Old School Vs New School App Monetization

ADM: Last time we spoke you mentioned there’s a difference between the “old school” and “new school” approach to monetizing with mobile ads.What did you mean by this?

WELLER: There’s a big difference between the “old school” strategy used by app developers to monetize with mobile ads, and the “new school” strategy that just recently started to evolve. With the “old school” monetization strategy, developers are not committed to taking a “data-first” approach to advertising. Rather than using data to understand to who their users are and how they’re engaging with the app in order to build an ad experience that’s native, ads are instead bolted on as an afterthought. This means that developers using the “old school” method typically use the “spray and pray” banner ad approach, which involves using several inexpensive and intrusive CPM banner ads, and hoping users click on them. Since the success of banner ads is dependent on driving a vast tonnage of impressions, developers using the “old school” strategy strongly focus on acquiring more app users. This involves investing in a variety of user acquisition strategies, such as cross promotion ads or PR, to boost app downloads, gain more users, and make more money, since more users should, in theory, result in more ad impressions and also attract higher ad spend.

The “old school” method is still used by the large majority of app developers today, but I consider it “old school” because it’s been around since mobile ads were first introduced. With the “new school” approach to monetizing with mobile ads, developers are dedicated to using data to truly understand their audience, including who their users are and how they’re engaging with the app, then using this information to create a native ad experience that users will not only engage with, but enjoy. Developers using the “new school” method have the right infrastructure in place to measure user engagement with their app, so they can alter the UX/UI accordingly and create an ad experience that’s native to the app. By providing an ad experience that’s knit tightly into the app, users are more inclined to visit the app again and again. This builds a quality, loyal app audience that will be exposed to more ad content and that advertisers are willing to pay a premium to reach.

ADM: Why doesn’t the “old school” approach to monetization work any more?What are some changes in the market that have caused this?

WELLER: The “old school” approach only really works with for those who can deliver a vast tonnage of impressions and users. The reality is that the “old school” approach to monetization has never been very effective for a developer with a moderately large audience or those just starting to break ground in mobile. The average revenue per month per app that developers collect from mobile advertising has always been low, and is today only around $1,500 per app, according to Vision Mobile’s Developer Economics 2012 study. The reason focusing on downloads as a core metric doesn’t work well is because the app audience that’s being acquired isn’t quality. Incentivized downloads, which were banned by Apple in 2011, were (and, for other app networks, still are) a big cause of lowquality app audiences, because the people downloading the apps aren’t necessarily interested in engaging. But even since Apple banned the practice, app retention hasn’t significantly improved.

Still today the large majority of people who download an app - up to 69 percent, according to a SessionM study - will never visit it again. And even when app users do visit an app, they’re barely engaged. A recent study by Boston's Innerscope Research found the average digital native switches between media types 27 times every hour, so it’s becoming increasingly hard for developers to capture mobile users’ attention. Advertisers are not willing to pay a premium to reach disloyal users, especially when, according to a study by app marketing platform Trademob, 40 percent of clicks on mobile ads end up being fraudulent or accidental. This is a large reason why eCMP’s are so low. A report by mobile ad exchange MoPub revealed that advertisers are only willing to pay between $0.50 to $1.25 for 1,000 mobile ad impressions, since the users they’re reaching aren’t even intentionally engaging with their ads.

Gaining mobile users’ attention is only going to get more difficult with time. Consumers are strapped for time, and as more and more apps get added to app stores every day, developers will have an increasingly hard time competing for downloads and attention. This makes it more crucial than ever for app developers to actually understand who their users are and offer a better, more native ad experience. In the end, developing an app experience that will encourage users to stay and engage rather than leave is more important than downloads, because advertisers get the most value from reaching a loyal, engaged audience.

ADM: If a developer wants to create a more native ad experience for users, where should they start?

