In-app advertising is an effective monetization strategy for publishers. In this guide, learn about in-app advertising and how it works.

Without any statistics, one can know that everyone uses mobile apps extensively.

Whether it’s a game app, social media app, online shopping app, or any app for that matter, users spend an average of four hours on them.

Publishers and businesses use in-app advertising to reach the maximum target audience and bolster their sales by educating them about their products and services.

What is in-app advertising, how it works, what are its benefits, and how it can help a business grow- in this guide, you’ll learn all about in-app advertising.

Read More: How are In-App Advertising Rates Calculated? 

What is In-app Advertising?

As the name suggests, in-app advertising is a sales strategy that businesses use to advertise their product within an application for users.

Because smartphone applications drive mobile usage, in-app advertising becomes an important marketing channel for publishers to exhibit their content to the users and boost downloads. It works for both the advertising agency and the brand. 

In-app advertising is the ads you see while playing a mobile game, surfing through social media, or doing anything on a mobile app.

Mobile Advertising Spending from 2007 to 2024 in Million U.S. dollars – Statista

In-app advertising is an effective marketing technique because it allows the advertisers to reach the target audience based on the app’s demographics. 

The best part about in-app advertising is that these ads are less distractive, non-disruptive, and best controlled and managed. These ads are placed to add to the user experience without ‘cutting’ their engagement on the app. 

The In-app Ecosystem – How Does It Work?

The in-app advertising ecosystem is a complex system that involves various stakeholders and technologies to facilitate the delivery of advertisements within mobile applications. Here’s an overview of how the in-app advertising ecosystem generally works:

  1. Publishers/Developers: 
    • These are the individuals or organizations that create and manage mobile applications.
    • Developers integrate ad SDKs (Software Development Kits) into their apps to enable the display of ads.
  2. Advertisers:
    • Advertisers are businesses or individuals who want to promote their products or services.
    • They create ad campaigns specifying the target audience, budget, and ad creatives.
  3. Ad Networks:
    • Ad networks act as intermediaries between advertisers and publishers. They aggregate ad inventory from multiple publishers and offer it to advertisers.
    • Ad networks optimize the ad selection and placement process, ensuring that the right ads reach the right audience.
  4. Ad Exchanges:
    • Ad exchanges are platforms that facilitate the automated buying and selling of ad inventory in real-time through a process known as real-time bidding (RTB).
    • Publishers make their ad inventory available on ad exchanges, and advertisers bid for impressions in real-time.
  5. Demand-Side Platforms (DSPs):
    • DSPs are tools used by advertisers and agencies to manage their ad campaigns programmatically. They connect to ad exchanges to bid on ad impressions based on predefined criteria.
    • DSPs enable advertisers to target specific demographics, interests, or behaviors.
  6. Supply-Side Platforms (SSPs):
    • SSPs are platforms that help publishers manage and optimize their ad inventory.
    • They connect to ad exchanges to offer available impressions to advertisers, ensuring that publishers get the best possible price for their ad space.
  7. Data Management Platforms (DMPs):
    • DMPs collect, analyze, and manage large sets of data to help advertisers and publishers make informed decisions.
    • They enable better targeting by providing insights into user behavior and preferences.
  8. Ad Servers:
    • Ad servers are responsible for delivering ads to users within the app.
    • They store and manage ad creatives, targeting rules, and delivery schedules.
  9. User:
    • The end-users of the mobile applications who consume the content and view the ads.
  10. Here’s how the ecosystem interacts with one another in this step-by-step process:
  • A user opens an app with integrated ad SDK.
  • The app sends ad requests to the ad network or ad exchange.
  • Advertisers bid on the available ad impressions in real-time (if using RTB).
  • The winning ad is selected based on various criteria, and the ad server delivers it to the user within the app.

This entire process happens in fractions of a second, creating a dynamic and efficient system for delivering targeted advertisements in mobile applications.

In-app Advertising Benefits (and Challenges)

Besides playable ads, there is a multitude of in-app ad formats. 

