So many ad-funded apps, so few ad dollars to support them

Flurry, a mobile app analytics outfit, predicts that “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.”

That means that there is so much ad space within mobile apps that even if every one of the $12 billion spent on Web advertising in the US was channeled into in-app advertising, there would still be unfilled ad space.

Of course, US brands aren’t going to change from Web to mobile advertising overnight. And mobile ad expenditure in the US will actually be a fraction of Web ad expenditure in 2011. This all means that ad-funded mobile apps must be struggling badly.

• Research from Gartner estimates that total mobile ad expenditure in North America – that include all type of mobile ad spend: mobile search, mobile Web display, in-app ads etc – will only be US $702 million in 2011. Gartner believes that mobile search engine ads, rather than display will lead expenditure and display ad expenditure will be split between apps and mobile Web.

• eMarketer estimates that total mobile ad expenditure will be US $1.1 billion in 2011. That includes mobile search, mobile Web display, in-app ads and SMS advertising (SMS is over a third of this spend).

Flurry’s estimates are based on the belief that the average application session is 4.2 minutes – which is a long time compared to the average time for a Website of just under 1 minute (according to Flurry) – in that time an app can show 4.3 ads. Flurry then multiplied this by the total number of app sessions (not specified) it believed occurred in a year. Then Flurry multiplied this by its estimate of the price of a thousand ads (CPM) at $2.50 – which it considers to be a conservative price.

Let’s assume Flurry is correct with its estimates for mobile ad inventory and the value of the inventory. Let’s also assume Gartner and eMarketer haven’t hopelessly underestimated mobile ad spend. Then however you slice and dice the figures, the vast majority of in-app ad space will remain unfilled.

The rules of basic economics would suggest when supply outstrips demand, the price will fall. If as many in-app ads remain unfilled as Flurry’s research suggests, then the price of advertising will fall rapidly. So if ads are sold at $2.50 CPM, then they won’t be for long.

All ad networks have seen a surge in in-app advertising in the US particularly. InMobi reports that 60 percent of its US revenue is from mobile apps, compared to 17 percent worldwide. But it is mobiThinking’s belief that demand for in-app ads today isn’t coming from brand advertisers, it’s coming, largely, from companies that are promoting their own mobile apps. As there are so many mobile apps and relatively few people to download them (as most apps can only be downloaded to a particular type of device), developers need to promote them heavily to stand any chance of success – and the obvious place to promote them is within other mobile apps, though only the successful ones.

Since app developers are interested in downloads as opposed to brand awareness, then surely they will want to purchase performance advertising i.e. cost per click (CPC) or cost per download (CPD), rather than CPM, which is for brand advertising? With CPC or CPD advertisers are not paying $2.50 for a thousand ad impression, they are paying nothing for the ads unless the user clicks through/downloads the ad, which pays a few cents each.

There is a perception that brand advertisers are put off mobile because there isn’t enough inventory to buy – this perhaps is the agenda that Flurry is driving towards with this research – but it is difficult to see why brands would be that interested in these niche markets, however much inventory is available, unless they have an app to promote.

As Read Write Web points out, advertisers will only go where the eyeballs are. And there are only a few apps that are popular enough to interest brand advertisers – as Nielsen finds from a study of Android users, 61 percent of all time spent on apps is shared among the top 50 apps (out of 250,000 Android apps).

• Be the first to know about mobiThinking news, guides, competitions etc… follow mobiThinking on Twitter: @mobithinking.

Don’t miss: