How Does In-App Advertising Work?

According to the latest report on the state of the in-app advertising market by IMARC, it reached 110.9 billion in 2021 and is expected to hit the unprecedented 343.5 billion mark by 2027. This means that, despite its enormous potential, the sphere becomes more and more crowded and competitive.

It comes as no surprise with the freemium model dominating major app stores these days. In general, app publishers have to rely on the in-app advertising revenue as only about 5% of average users make in-app purchases.

Even though it’s rather tempting to boost your app monetization by featuring more and more ads within your app, it’s vital to find a balance to avoid user experience deterioration due to in-app ads overflow.

What is In-App Advertising?

In-app advertising is a type of app promotion that presupposes buying an ad slot within an app. In the simplest terms, app publishers are paid for displaying ads within their apps. It goes without saying that advertisers try to opt for apps with target audiences similar to their own. 

App publishers can also collaborate with ad networks that allow them to choose an appropriate audience and start bidding on it via programmatic ad buying.  

In-app advertisements adopt various formats including:

• Banner ads. Being one of the most widely used formats, such ads are usually placed at the top or bottom of a screen and feature a combination of an image, a short text, and a CTA (call-to-action) button.

• Video ads. They are considered rather engaging and can boast impressive click-through rates. The closest analogy of such short video clips is video ads one sees before a YouTube video.  

• Rewarded video ads. One of the in-app advertising examples that is especially popular among games as it presupposes offering a clear award for watching an ad.

• Offerwall ads. These are similar to rewarded video ads but usually look like a page that features a list of incentives (for example, lives or coins in the context of a game); 

• Native ads. Such ads tend to blend in with editorial content published on social media or website feed. In spite of being marked with a ‘sponsored’ or ‘ad’ badge, native ads mimic the surrounding design really well; 

• Interstitial Ads. They are represented by a full-screen ad banner displayed between different game levels or during any type of app transition. They can be both static and include video.

• Playable ads. This game ads type offers to play a version of a said game before installing it. When it comes to in-app advertising cost, such ads normally have the highest CPM rates because of their interactive character and built-in gamification.

What are In-App Advertising Advantages Compared to Mobile Website Ads?

1. In-app advertising provides more monetization possibilities. The very fact that any app can become an ad space is a testament to this statement; 

2. Apps take the lion’s share of the time that users spend on their phones. According to the Smaato study, apps enjoy 90% of time spent by mobile users leaving the mobile web far behind.

3. In-app advertising statistics by Siteefy state that the global click-through rate (CTR) of in-app ads is 0.56%, while this metric reaches only 0.23% for mobile web advertising. More engaged users lead to a better conversion rate and eventually enhanced revenue. Thanks to AppSavvy, it’s known that banner ads on mobile websites perform 11.4 times worse than in-app ads.

4. A mobile app context allows ad developers to collect more granulated information about users with help of device ID (for example age, gender, used OS, geolocation, etc.). Thus, targeting becomes more accurate. At the same time, websites can offer quite limited tracking options using cookies.

5. In its turn, better targeting gives app marketers a chance to create personalized ads tailor-maid for each audience segment. That said, we shouldn’t forget about the limitations of in-app advertising iOS 14 imposed. Indeed, Apple’s efforts to improve users’ privacy made ad personalization way more challenging. 

6. Thanks to the very principles of the freemium model, advertisers shouldn’t worry about Ad Blocks installed on devices of their target audience. An ad blocker can hide banner ads within a mobile website but can affect the usage of a free app.

The main drawback of in-app advertising lies in the fact that it doesn’t allow you to reach niche audiences that are not avid smartphone users. Furthermore, competition becomes more and more severe and it increases in-app advertising rates. That’s why a regular cost vs benefit analysis is a must if you want to ensure your in-app ad campaigns keep generating profit.