Benefits

In-app advertising offers a range of advantages for both advertisers and app developers. One significant benefit is the ability to conduct targeted advertising, leveraging user behavior, demographics, and interests to reach specific audiences effectively. Users spend considerable time within mobile apps, providing advertisers ample opportunities to engage with them through well-placed and relevant ads. The use of rich media formats, such as videos and interactive banners, enhances user engagement, creating immersive experiences. Additionally, in-app advertising platforms provide robust data analytics, offering advertisers detailed insights for campaign optimization.

For app developers, the monetization potential is substantial, as they can generate revenue by incorporating in-app ads, especially in free apps. In-app advertising also allows for global reach, breaking down geographical barriers and expanding the potential customer base. Moreover, the cost-effectiveness of programmatic advertising enables advertisers to optimize budgets by paying for specific criteria-based impressions or clicks.

Challenges

Despite its numerous benefits, in-app advertising comes with its set of challenges. Ad fatigue is a common concern, as users may become disengaged or irritated if exposed to the same ads repeatedly. Managing ad frequency is crucial to address this issue. User experience concerns arise when poorly designed or intrusive ads negatively impact the overall user experience, potentially leading to app abandonment.

Ad-blocking tools employed by some users limit the visibility of ads, reducing the effectiveness of in-app advertising. Privacy concerns surrounding user data collection practices may lead to stricter regulations, impacting how advertisers target and track users within apps. Technical challenges, such as compatibility issues and varying device specifications, can pose hurdles to creating seamless ad experiences across a diverse range of devices.

Ad fraud, including fake clicks and impressions, remains a significant challenge, emphasizing the importance of ensuring ad viewability and preventing fraudulent activities. In a competitive landscape, advertisers must contend with numerous apps and rivals for users’ attention, requiring the creation of compelling and relevant content to capture and retain user interest.

Despite these challenges, the in-app advertising industry continues to thrive as advertisers and developers adapt to overcome obstacles and leverage the opportunities presented by targeted and engaging advertising experiences within mobile applications.

In-app Advertising Importance for Marketers

In-app advertising has become a cornerstone of modern marketing strategies, holding immense importance for marketers across various industries. One of its primary strengths lies in its ability to offer targeted reach. Marketers can precisely tailor their campaigns based on user demographics, interests, and behaviors, ensuring that advertisements reach the most relevant audience. This targeted approach significantly increases the likelihood of capturing the attention of potential customers who are more likely to convert.

The enhanced user engagement within mobile apps further amplifies the significance of in-app advertising. As users spend a considerable amount of time within apps, marketers have a unique opportunity to create impactful and immersive ad experiences. The use of rich media formats, such as videos and interactive banners, adds a layer of engagement that is often challenging to achieve through other advertising channels.

Data-driven insights are another crucial aspect that makes in-app advertising important for marketers. In-app advertising platforms provide detailed analytics, offering marketers real-time visibility into the performance of their campaigns. This data-driven approach empowers marketers to make informed decisions, refine their strategies on the fly, and optimize campaigns for better results.

For app developers, in-app advertising serves as a vital revenue stream. By incorporating ads within their apps, developers can monetize their user base, especially in the case of free apps. This symbiotic relationship between advertisers and developers creates a mutually beneficial ecosystem, supporting ongoing app development and maintenance efforts.

In terms of cost-effectiveness, in-app advertising, particularly through programmatic channels, allows marketers to optimize their budgets efficiently. Advertisers can bid on impressions or clicks that align with specific targeting criteria, ensuring that resources are allocated effectively to reach the desired audience.

The global reach provided by in-app advertising is particularly valuable for businesses with international aspirations. Marketers can promote their products or services to a diverse global audience, breaking down geographical barriers and expanding their market reach.

Moreover, in-app advertising aligns seamlessly with a mobile-first marketing strategy. With the increasing dominance of mobile devices, marketers can meet users where they are most active, fostering a seamless and integrated brand experience.

The flexibility and creativity offered by in-app advertising platforms are additional advantages. Marketers can experiment with various ad formats, including videos, interactive elements, and playable ads, allowing for creative and innovative campaigns that stand out in a competitive landscape.

Lastly, in-app advertising is pivotal for marketers to adapt to changing consumer behavior. By meeting users in the digital spaces where they spend a significant portion of their time, marketers can stay relevant and resonate with their target audience. In conclusion, in-app advertising emerges as a powerful and targeted channel that, when leveraged effectively, enables marketers to enhance brand visibility, drive engagement, and achieve their business objectives in an increasingly mobile-driven world.

