchinskas reports on the state of in-app ads.

Ad-tech firms such as Taptica see big growth for in-app ad spending

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A dramatic shift in mobile advertising is already underway, with marketers following consumers into apps.

According to mobile analytics provider Flurry, now owned by Yahoo, mobile websites and apps combined have become the top media channel, taking more consumer attention than desktop web and even television. In Q2 of 2015, American consumers spent, on average, three hours and 40 minutes per day on mobile devices, according to Flurry – a 35 percent increase year-over-year.
Galia Reichenstein, COO and head of sales for mobile ad-tech firm Taptica, says the firm’s brand and agency clients are spending more in apps. This past year, the company saw close to 50 percent growth in spending year-over-year, and she expects spending to grow between 40 and 70 percent in 2016.

In 2015, the amount spent on mobile display advertising – banners, rich media, sponsorships, video and static display ads – came close to equaling the total spent on desktop ads, according to eMarketer. In 2016, eMarketer forecasts that mobile display will amount to $20.80 billion, while desktop display will fall to $1.59 billion.
"In-app advertising is still nascent, but it's also something we're seeing an enormous amount of interest in … at some of the largest client groups we work for and at the CMO level," says Topher Burns, group director of distribution strategy at Deep Focus, a digital-first creative agency.

Third wave
The first wave of in-app advertising was led by app developers who wanted to acquire users, according to Anne Frisbie, senior vice president of inMobi Exchange and general manager of global alliances for inMobi. Now, she says they are in the second stage: identifying the lifetime value of customer segments. She sees traditional brands and e-commerce companies following a similar path. Retailers and travel providers are currently the most active as they, too, work to acquire users of their apps in an increasingly cluttered marketplace.
"Retailers first are focusing on user acquisition in terms of their app footprint. The second thing that will happen is a focus on a return on ad spend that will be tied around ecommerce," Frisbie says.

More ad-friendly
App developers may be getting the hang of how to display ads in a way that works. MoPub, now owned by Twitter, delivers programmatic ads into apps. Ads in the 580 new apps launched in Q3 2015 outperformed those in ads launched prior to that, with 186 percent higher clickthrough rates, according to MoPub. At the same time, the cost-per-click for ads on the newer apps was 46 percent less and the new app publishers gained 67 percent higher CPMs.
Taptica's Reichenstein says the value of in-app ads is much higher. "Users in apps are much more engaged," she says, plus the targeting is better. And that higher level of engagement remains even when an in-app ad sends users who click to a mobile website, she adds.

The Holy Grail would be if advertisers could buy in-app advertising as part of a total campaign that might also include mobile website ads, desktop website ads and ads on social media; and then, manage and analyze the total campaign holistically. That is a long time away, Frisbie says.
"One of the reasons retailers and commerce players need their own apps is to be able to link their own CRM information. Right now, these advertisers have cookie pools, but they need to build up their device ID pools. Then they will be able to understand their users," she says.
The consolidation this space is undergoing should eventually drive us toward that grail. Mobile ad platforms are getting snapped up: AOL acquired mobile ad firm Millennial Media for $238 million. Twitter bought MoPub for $350 million. Supersonic and ironSource merged to form a mobile ad company with 1 billion combined global users.
This consolidation shows the blurring of lines among channels, according to Reichenstein. As technology and tracking get more sophisticated, she says, they will be able to use that consolidated data to target ads on social media, mobile apps and the web.
The barriers to doing so are not only technological, Burns of Deep Focus says. Agencies themselves are not organized in a way that facilitates cross-channel campaign management. "It definitely would require an integrated team through from the concept ideation and content creation to distribution -- that whole chain has to be integrated," he says.

Consumer acceptance grows

Google has begun warning Play Store users if an app has ads, with a label right below the install button. When a search on the Play Store delivers several options, some free, some ad-supported and some paid, one might assume that people would generally gravitate toward the free and ad-free choices. That might not be the case.
Burns says that ad avoidance is a problem on every channel, and it's made worse by the new generation of ad-blocking tools for consumers. Still, he says, consumers know that "you either pay with your money or with your eyeballs." To get consumer engagement, apps and ads both need to up their game.
Reichenstein of Taptica also does not foresee any decrease in ad spending due to Google's move. She agrees that advertisers must – and will – increase the relevance and interest of their ads. Noting that brands already are growing their mobile efforts and collecting more data, she says, "They will have more fine-tuned messages and [understanding] of what's working better."
As this improves, the costs of ads will go up but the return will be higher, according to Reichenstein, so publishers theoretically won't have to run as many ads as they do now.
That would be a big win for everyone – if it happens.