Photo: Debenhams on Flickr
Mobile advertising has gone app-happy. Ads in apps! Ads for apps!But as both Silicon Valley and Madison Avenue try to get their heads around how to make money in mobile, it turns out there really is an app for that.
Some of the mobile-advertising world’s biggest players are regearing their products specifically to tap the growing appetite other app makers have for marketing their wares.
Just last week, Twitter revealed a major change to its Promoted Tweets product, allowing advertisers to choose to display ads only to users of Android, iOS, or BlackBerry devices.
That’s perfectly suited to app developers, who don’t want to waste their money by displaying a link to Apple’s App Store to Android users.
Facebook will soon let advertisers target ads based on the Facebook-connected apps a user has already installed—data Facebook already collects, since an app install registers as a Like on the social network.
And Zynga is opening up its huge base of players, to which it successfully cross-promotes in-house titles like Draw Something and Words With Friends, to other game developers.
All of those moves are based on the same basic insight about mobile consumers: Someone who’s installed one app is a really good target for installing another one.
That’s an obvious idea, of course. Razorfish’s Garrick Schmitt talked about appvertising in 2010 at the SXSW Interactive conference. But only now are app marketers starting to get the tools to buy really effective appvertising.
The early results are stunning. Twitter, for example, tripled engagement rates in a test run by the Washington Post’s SocialCode unit that targeted tweets by mobile platform.
In May, Facebook note that it’s been driving 160 million mobile-app installations a month. To drive that number even higher, it rolled out the App centre, a curated directory of Facebook-connected apps that’s meant to keep the social network as a key middleman between app developers and app-platform operators like Apple and Google.
Zynga’s platform moves are too early to measure, with only a handful of partners unveiled last month. But the social-game maker has shown itself to be an absolute master of cross-promotion. Instead of selling ads per se, Zynga is taking a cut of in-game revenues. But it amounts to the same thing: promoting apps to an audience with the intent of driving installations.
They’re not the only ones. Path has signaled that it will make money off its mobile social app by allowing integration with partners, like Nike’s fitness apps. And Foursquare is also turning installations of apps connected to its location service into a revenue opportunity.
How big is the appvertising opportunity?
According to Flurry, a maker of analytics and promotional tools for mobile-app developers, user acquisition—a broad category which includes app installs—is already the single largest category in the mobile-advertising market.
Flurry CEO Simon Khalaf forecasts the mobile-advertising market at $3 billion in 2012. Here’s his breakdown:
- $800 million in brand advertising
- $1 billion in search advertising
- $1.2 billion in user-acquisition advertising—or appvertising
That’s a conservative figure, since it doesn’t capture the kind of cross-promotion that, say, Zynga offers to partners. But however you count it, the market is set to explode.
“Mobile apps can absorb the entire U.S. display and search budget and still be hungry for more,” he says. Flurry’s data, which comes from a wide swath of the mobile-app universe, suggests that at $1 CPMs, based on the number of mobile sessions and ad units available, could take $40 billion in spending today: “There’s more inventory than there are ad dollars available.”
Of course, that means downward pressure on CPMs—unless advertising platforms are able to figure out ways to optimise campaigns to drive installs.
Savvy app makers will take advantage of cheap inventory to build up their user numbers.
The bad news: We’ll probably see a lot of arbitrage plays and flash-in-the-pan growth stories until the market develops and stabilizes.
There are historical analogies. Khalaf cites the late ’90s, when Web publishers were the biggest buyers of Web advertising. Or the early part of the last decade, when eBay discovered the power of Google search ads long before established brands and used them to turbocharge the growth of its marketplace.
“Sand Hill Road is 10 years ahead of Madison Avenue,” says Khalaf. “Some of this is driven by venture capitalists paying each other. That song and dance will end in about 18 months.”
Eventually, mainstream advertisers will figure out how to tap apps as promotional vehicles. Khalaf points to Disney as a brand that’s way ahead of others, using video ads that demonstrate gameplay to drive downloads. But most advertisers aren’t there yet.
In the meantime, there’s a gold rush on for appvertising.
And Twitter, Facebook, and Zynga are selling the picks and shovels.
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.