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Summary:

Vungle announced Tuesday that it’s using half of its seed money to create a $1 million fund to bring top mobile app developers into their new platform.

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Vungle co-founders Zain Jaffer and Jack Smith have already shown that they’re willing to do whatever it takes to make their startup succeed. When they learned that San Francisco-based incubator AngelPad had only one spot left for its class last fall, they targeted online ads at the friends of the program’s founder to prompt them to email him on their behalf. Extreme, but it worked. Now, $2 million in seed funding later, they’re applying the same just-get-it-done approach to building up their in-app video ad business.

In addition to launching the site in private beta, Vungle’s founders announced Tuesday that they’re taking $1 million (half of their seed money) and using it to create a fund to bring top mobile app developers into their new platform.

Vungle’s pitch is that they can can help mobile app developers make money by allowing other app makers to buy in-app video ads. But because advertiser demand is currently outpacing publisher interest, Vungle says it will use the $1 million fund to get their network off the ground.

When I asked if Vungle was essentially paying the publishers to join the platform, Smith said, “Yes, pretty much, like a revenue guarantee if certain criteria they agree to are met.”

Because the app publishers are accustomed to thinking about advertising in terms of banner ads, he said the funding is intended to help them wrap their heads around the new format. With each app developer that wants to join the program, he said, Vungle will determine how many users they have and where the video ad will run, and then pay accordingly. There isn’t a set amount, but Smith said the ideal scenario would be to give 100 apps $10,000 each.

Smith said they believe that the funds will be enough of a carrot to pull the developers in and then, once they see how effective the video can be, they’ll stick around.  Unlike intrusive banner ads, Smith said the “video trailers” are akin to movie trailers in that they’re shown to viewers when they’re in the mindset of the medium. Users, for example, might see a video ad for “Draw Something” in between levels while they’re playing “Angry Birds.” While it seems like app developers might not be keen on showing ads for their competitors, Smith said Vungle won’t advertise for apps that directly compete and, eventually, it plans to give publishers the power to blacklist apps.

So far, no big-name publishers appear to be part of Vungle’s network, but Smith said Feed the Rat and Failiens, two games from Pakwan Studios, as well as an app called FaceBlocker, have signed on. He also said that some of their advertisers include NgMoco and PocketGems.

Despite the crowded nature of the mobile ad space, Jaffer and Smith have quickly created names for themselves. Aside from the press attention around their ability to “hustle” their way into AngelPad, the duo has attracted some big name investors, including Google Ventures, AOL Ventures, 500 Startups and SV Angel.

  1. Alex Genadinik Tuesday, June 19, 2012

    Lets please not put ads on our phones. Thank you.

    Once again: NO ADS ON PHONES.

    1. Hi Alex. I think that it’s important to consider that app developers need to make money from their apps somehow and we see things moving away from paid apps towards free and freemium. What is your preference for making money from your apps?

  2. Alex Genadinik Tuesday, June 19, 2012

    I am an app developer, and a site developer. I had ads on my sites, but I think its gotta end with mobile. Users hate the ads, and often downvote the app because of ads, and then the app ends up with a low rating and does not rank well in the app store. Ads are bad for developers.

    1. That’s why you need to do them right. Video ads done right can actually help users with app discovery while providing the devs with a nice payout. Win win.

    2. I’d hope that users would be used to apps being monetised via ads by now. But there are lots of different ads. Banner ads can be intrusive to users as they take up screen realestate. Videos are a different method to consider. Users may often opt for free w/ appealing ads vs paying for an app.

  3. Ki Mae, it was great to speak to you the other day and I know that you put a lot of thought into the article. Thanks for the writeup.

  4. Blake Garrett Tuesday, June 19, 2012

    Jack – Have you been able to determine that app spend is mutually exclusive across app categories? For example, if I purchase evernote will that prevent me (statistically) from upgrading to the paid version of words with friends? As an app developer cannibalization of my highest margin revenue would worry me. Obviously, an app that isn’t sticky has bigger problems than shiny app ads.

    1. Hi Blake. I don’t fully understand your question, as to how a words with friends upgrade would be related to buying evernote or visa-versa. Unfortunately I don’t have any data on this, but my laymen assertion would be it would likely be the inverse, as we would know that that user is receptive to spending money for apps.

  5. Vungle thinks they can push and bully like Socialcam has been doing. Nobody wants trailers for other products in their apps. That is a horrible idea. An ad here and there would be much better. Paying is better even.

    1. can bully who? I haven’t seen what socialcam have been doing, please do bring me up to speed.

  6. Andre Peschong Monday, June 25, 2012

    this is interesting but it seems like it would only be relevant to certain types of apps like games but not necessarily photo apps. What are the thoughts on that?

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