The Ultimate Guide to In-App Advertising: Tips, Exchanges, Payouts & More

Mobile connectivity has exploded over the past few years. There are now more than 294 million smartphone users in the US. Out of the world’s population, 78% use a smartphone. According to the World Health Organization, significantly more people have smartphones than indoor plumbing and basic sanitation services.

It’s safe to say that mobile apps on mobile devices have become embedded in everyday life.

Monetization of the mobile web through ad exchanges and ad networks continues to grow. In 2021, mobile ad spending grew by 23%, accounting for $295 billion in ad dollars. Usage by consumers continues to increase, too. Globally, users spent some 3.8 trillion hours on mobile devices last year.

Mobile users are responding to campaigns, too. Conversions for in-app ads generated more than $170 billion in the U.S. alone in 2021. Additionally, the in-app marketplace shows no signs of slowing down, creating even more potential for further monetization.

In this article, we will provide a detailed explanation of everything you need to know about in-app advertising, how it works, and how you can use it to boost your app revenues. For a more general overview, read up on the basics of mobile app advertising.

What Is In-App Advertising?

In-app advertising allows app developers and publishers to monetize their apps by serving ads. High-quality digital advertising is a key component of app developers’ monetization strategy. Mobile ads are delivered through ad networks, which connect available ad inventory on apps with advertisers looking to place content. 

As a publisher, it’s ideal to find the right ad network for your industry and user base. By showing real-time ads to mobile users, publishers and developers can deliver relevant content to a highly-engaged audience. In-app advertising can provide app purchases, visits to the app store, and app installs.

How Does In-App Advertising Work?

Here’s how it works. Developers and app owners work with third parties that source advertisers. Typically, this involves a supply-side platform (SSP) that aggregates inventory in different app advertising formats. This is the sell-side.

Mobile app advertising is then available to brands, agencies, and ad exchanges that are looking to buy ads. Mobile marketing advertisers can make direct buys or use a demand-side platform (DSP) to aggregate campaigns. This is the buy-side.

In the middle sits the ad networks, which bring the two sides together. Developers will use software development kits (SDKs) or an application programming interface (APOI) within the app. When an Apple, Android, or other app is open the app will make a request for an add. Following the request, the SDK or API will connect to an ad network where bidding takes place in real-time. The ad network finds matches between an app’s audience and advertiser parameters and whoever pays the highest bid will win the space to place an ad.

Programmatic advertising automates the process of selling, buying, and deploying ads without requiring any human intervention.

Types of Mobile App Ad Formats

There are multiple in-app ad formats, with the most common formats including banner ads, native ads, rewarded video ads, interstitial ads, and playable ads.

App developers and publishers can embedd advertising campaigns in their apps, which then take over part of the screen, pop up, or go full-screen. Some of the most effective app advertising formats create opportunities for direct engagement, such as playable game ads or interactive content. Any way you do it, delivering the right ad to the target audience increases user engagement and conversions, which results in more revenues for the publisher.

Banner Ads

Banner ads are the most traditional and common ad type. Also known as display ads, these are typically in view at the top or bottom of the screen on mobile devices and desktop web pages.

Native Ads

Native ads blend seamlessly into the content of the page so they do not intrusively interrupt the user’s experience. They may be found as part of gameplay in a gaming app.

Rewarded Video Ads

These ads are popular in gaming app. An ad will pop up, and if the user chooses to watch it they receive a reward such as coins or energy as an incentive.

Interstitial Ads

Interstitial ads will take over the screen during a logical break. In a gaming app, for example, interstitials typically play when there’s a break in the action or a game has concluded. In a new app, interstitials might run when users transition from one story to another. Their intent is to fully capture the user’s attention.

Playable Ads

Playable ads typically show snippets of how a game works and allow mobile users to interact with the ad and try out basic game functionalities to lead to app installs.

Pricing Models For In-App Advertising

There are multiple options when it comes to how advertisers buy ads — each with its own pricing structure. Here are the various ways ads are priced on iOS, Android, social media apps, and websites:

  • Cost per Thousand (CPM)
  • Cost per Click (CPC)
  • Cost per Action (CPA)
  • Cost per Install (CPI)

CPM (Cost per Thousand Impressions)

Cost per Mille (CPM), also known as cost per thousand, relates to how many times a mobile app is viewed. For every 1,000 times an app ad is shown, advertisers pay a set fee.

CPM ad pricing models are easy for publishers to track payments because they’re based solely on the number of impressions, regardless of whether the user took any action on the ad. In addition, publishers and app developers have greater control over ad placement with CPM models.