WELLER: Before a developer sets out to improve their user experience with native ads, they really need to take a “data first” approach understanding who their users are and how they engage with the app. More and more tools are becoming available to help developers learn who’s downloading their apps, how often they come back, and what they’re engaging with during each app session. After a developer learns about their general audience, it’s important to zero-in on the users who engage with their app most often. At SessionM, we call these “Mobile Power Users,” or specifically the 33 percent most active mobile users in an app. According to SessionM research, Power Users account for more than 78 percent of all time spent in apps, complete over 4 times more sessions per month than average users, and perform more than 10 times the number of actions in apps per month than average users. Power Users are who advertisers want to reach, so learning about these users is especially important. Developers need to go beyond vanity metrics, though, and use tools available to learn about the behavior of these super engaged app users. Are Power Users interacting with certain content? Opting-in to share activity on Facebook? Completing more activities when rewarded? Detailed knowledge about Power Users is essential to creating an advertising experience that will attract and convert regular inactive users into loyal, engages ones.

ADM: Does the “new school” approach to monetization really generate more revenue for developers than the “old school” approach?

WELLER: Yes, because with the “old school” approach, developers spend money to acquire an audience that churns quickly. It’s a race to the bottom. There’s little return on the money they spend to acquire the users, because the majority of these users won’t stick around long enough to engage deeply with the app. With “new school” approach, a strong emphasis is put on data and understanding the true lifetime value (LTV) of the users being acquired. How do you go “new school”? Here are some good first steps:

1. Invest in having the right infrastructure in place to measure depth of engagement with your app.
2. Using data as a guide, build a native advertising experience, one that is truly part of the product, not antithetical to the user experience, and engaging and retaining a quality user base.
3. Plug in premium advertising experiences that are driven by data unique to your experience. Building a location-based app? Plug in to location-based rewards and offers. Do you stream video in your app? Bolt in a great premium video ad product. So, to generalize, an investment in understanding engagement with your app is the first step to building a more native and premium monetization strategy. Making advertising native is really about a paradigm shift from bolt-on ad solutions to implementations that are executed as frictionless and relevant product features.

ADM:With user engagement and retention being such a big piece of monetizing with ads, do you have any general tips developers should follow to engage and retain more users?

WELLER: Absolutely. After working with several different categories of apps throughout my career, I’ve found there are tips that improve retention and engagement across nearly all apps. The first tip is to make a commitment to becoming a data-obsessed company. Every developer should have the infrastructure in place to analyze and understand who’s downloading their app and what content their users are engaging with. Only with this information will developers be able to improve the app experience in a way that will encourage users to more deeply engage and continue to come back to the app again and again.

The second tip is to guide users through the most important features in their first app visit. With up to 69 percent of users not returning to an app after they download it to their phone, it’s important for developers to eliminate the chance a user will get frustrated trying to figure out the app. Providing a walkthrough is one of the best ways to reduce churn and increase the likelihood a user will take full advantage of what the app offers.

The third tip is to build-in app features that can be personalized to each user. Mobile users love having the ability to customize features to their liking and make their app experience as valuable as possible. An additional upside to this is a developer can learn from monitoring which features the majority of their mobile users select, then tweak their app accordingly to better fit the entire app audience.

The fourth tip is to integrate social features into an app. Today’s mobile users are always connected to social media, so the best way to avoid users leaving to socialize outside the app is to include these features within the app. The added bonus to this tip is that social features will help encourage users’ friends to experience the app, too.

The fifth tip is to add push notifications to help remind users to come back. A study in 2012 by Urban Airship even found that users who receive push notifications in an app have a 26 percent higher retention rate after one month. It’s important to make the push notifications valuable and personalized, since random notifications can cause users to become annoyed.

The sixth tip is to provide users with something of value in return for certain in-app behaviors. Humans love to be rewarded for their time and commitment, so giving them something when they complete an activity or milestone is a great way to encourage users to come back. At SessionM, we recommend being strategic with rewards. For example, rewarding users for using features that are outside of their normal session will encourage them to discover features they may otherwise overlook.

ADM: In your opinion, why haven’t more developers started to use this “new school” approach to monetization?

WELLER: We are all still in the early experimentation phase of mobile. Mobile apps are relatively new, so we’re still figuring out the best way to monetize with these new platforms. One thing we know for sure, however, is that great experimentation starts with data. The next steps are to spread awareness about the importance of data, and continue to build the tools developers need to take a “data first” approach to implementing effective native advertising experiences.