Mobile Websites vs. Mobile Apps

Mobile websites and mobile apps represent two distinct approaches for delivering content and services on mobile devices. Mobile websites, accessible through web browsers, offer platform independence, making them available across various devices and operating systems. They are cost-effective in terms of development and maintenance, visible to search engines for better discoverability, and do not require installation. However, their offline functionality is limited. 

On the other hand, mobile apps provide a superior performance and user experience, leveraging device features like the camera and GPS. They offer extensive offline functionality, contribute to brand loyalty through personalized experiences, and present monetization opportunities through in-app purchases and advertising. Apps can be distributed through app stores, enhancing visibility but introducing development complexities. The choice between a mobile website and a mobile app depends on factors such as goals, functionalities, and target audience, with some businesses opting for both to cater to a broader user base and achieve diverse objectives.

FeatureMobile WebsitesMobile Apps
AccessibilityAccessible across platforms through web browsers.Platform-specific downloaded and installed on devices
Development and MaintenanceCost-effective, immediate visibility of changes.Higher development complexity and cost, updates through app stores
Installation and UpdatesNo installation is required, and updates are immediate.Requires installation, updates managed through app stores
DiscoverabilitySearch engine visibility.Distributed through app stores, centralized platform for discovery
Offline AccessLimited offline functionality, enhanced with Progressive Web Apps (PWAs).Extensive offline functionality, certain features accessible without the internet.
Performance and User ExperienceResponsive but may have limitations .Better performance, smoother user experience, and potential for enhanced graphics.
Access to Device FeaturesLimited integration with device features.Leverages device features like camera, GPS, and push notifications.
Monetization OpportunitiesLimited direct monetization options.In-app purchases, subscriptions, and advertising offer diverse revenue streams.
Brand LoyaltyLower compared to apps .Apps contribute to increased brand visibility and loyalty.
DistributionAccessible through web links.Distributed through app stores (iOS App Store, Google Play).
PersonalizationLimited customization.Can offer a more personalized experience by storing user preferences locally.
Development ComplexityLower complexity.Higher complexity requires separate development for iOS and Android platforms.

In-app Pricing Models

In-app pricing models refer to the strategies used by app developers to generate revenue from their applications. There are several ways in which developers can monetize their apps, each catering to different user preferences and business goals. Here are some common in-app pricing models:

  1. Freemium:
    1. Description: Apps with a freemium model are free to download and use, but they offer premium features or content that users can purchase within the app.
    2. Example: Many mobile games follow the freemium model, where users can make in-app purchases for virtual items, power-ups, or additional levels.
  2. Paid Apps:
    1. Description: Users must pay a one-time fee to download and access the full functionality of the app. There are no additional in-app purchases.
    2. Example: Productivity apps, premium versions of photography apps, or specialized tools often adopt a paid app model.
  3. In-App Purchases (IAP):
    1. Description: Users can make purchases within the app to access additional features, content, virtual goods, or premium subscriptions.
    2. Example: Social media apps may offer in-app purchases for stickers, filters, or premium account features.
  4. Subscription Model:
    1. Description: Users pay a recurring fee at regular intervals (monthly, annually) to access the app’s features or content.
    2. Example: Streaming services like Netflix or music apps like Spotify often use subscription models.
  5. Advertising (Ad-Supported):
    1. Description: The app is free to download and use, and revenue is generated through displaying ads to users.
    2. Example: Many free games, news apps, and utility apps are ad-supported, displaying banner ads, interstitial ads, or video ads.
  6. Pay-Per-Download:
    1. Description: Users pay a one-time fee to download the app. There are no additional in-app purchases or subscriptions.
    2. Example: Some premium apps, especially those with specialized or niche functionality, may adopt a pay-per-download model.
  7. Affiliate Marketing:
    1. Description: Apps promote third-party products or services, and developers earn a commission for each user who makes a purchase through the app.
    2. Example: Shopping or review apps that feature affiliate links to products on e-commerce platforms.
  8. Licensing or White Labeling:
    1. Description: Developers offer a licensed version of their app to other businesses or individuals, allowing them to rebrand and use the app for their purposes.
    2. Example: White-label dating apps or productivity tools that can be customized and used by other companies.
  9. Crowdfunding:
    1. Description: Developers seek financial support from users or the community to fund the development or maintenance of the app.
    2. Example: Some indie developers use platforms like Kickstarter or Patreon to gather funds for app development.
  10. Sponsorship or Partnerships:
    1. Description: Developers partner with brands or companies to integrate sponsored content or features within the app.
    2. Example: A fitness app may partner with a sportswear brand to feature sponsored workout plans or challenges.

