A change is brewing in the mobile advertising market. Younger, advanced companies are overshadowing the monsters of mobile advertising thanks to their fresh outlooks on monetization.
The biggest component of that forward thinking outlook? You guessed it. Real-time bidding (RTB). RTB is changing the world of mobile applications and games by bringing about rapid growth in advertising sales.
In the past, Admob and Chartboost took center stage in the field of app monetization. Today, the traditional method of pay-per-action (e.g. install or clock) is no longer able to stand up against RTB exchanges and click-per-millage (CPM).
Before we explain how and why this change is occurring, let’s take a moment to define RTB.
Real-time bidding is a software algorithm. With RTB, individuals can buy and sell advertisements per impression. As for the bidding part, buyers may bid on advertising inventory and the winning bidder has his or her ad shown on the publisher’s site.
At its core, RTB exchange is similar to financial exchanges such as NASDAQ or MICEX. They serve users who want to sell an ad in their app or security. They also work for advertisers who want to buy the ads or securities.
The seller and buyer are connected through RTB Exchange, which arranges the auction. Of course, whoever offers the highest bid wins.
To determine the bid, the bidder analyzes information pertinent to the impression including the geographical location of the user, the device, OS version, applications, sex and age.
For a closer view at how RTB works, take a look at an example exchange between the publisher, exchange and advertisers.
Publisher: “Hi Exchange! I have some space here to show ads.”
Exchange: “Calling all advertisers. We’ve got space here to show ads. Who’s game?”
The first advertiser is a 25-year-old from New York, bidding from his iPhone. He decides to bid $2.
The second advertiser, a global media company, shows up. They bid $1.
The third advertiser sells cars and has some inside knowledge that the users for this application is a prospective car-buyer. He bids $10 winning the auction.
Exchange: “Ding! Ding! Ding! We have a winner. Congrats to our third advertiser.”
At first glance, RTB looks like a fair solution. However, dig a bit deeper, and you’ll see there are some pitfalls.
What’s the Catch with RTB?
The entire RTB is designed to benefit the advertiser.
Our auction closed out at $10. How much do you think the bidder ended up paying? If you guessed $10, you’re out of luck. Because the market is designed so advertiser always wins, our winning bidder only paid $2.01.
How can this be?
Because a second price auction and its rules come into play. Our third advertiser wins with a mere penny over. This loophole is designed to protect the advertiser. It helps them get more ad placements for their dollar even though they have a larger budget available.
So how can you achieve fair prices and ensure that the advertiser ponies up?
Look for monetization solutions that are created with the developer mind. In this case, you’ll want to find a platform where ad networks compete against duck decoys. In this scenario, bids are only lowered by set increments and networks purchase the impression at the price they bid.
The Magic of Obtaining User Info
Standard RTB suggests that advertisers should cooperate with special platform called DMP (Data Management Platform), to get more information about users. You might have heard of DMPs like Bluekai, Flurry, Personagraph.
Here’s how our dialog looks when DMP enters the picture:
Market: Advertisers, we’ve got space again. Who wants to show advertisements?
Advertisers (in unison): Hey DMP. Who’s our user??
DMP: We’re looking at a man from 25 to 40 years old who is kind of, sort of interested in Toyota.
Doesn’t sound too promising, does it? With DMP, the accuracy of the data provided is low. While it offers some suggestions, they’re often wrong.
As a result, many advertisers refuse to use DMP, relying only on the information that is available directly from the application, such as the device model, and geographic location.
In order to allow advertisers to set higher rates, the application should independently collect first-hand information about their users. This data can be transmitted directly to advertisers, thereby increasing the value of their traffic.
There are two main ways to gather reliable information about users:
1. Social Networks
Welcome to the easiest and most convenient way to gather information. First, add the login via Facebook in your application and ask for permission to obtain personal user information. Voila!
Precise user data in your hands. Next, transfer that data to advertisers and watch as they gradually increase your traffic rate. Be sure to dedicate something to determining what is needed to authenticate via Facebook in the application.
Need user data? Head to the users and get the information you need with polls.
To motivate your users to fill them out, offer them a reward for completing the questionnaire. You might provide them with a beta version of your new game or extradited game currency.
What’s the Difference Between CPI and CPM?
Traditional networks operate on the model of costs per-impression (CPI). That is, no matter how many times the ad was displayed the transaction will take place only when the application is installed.
Once the advertiser pays for installation, he may have little motivation to work on the conversion of banners and landing pages? And why would he? The payment, after all, is for the installation.
In this situation, 10,000 impressions can be made and the publishers won’t receive a cent.
At the same time the seller has no opportunity to influence the conversion of advertising. At best, he can only block the advertiser whose advertising is bad.
Meanwhile, the CPM, or cost-per-mille, model is very different. In this case, the advertiser pays the publisher for every 1,000 impressions. The advantage here is the chance to maximize ROI and divide the risk more fairly between the publisher and advertiser.
In the end, advertisers are left with the opportunity to influence the conversion of the product.
The burgeoning market for mobile advertising will completely abandon CPI / CPC and go into CPM bids in the next few years.
An Added Word on Pacing
Your typical advertisers has a set budget for daily ad-spend. Even major advertisers do their best to hedge their bets on all possible impressions. They bid until their budget is met, making it difficult to ensure that impressions are seen by viewers consistently throughout the day.
This is where pacing comes in. Through budget pacing, advertisers can bid and spend their budget evenly in a given time-period. The amount of money spent remains the same.
Seller should keep budget pacing in mind to effectively sell traffic. With mobile RTB, there’s no need to launch ads right when a user opens an applications.
You can safely afford to organize auctions in the background, one by one, until you find the right advertiser. Usually the seller has about a minute of flexibility. During this minute, you can easily organize a dozen auctions and significantly increase the chances of getting a good offer from advertisers.
As you work to achieve the best results from your mobile advertising, keep what you’ve learned about RTB, user data, CPM and CPI in mind. At the core of your mobile ad revenue strategy should lie a focus on maximizing your time invest in monetization. That way you’ll be able to stick to doing what you do best–developing killer apps.
We believe that the mobile ad industry is unfairly built in favor of advertisers. Our mission is to bring the power back to mobile app publishers.
We have established a marketplace where ad networks compete in real-time against each other for your ad inventory. Publishers increase revenue with our programmatic ad mediation solution, which engages ad networks in auction-based competition for every ad impression.