What is Ad Monetization?

Ad monetization.

This seemingly big, difficult word represents something that, on the contrary, carries a very simple idea: generating revenue through your website, blog or app, by using advertisements.

I’ll try to explain it in a simple way through 5 main aspects to get a grasp on this topic, which is becoming more and more relevant in Mobile Marketing:

1- IAP and IAA

2- Branding campaign or performance campaign

3- Ad types

4- Bid types

5- eCPM

 

IAP and IAA

Are you familiar with those free apps, so well made that very often persuade us to buy paid content? Those apps belong to the Freemium world, namely, they are free but give us the possibility to download premium content, which is, precisely, to be paid. Think of Spotify or Skype for example. This form of monetization is called IAP – in app purchase – and represents the classic method of monetizing with an app. We develop a video game and make it freely downloadable, but if one wants to get extra content, like lives or resources, the premium version must be purchased. Does it ring a bell?

A second but equally effective method is the IAA system, which stands for in-app-advertisement, where, as it can easily be deduced, advertisements of third parties (the advertisers) are published in the app (the publisher), by means of adnetworks, which connect the two sides by working as a channel between supply and demand. Think of Duolingo where, at the end of each “level”, we find banners of advertisers who want their app to be downloaded. This is an example of push-ad: it’s the publishers who decide when and where to show it. Push-ads, and their difference with the so-called pull-ads (where it is the users who decide to be shown an ad), will be discussed later on.

 

2- Branding campaign or performance campaign?

Let’s pretend to be the owners of an app and that we have reached the decision to gain money using ad monetization. Two advertisers decide to publish advertisements in our app.

One is a new technology shop that wants to be known by the customers and aims to get visits to their website; the other is the developer of a mobile app who wants to get the greatest possible number of downloads. The technology shop will choose a branding campaign, the developer a performance campaign. What does this mean?

The core concept behind a branding campaign is that you want to put a positive message about your brand, and not necessarily push the user towards a purchase or another action. So the technology shop wants to be known by potential customers who, when the time to buy a new gadget comes, will hopefully recall the shop thanks to the campaign. On the contrary, a performance campaign aims to an actual action, which is very often represented by the installation of an app. The video game developer wants their last creation to be downloaded as many times as possible, to start making a living in the gaming world.

It’s important to highlight that depending on the type of campaign the advertiser chooses, the price model can change. We will look into it when we will talk about bid types.

 

3- Ad types

Now that they know the objectives of their campaigns, the technology shop and the videogame developer must choose what type of advertisement to create and show. What are the ad types at their disposal to be shown in another app? We can identify mainly four. Rewarded videos, interstitials, offerwalls and native.

 

Let’s have a look at them individually. By using rewarded videos, the user sees an offer for premium content in exchange for watching an in-app video ad;  the user therefore chooses the watch the video; finally the video ends. The user is returned to the app flow and earns their in-app currency as a reward. This is an example of pull ad, it is in other words the users who choose whether to watch the ad.

 

 

A second example are the interstitials that, as the name suggests, occupy the “interstices” inside the app and belong to the category of push ads, that is banners, videos, skippable videos that are shown (pushed) by the app in precise moments and screens (at the end of each level in a videogame, for instance) and are served to the users without an explicit will from them.

 

 

 

Offerwall ads, which, as we can easily deduce, are pages that offer users rewards for taking specific actions and completing tasks such as subscribing to a newsletter, installing a game and reaching level X or simply watching a video.

 

 

 

 

Finally, we talk about “native advertising” when the ad matches the form and function of the app, to make it look coherent and, therefore, native. If the ad is simply appearing on a specific part of the app, without affecting the navigation or the functions (for example on the top or the bottom of the screen), we call it banner and it’s usually a static picture or text in the form of a bar or box.

 

 

 

 

See? Now all the advertisers have to do is choosing the option(s) that they think might work best for them. This means also picking the pricing model that best suits their ad campaigns and that meets their need.

 

4- Bid type: CPM or CPA?

The time has come for our advertisers to pay for their ads.

The most relevant bid types in mobile marketing are usually two (there is also a third type, Cost per Click but we won’t consider it for this example):

  • CPM (cost per mille)
  • CPA (cost per action)

They are based on the campaign initial objectives (branding or performance).

Opting for a CPM bid means paying every one thousand views of the ad (the so-called “impressions“) whether the user will click on the ad or not; if, on the contrary, we think that CPA bidding is more suitable for our purposes, we will have to pay every actual user action (a purchase or a subscription, for example). When this action is the installation of an app, then we talk about CPI or cost per install.

A branding campaign, which as we saw aims to the spreading of the word about our brand, will opt for the CPM system, namely an amount of money the advertiser (based on competition) decides to pay every one thousand views of their ad.

If we are running a performance campaign instead, the advertiser will choose the CPA (or CPI) system, that is to say they will choose to pay an amount of money for every actual action taken by the user (every time the user chooses to download the app, the advertiser will have to pay a previously set sum, say 5 dollars).

 

5- eCPM

The acronym eCPM stands for “effective cost per mille” and represents a standard unit of measurement that the publishers will use to compare all the ads run on their apps, whether they be CPM or CPA. How does it work?

If the technology shop chooses a CPM bid type, the videogame developer will choose a CPA bid type because, as we saw before, they are two different campaigns with two different objectives: the former is branding while the latter is performance.

At this stage the publisher will measure all the ads run on our app through the eCPM unit: we will take the CPA paid by the videogame developer and divide it by one thousand, translating the CPA into the cost of every single view (or impression).  If, for example, one installation of the videogame has a CPA of 5 dollars, the cost of every impression of the technology shop ad will be 5/1000: 0,005 dollars (this is of course an average figure and aims to comparing different campaigns run on our app so as to have a univocal unit). In this way the publisher will be able to uniquely measure ad revenue.

 

This is (almost) everything regarding ad monetization basics for mobile apps.

Are you ready to monetize your own app through advertising?

If you need help, just contact me!