Choosing the right pricing model depends on the app’s purpose, target audience, and the value it provides to users. Often, a combination of models or a well-thought-out strategy is employed to maximize revenue and user satisfaction.

Formats of In-App Advertising

Besides playable ads, there is a multitude of in-app ad formats. 

1. Interstitial Video Ads

This type of in-app advertising is often seen in mobile game apps. Insteristial ads are full-screen banner ads that don’t end until the interval ends.

Pros: 

  1. Highly Immersive 
  2. Better impressions 
  3. Better Conversions 

Cons:

  1. Hampers with the user’s task 
  2. It takes too much time to end 
  3. It breaks the user’s engagement within the app 

2. Rewarded Video Ads

 You often see this ad in gaming apps. It is an integral part of the app that enables the users to gain virtual gifts or money, more reward points, power-ups, levels-up, more lives, premium content, or unlock a secret level in the level for watching the ad. 

Pros: 

  1. Higher viewability 
  2. Higher clicks 
  3. High conversion rates 

Cons:

  1. The attention span of the user has lowered, rendering these ads ineffective. 
  2. There is no genuine interaction, as the users will only opt to watch this ad to gain a reward.

Read More: Rewarded Video Ads: 6 Essential Best Practices for 2023

3. Pre-Roll Ads 

Remember the YouTube ads that automatically play within the video either at the beginning, in the middle or at the end of the video? Those ads are Instream Pre-Roll ads. These ads are usually 15, 20, 30, or even 60 seconds long. Some are skippable, while others may run for their determined duration. 

Where are Instream Pre-Roll Ads Effective?

These ads effectively promote brand awareness and brand engagement, creating a purchase intent and conversion. The businesses are suggested to play pre-roll ads because the user shall be interested enough to sit through the ad to watch the original video. It ensures high viewability. 

4. Native Ads 

Native ads are non-intrusive and non-disruptive ads that don’t hamper the user experience. These adverts feel like the native content of the app and may appear as a welcome suggestion. 

Picture the MakeMyTrip app, and upon clicking on the native content, you may come across an ad that just lies there without disrupting your engagement within the app. Native ads are highly targeted and reach the audience with pinpoint accuracy. 

5. Banner Ads 

They are small in size and may appear either at the top or the bottom of the screen within the app. It’s best to create brand awareness without hindering the user experience and huge reach. 

How Does In-App Advertising Work?

In-app advertising requires an ad network, app developers, and publishers to decide which portion of the app shall equip the ad and which ad format should work best. 

Take a look at the following steps to learn more about how in-app advertising works: 

1.  Marketers choose which audience to target and to whom the ads will show to. 

2.  The marketers and the app publishers/ developers decide upon the expenditure of the ad campaign, the format of the ads, and how they can maximise the ad revenue without disrupting the user experience. 

3.   Once it’s all finalised, the ad network’s quality standards, protocols, and management system are checked. Upon getting a go, the ad network then queues up the ad. 

4.  At the user’s end, the app triggers the network’s SDK (Software Development Kit)  or API (Application Programming Interface), which tells the ad network that the user may be ready to see an ad. 

5. The ad network decides which ad should be relevant based on the SDK’s data. It enables maximising the revenue for the app developer(s).

6.  However, the user may skip the ad or see the entire ad but not take the desired action. The user may also disengage from working within the app. 

7.  Finally, it’s time for payout. The advertisers determine how the in-app advertising campaign has worked. The payout is made according to the performance of the campaign.

Also Read: Mobile Targeted Advertising: How they Help Boosting Your Ad Revenue 

How Much Does In-App Advertising Cost?

