Commentary

The Great App Advertising Exodus -- Or Not

As I was rummaging through my inbox for fodder for this week's column, I was struck by a report published recently by eMarketer suggesting that app marketers have been growing less reliant on advertising as a source of revenue -- and not surprisingly, that this would likely be accelerated by Apple's rollout this year of its App Tracking Transparency (ATT) framework.

If true, I find it a little ironic, because my sense is that app developers originally stumbled on advertising as a revenue model, because -- with a few exceptions -- they couldn't get consumers to pay directly for their new creations.

The eMarketer analysis even came with one of its nifty charts showing that the share of mobile gaming apps using an explicitly premium subscription model was only 9% four years ago, but that it's already grown to about a third of mobile gaming apps by now.

And while I don't disagree that Apple's new privacy framework is clearly having an impact on mobile app developers and their ability to track and monetize their users' data -- most likely through direct or indirect advertising sales -- I don't agree that there will be a substantial exodus from ad-supported models.

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My reasoning: It's consumer economics, stupid.

By that, I mean consumers have already taken on vastly higher costs of premium media subscriptions -- especially subscription video-on-demand and music services -- over the past several years, and there is only so much they can bear.

In fact, over the past couple of decades, consumers have surpassed advertisers as the primary source of media revenues, and according to estimates from industry economic tracker PQ Media, the average American now pays close to $1,500 annually accessing media and media content. How much more can they take?

Beyond that, I have an even more compelling argument for why advertising will remain a fundamental part of mobile app revenue models: because it's a good deal for all concerned.

Developers get paid by advertisers, consumers have the cost of accessing their apps underwritten or defrayed by brands, and brands reap the benefits of consumer engagement, as well as the explicit halo effect of paying for something consumers would otherwise have to pay for themselves.

Lastly, I'd like to point out that there has been a new but rapidly emerging advertising model that fits perfectly into this equation: the so-called "rewarded opt-in advertising" model. Ironically, it is the mobile gaming industry that is credited with jump-starting it, because even with "freemium" models in which consumers get initial access to a game for free, they usually had to pay for premium upgrades, etc.

And since many consumers were reluctant to -- or couldn't afford to -- do that, it was logical that brands step in and become the hero of an explicit value exchange in which they paid for the consumer's access, but got their attention and engagement in return.

That model has been rapidly growing into other genres, formats, and even new forms of value exchange -- especially ones in which brands ask consumers to opt in to give permission to access their data, etc.  The funny thing is, it's really as old as advertising itself.

That's because at its core, advertising always was the best economic value exchange for consumers to access most forms of media.

And I get why premium subscription services -- whether they are HBO or Netflix -- may never explicitly sell advertising. But there is room for all sorts of models in the media marketplace, and they're not necessarily mutually exclusive.

2 comments about "The Great App Advertising Exodus -- Or Not".
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  1. Dan Ciccone from STACKED Entertainment, December 29, 2021 at 5:20 a.m.

    App developers are abandoning ad-reliant apps because most app developers don't have an internal team to hustle ad deals and the network deals are pennies on the dollar - so unless your app gets millions of downloads and a sustainable audience, the ad model doesn't work.

    Following the model of some of the most popular multiplayer video games, app developers are offering their apps for free, and for those who get hooked, then it's time to charge for additional content, levels, avatars, skins, weaponry, etc.


    The typical mobile game has a lifespan of about 3 months if it's lucky.  Most people delete the app within a few days.  So relying on ads doesn't make sense and the ROI is nominal if they rely on ads.

  2. Joe Mandese from MediaPost replied, December 29, 2021 at 6:29 a.m.

    @Dan Ciccone: Offering something for free, charging those who "get hooked" and closing shop after three months doesn't sound like a sustainable business model to me. It sounds like a drug pusher operating on street corners.

    The truth is both app developers, and their "users," fall along a spectrum.

    Zynga, which is probably the best pure play example of the model you're describing, made half a billion from selling ads last year.


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