CPC (cost per click)

Cost per click (CPC) ads generally bring in higher revenues than CPM models, but they require users to take action, in order for revenues to be generated. With the help of analytics platforms, app developers can easily identify ads that are under-performing and can work to optimize those ads for higher conversions. While publishers and developers have the ability to test ad placements, they’ll want to be careful not to display ads in such a way as to cause accidental clicks from the user in an attempt to generate higher revenues. This sneaky practice will cause advertisers to note high costs and low conversions on your app, causing them to stop advertising on your app.

CPA (cost per action)

The cost per action (CPA) model means the advertiser pays the publisher when someone clicks on the ad campaign and takes a specific action, such as making a purchase or signing up for a newsletter.

Although CPA revenue models require the most effort from the user, they also pay higher than both CPM or CPC.

CPI (cost per install)

With cost per install (CPI), advertisers pay app publishers each time a user installs the app being advertised by the ad network after viewing. This ad payment format is similar to CPA, with the action goal set specifically for app installations.

Advertisers who pursue CPI ad placements on your app are willing to pay the highest revenues out of all other formats. CPI advertising is a highly competitive space for advertisers, which works for app publishers’ benefit.

In-App Ad Revenues for Publishers

Revenues generated from ads are highly variable. For publishers, the more traffic you bring to your site, the more ads that can be shown and the more potential revenue you can generate. However, deploying ads reliant on action can be risky. If you have low engagement, your earnings could be low as well. As such, publishers need to ensure they are showing relevant ads that complement the user experience and encourage clicks and conversions.

Benefits of In-App Advertising

In-app advertising has become incredibly popular and for good reasons. Millions of people access apps every day, so the market is massive. More than 230 billion mobile apps are downloaded each year and usage is at all-time highs. One study showed the average person is spending 4.8 hours per day on their mobile phones. This creates significant opportunities for ads to be seen.

High Performing

Today, algorithms are highly efficient at targeting users by behavior and demographics, meaning app advertising is more efficient as well. Mobile users are much more engaged than in other forms of passive media. If an ad matches their interests or what they are already doing, clickthrough rates (CTR) tend to be higher. This leads to higher brand awareness and conversion rates.

Mobile ads can also offer direct incentives to app users, such as rewards for users to stimulate interaction or discounts to stimulate sales.

Finally, in-app ads have a better chance of getting seen. You can tune out an ad on TV or skip past video ads on websites, but 64% of video ads are viewed from start to finish in apps.

Cookieless advertising

Another significant benefit of in-app ads has to do with cookies. Cookies are only available in browsers and not apps. While you might think that would limit targeting opportunities, that’s not the case. App users provide a significant amount of first-party data to app publishers, which helps more narrowly target users. Device ID data attributes user behavior to specific devices and users for even better targeting. This allows serving ads with high precision.

Improved UX

In-app ads also see reduced clutter versus other forms of media. Think about how many ads you see on a typical website or when watching TV. In an app, you only see only one ad at a time. You’re not competing for attention with other advertisers when an in-app ad is showing.

AdBlock Revenue Recovery

In addition, in-app ads beat the ad blockers. More than 42% of internet users globally have ad blockers installed, including 38.8% of US users. App publishers control the ad environment and few adblockers work inside apps. As a result, ad viewability increases, creating more revenue for publishers.

Disadvantages of In-App Advertising

There are also some drawbacks to in-app advertising that should be considered and recognized.

Due to the effectiveness of mobile marketing, it’s become increasingly competitive. While there may be a seemingly endless supply of advertising inventory, advertising only works when it’s seen. This means running the right ads in the right places is essential for performance. Popular apps, mobile game apps, and apps that have high retention rates command higher prices. More advertising bidding drives pricing higher, and while this is good for publishers, it makes in-app ads more expensive for advertisers.

Because of market saturation, ad space can become expensive, especially in highly competitive marketplaces. This can produce significant expenses for app installs and high conversion rates.

Advertisers and publishers also have to be concerned about disrupting the user experience. If ads are too frequent or disruptive, they can harm the experience. For example, frequent popups can cause users to become frustrated and uninstall the app. As many as 16% of app users say excessive advertising is the reason they have uninstalled apps. There are also concerns about fraud.

Maximize Your In-App Advertising Revenue

Ad dollars typically follow eyeballs. As people spend more time on mobile devices rather than on TV or other forms of media, mobile app advertising will proceed to grow. This creates significantly larger opportunities for brands to invest in in-app ads to target audiences.

Newor Media connects website and app publishers and owners with advertisers so they can better monetize their sites and apps. Newor Media provides publishers with ad tech that optimizes monetization, deep data analytics, and unique insights. We also have a team of Ad Ops experts standing by to help maximize your ad dollars. To learn more about maximizing your ad revenue, contact the monetization experts at Newor Media today.

Mimi Leonard

Senior Account Manager, Publisher Development: Newor Media

Mimi is a data, SaaS and digital media expert with over 15 years of experience in Ad Tech. She works with our Publishers to grow revenue using data insights to optimize revenue.