The amount of advertising inventory within mobile apps in the US has exploded in the last year, but does that mean developers and publishers are making a killing from ad-supported apps? New research from mobile analytics firm Flurry raises more questions than answers.
The company published its research on its blog, based on data from more than 100,000 iOS and Android applications using its analytics tools. Flurry calculated that the average app session lasts 4.2 minutes, during which an average of 4.3 adverts are shown.
It then assumed a “conservative” cost-per-thousand impressions (CPM) rate of $2.50 for mobile application inventory – remember that assumption – to calculate a potential US mobile app inventory value of just over $1bn by the end of 2011, poised to overtake net monthly revenues from online display ads. By the end of 2012, Flurry’s chart predicts US mobile app inventory to the value of $4.5bn.
Or, as Flurry put it in its blog post: “US app inventory is not only growing at a staggering rate, but also poised to absorb the equivalent of the entire US Internet display advertising spend by the end of this year… Another way to look at this is that, in approximately two years, mobile app inventory is growing so aggressively that it could easily meet the demand of a mature, 15-year-old form of online advertising.”
Flurry cites as key factors in this growth sales of more than one million new smartphones a day; rapid growth in the number of available apps and the time users spend using them; and more publishers integrating ads into their apps.
Well then. The first thing to say about these calculations is that they are comparing app inventory – the slots available that could potentially be used for ads that could potentially be worth a CPM of $2.50 – with actual online display revenues. Those ad slots might be filled, but they might not, and if they are, it may not be at those rates.
Second, isn’t there a concern that the explosive growth in mobile app ad inventory could be a bad thing, if demand isn’t keeping up with the supply?
I asked some mobile advertising companies for their views, and encountered a range of views. Millennial Media is the largest independent mobile advertising network, and its senior vice president of global monetisation solutions Matt Gillis was fairly positive.
“We think inventory growth is great, and developers should be excited that consumers are seriously gravitating towards content consumption on mobile platforms versus others,” he says, before delivering a warning.
“In terms of pricing, all impressions are not necessarily equal, and the developers that can continue to drive premium value will attract the richest campaigns. This should continue to be the case, no matter how much inventory is out there. In the meantime, whenever possible, developers should focus on adding some of the key factors advertisers are often looking for, such as rich media capabilities.”
In the UK, 4th Screen Advertising managing director Mark Slade suggested that the stats and positioning in Flurry’s blog post are “slightly misleading” due to the comparison.
“Advertising is driven more by demand than supply, ie, looking at the growth of supply of inventory and immediately connecting that to the demand for advertising is a stretch,” he says. “As an ad network, if all we had to do was increase inventory to increase spend everyone would be in this space. If you applied the same methodology for online – assumed all page impressions were monetised at $2.50 – online would be gigantic.”
Slade also thinks that $2.50 is “way too high” for the majority of mobile app inventory, which is characterised by a long tail of apps that rise and fall quickly in the app store charts (or never rise at all).
“The Shazam app commands a premium CPM, however a novelty random talking cat is less appealing to top advertisers,” says Slade. “Very few applications reach sustainable scale on an individual basis.”
James Connolly, managing director of UK mobile advertising buying and planning agency Fetch Media, also points to the variety of apps on offer.
“Because mobile inventory is hugely fragmented, the quality and therefore the value of in-app traffic varies greatly, with game inventory differing hugely from that of a premium publisher,” he says, before suggesting that the huge growth in US app ad inventory has a lot to do with the growth of Google’s Android OS.
“With Android now leading the US smartphone market, it is much easier for a one man band developer to create an app , integrate an ad serving API and launch into the Android Market without too many difficulties, equalling new inventory which therefore drives the value of the inventory down,” he says.
“The real indicator will be how app stores position applications and how important the usage of an app will play within this. The explosion of app inventory shouldn’t therefore have a universal effect on all mobile inventory. However, low cost inventory, typically sold through blind networks or incentivised programs will become more available and therefore less valuable per unit.”
Slade claims that in the US and Europe alike, premium publishers and big applications are “pulling out of the blind networks” to either sell in-house or work with specialist mobile agencies – yes, that would include 4th Screen Advertising.
Flurry’s research is still useful in trying to gauge what’s happening in the market: the company’s analytics are used by a wide enough sample of apps to make it useful data. That said, the success of the mobile advertising market is clearly not about the amount of available inventory, but about how efficiently and profitably that inventory is filled.
This article originally appeared in MediaGuardian.