In-app advertising cost comes in various pricing models. Let us understand the most common ones: 

1.  CPM 

Cost Per Mille means the cost per thousand impressions. Mille is the Latin for ‘thousand’. CPM refers to how much it costs to display an ad 1000 times on an app or website. CPM is one of the original and most common ways to for the ad. 

It’s calculated as: 

CPM= (Total cost * No. of impressions) / 1000

Here, the total cost means the total amount spent on the ad campaign. So, for example, if a publisher charges $5.00 CPM, the ad network has to pay $5 for 1000 impressions of the ad. 

2. CPC

Cost Per Click means the average of the total cost by the number of clicks. The idea behind this pricing model is that the advertiser will only pay if there’s an active interaction on the ad and the ad is clicked upon. Its formula is:

CPC= Total Cost/ Number of Clicks 

If two different ads, one costing $0.50 and the other costing $0.40, are clicked, the CPC will be: 

$(0.50+0.40)/2

$0.90/2

$0.45 

3.  CPA

Click Per Acquisition refers to the cost of the ad determined by the completion of the actual purchase, download, installation, or a free trial. The advertiser, under this model, will pay when a purchase or download is made. 

It also means that the publisher takes upon all the risk of playing an ad until an acquisition is made. The formula of CPA is: 

CPA= Total Cost/ No. of Acquisitions

The app publishers and developers can discuss with the advertisers and decide which model best suits them.

Also Check: Understanding CPC vs CPM for Ad Publishers

Tips for Impactful In-App Advertising:

1. Identify whom you want to reach, know your target audience and display the ad. Then, collect and study the data based on the users’ device, operating system, demographics, preferences, age, gender, and wireless carrier.

2.  Choose the advert agency carefully after studying its pricing models, quality standards, and other protocols.  

3.  Choose bigger and full-screen banner ads for higher viewability and better engagement. Full-screen banner ads may lead the user to the desired website or app and enable conversions. You can also choose video ads for maximised engagement.

4.  Programmatic deals and Private marketplaces ensure complete transparency and control and are effective tools for pricing, inventory, and optimising data. Make sure to make the most of these tools for successful in-app advertising. 

5.  Determine the goals and the budget for your ad campaign. 

6. Choose your creatives after testing them- Images, videos, text. Set a low budget for testing each of them and see what best suits the app. 

7.  Optimise your ads for more conversions. For example, you can choose bigger formats or different ad placements.

Before you leave, we’d like to do a little self-plug about ourselves too. Take a look at what AdPushup does and why we’re hand-picked by Google as a certified publishing partner.

AdPushup has helped more than 300 web publishers sustainably increase their ad CTRs, CPMs, and overall revenues without compromising on UX.

Take a look at how we delivered a 534% ad revenue uplift in 6 Months for CCNA7. If you want to learn how our technology can do the same for you, go ahead and request a free demo.

Final Words

In-app advertising is the most effective way to monetise a smartphone application and enable various brands to reach the desired audience for more sales/ downloads/ ROI. Publishers can choose the best ad network for their applications by keeping the information mentioned above. .

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Frequently Asked Questions:

1) Why In-App Advertising? 

In comparison with mobile websites, mobile apps are widely used. A user spends over 3 hours on average on mobile apps, making it a great platform for the in-app advertising networks to serve their ads there. In addition, mobile apps collect data that helps advertisers sort through the audience and target them as per their preferences. 

2) How to Get Started with In-App Advertising?

You can get started with in-app advertising by choosing the right ad network, selecting the appropriate ad format, and choosing from the pricing model.

3) What are the Benefits of In-App Advertising?

1. They target users with pinpoint accuracy based on demographics, mobile device IDs, operating systems, and wireless carriers.
2. No ad-blockers within the app make an ad reach its target audience. 
3. Click-Through Rates show the efficiency and performance of an ad.
4. It becomes easy to get the targeted audience to reach your website or app and make the desired transaction. 
5. Banner ads and video ads have higher clicks and viewability than in-app advertising. In contrast to this, browser CTR is only 0.01 per cent. And in-app advertising shows about 64 per cent of the viewability of a video ad. 


Author

Shubham is a digital marketer with rich experience working in the advertisement technology industry. He has vast experience in the programmatic industry, driving business strategy and scaling functions including but not limited to growth and marketing, Operations, process optimization, and Sales.

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