App monetisation 101

Mobile Marketing

Between now and the New Year, we are running a series of predictions pieces from commentators on the mobile marketing coalface. Here, David Pokress, EVP, global publishing at AdColony, consider five ways mobile app monetisation will change in 2019.

David Pokress AdColonyIn 2018, according to Statista, there were 1.3bn mobile game users worldwide, and that number will grow to nearly 1.5bn by the end of 2022. This means that over the next few years, the mobile game industry will see a bump in market revenues – but not in proportion to user growth. Revenues are expected to go from around $26bn (£207bn) to nearly $38bn over the same period. For that to happen we are going to have to see massive shifts in how mobile app creators are monetizing their products. Here are just a few.

1. Mobile ads will be 100 per cent culturally “accepted”
Today’s mobile user expects to see ads on their phone, and is fully aware of why. In fact, the highest percentages of smartphone users are under 49, college-educated, living in urban areas, and making $75k+ a year. These mobile users know better than anyone that there is no such thing as a free lunch.

They’ve gotten something (the app download) for free, and as a result, they will have to “pay” in some way, later. Indeed, according to IPG Media Lab, the majority of mobile users (63 per cent) have said that they understand that mobile apps need ads to earn money and therefore accept advertising.

I believe we’re going to see not just more people understanding and accepting this concept, but that understanding will grow deeper, as users become accustomed to receiving different types of ad experiences and discover the various ways that they can engage and drive their actions. Furthermore, when ads are integrated well into freemium titles, with forethought and consideration for the user and the app experience, we are going to see both increased acceptance and engagement with those ads. Case in point: Rewarded video.

2. Rewarded video will be factored into the app economy from the get-go
Users who understand and accept mobile ads grasp the concept of a value exchange. They get a free app, but they give their time and attention to the ads that are served in that app. Their familiarity with the reciprocity model comes in play when introducing rewarded video, where a user chooses to watch a mobile video ad in exchange for some sort of in-game currency or value, such as a jump to another level, coins/coupons/codes, or the ability to unlock gated content.

Over the past two years, we’ve seen massive growth in the use of rewarded video, more so than any other ad type. Publishers say they believe it offers the best user experience, with 75 per cent calling it out as the most effective monetization method for mobile.

3. IAP-only apps like Fortnite will continue to be the exception, not the rule
It’s been just under 10 years since Apple introduced in-app purchases, and mobile app makers have been grappling with a variety of choices ever since. Do we monetize solely through IAP (in-app purchases), solely through advertising, or a combination of both? And, if the latter, what is the ideal combination?

That is the real question because while some large gaming apps (like Fortnite) do forego all advertising and choose to monetize via in-app purchases instead, that model relies on a few high-spending users to succeed. And, let’s not forget that 95 per cent of users will never spend a penny, so the 5 per cent that do must spend a significant amount. Ultimately, the ad model will monetize an app’s entire audience at a low but predictable rate.

4. The focus will be on maximizing LTV of paid (acquired) users
Most mobile users will never make an in-app purchase. It’s all the more important to monetize not just all users of your app, but more specifically, the ones that you paid to acquire. If you don’t, you’re just bleeding money. To hone in on those users that you want to monetize, cohort analysis and smart ad targeting and opportunity placement will be essential.

And, to clarify, this does not mean you ignore the users that do make in-app purchases; rather, it’s been proven that some ads, like rewarded video offered at the right moment to a paying user, can drive increased revenue by increasing purchase frequency by up to 53 per cent. The more monetization is used to engage, the loop simply becomes more lucrative.

5. As UA competition increases, app companies will target their competitors
The user acquisition space is only getting more competitive. This year, more money has been spent on Gaming than any other kind of entertainment; Mobile revenues account for half of that. Gaming continues to grow, and as more players join, the competition to acquire those users heats up.

I think we’re going to see even more publishers recognize the high potential revenue from users who have left other apps and begin to target their competitors’ user bases. Rather than blacklist and reduce the audience, I think we’ll witness a more open approach, as app companies realize that churn is inevitable and is not a reason to avoid certain users.

Given the recent trends and results in the mobile space, publishers can benefit from thinking more strategically about advertising as a source of revenue. They need to think about it from the start and not as an afterthought. Additionally, once advertising is integrated, publishers need to think more creatively about how to target their users with ads. The growing competitiveness means that they can’t afford to leave this revenue opportunity on the table and potentially be left underfunded to compete in user acquisition.