How Does Ad Revenue Work On Mobile Ads?

Like most other things, advertising has also been digitalized through the use of technology. While conventional mediums like newspapers, magazines, TV programs, posters are still in practice, online advertisement has been gaining traction over the years. Ad revenue is the money an individual or an organization can generate by displaying advertisements from other parties on their service like websites, apps, games or other platforms. In simple terms, a third-party company will engage with an ad agency to publish and promote their services or products. The ad agency will then post the advertisements to multiple sources that are most likely to be relevant and effective.

Today, it is hard to come across a free app that does not have ads in it. You can not blame the developers for displaying ads either. The general way of monetizing an app is by selling a premium version where users have to pay upfront fees or by letting users access the app for free where developers collect money from the ads on the app. Some apps may also allow the user to make a one-time payment and disable ads for them. Usually, it is a bad business practice to put ads inside a paid app. So, do not put ads on your app if you are planning to publish a paid application. It will push most users away from your app, causing you to lose out on potential users and ad revenue.

Common Terminologies

Let’s take a quick look at the terminologies that determine the type of user action and revenue it generates:

  • Cost Per Click(CPC): Revenue based on the number of clicks on an ad.
  • Conversion Rate (CR): Percentage of users performing a call to action.
  • Cost per Impression (CPI): Revenue generated when a new ad view is registered.
  • Cost per Mile (CPM): Revenue for every thousand ad views.
  • Install Rate (IR): Percentage of users installing an app.
  • Cost per Action (CPA): Revenue generated based on every completed action.
  • Cost per View (CPV): Revenue is generated every time an advertisement pops up.

The revenue that is generated for each type of user action differs from one another. For instance, the revenue for CPI is lower than the revenue for CPC. Because an advertiser benefits more from a viewer interacting with an ad than viewers just seeing an ad. The revenue can also depend on “the location of a viewer”. Viewers from third-world countries will generate lesser revenue while those in the first-world country are likely to generate more.

Basically there are 3 types of ads: banner ads, interstitial ads and video ads.

Banner ads

Banner ads are the most basic and traditional form of ads prevalent in mobile apps and on websites. They are the small rectangular block of ads that you’ll generally find near the top or bottom end of your screen. This small block involves repeating frames of image or text urging the viewer to take a certain action. Banner ads focus mostly on conversion. They aim to motivate a viewer into clicking on the ad, redirect them to the advertiser’s website and convert them into a paying client. This is the most cost-effective method for advertisers, but it generates one of the least revenue per action. However, due to their simplicity and effectiveness, they are widely in use and will continue to be.

Interstitial ads

Interstitial ads are the full-screen ads that pop up on a user’s device. These ads appear when a user transitions from one screen to another and displays an image or a short video. Viewers will often see an X option to close the ad but they have slowly evolved into forcing the user to watch for a few seconds before the option actually appears. Interstitial ads also get higher click percentages than banner ads. Since these ads cover the entire screen, they perform better in grabbing the viewer’s attention. However, improper or frequent use of interstitial ads can frustrate users as you can only close those ads after watching them for a certain time.

Video ads

As the name implies, video ads involve displaying a video ad to viewers. These videos are 15-30 seconds long and unskippable. Needless to say, a video ad performs the best when it comes to informing the viewer. A well-made video can describe a service or product more than a small block of an ad in a corner or potentially annoying full-screen ad. While we can use video ads in place of interstitial ads, forcing users to watch a 15-30 second long ad for no reason can be annoying for users. This is where rewarded video ads come into play. Rewarded video ads are video ads that will give viewers a small reward upon completing the video ad successfully. This incentivizes viewers to watch or open a video ad intentionally. Generally, users can earn in-game rewards in mobile games or even on some apps using their own version of in-app currency.

Apart from these above methods, there are other means of ad revenue as well. Offerwalls, an advertising agency, allows users to perform different tasks in exchange for in-app or in-game currency. These tasks can be something like completing a survey, installing another app or playing a game up to a certain level. Native ads are similar to banner ads, except they are inherently built into the mobile environment. Moreover, they look like part of a mobile app which removes the disruption effect a banner ad can cause.