The cost of promoting apps continues to rise, but has Apples iAd been missing out on the app-promotion gravy train?

Apple’s iAd pricing is now 10 percent of launch price. Advertisers are no longer double-charged. Developers get a better share. What took Apple so long to see reason?

There is a healthy market for in-app advertising. It is very difficult for apps to get noticed or discovered in over-crowded app stores, especially on Apple’s App Store. Those apps that get into the top 10 lists stand a good chance of success, while most will sink without trace. This means brands/app developers have to invest heavily in promoting apps to drive downloads or their expensive apps will fail. It’s a bit of a trap. This has led to a growing market for buying advertising space within successful mobile apps.

The app trap has been a lucrative earner for the mobile business. Agencies not only profit from suggesting, creating and developing apps for clients, but also from the essential promotional campaign – devising compelling creative ads and buying the media. Mobile ad networks, such as AdMob (now owned by Google, AdMob only does in-app advertising these days) were already seeing good growth in in-app advertising, from brands/app developers desperate to encourage customers to download their app, long before Apple’s iAd appeared on the scene in 2010. As you will see below, according to Fisku, the cost of promoting apps is has continued to rise since then.

Two year after launch, it now seems that Apple has reduced the minimum fee to advertise on Apple’s iAd advertising network to US $100,000, according to Ad Age, which is 10 times less than the minimum spend of $1 million that Apple demanded at launch. Ad Age also reports that Apple will no longer charge advertisers twice. Usually ad networks either bill for ad impressions (cost per thousand views – CPM) or each time a user clicks through (cost per click – CPM), but Apple billed for both. Apple has also reduced its cut of the advertising revenue and will now pay the app publisher 70 percent of fee paid by the advertiser.

These drastic moves, if true – it is impossible to verify any of this news on Apple’s uninformative iAd site – will bring iAd more in line with reality, while suggesting that Apple has been missing out on the app-promotion gravy train that it helped to create. After all, how many brands/app developers really want to throw US $1 million or even $500,000 (the more recent threshold for an iAd campaign) to promote an app?

Apple never had a monopoly on advertising within iPhone apps – competitors such as AdMob were servicing this market long before iAd launched in 2010 – but Apple priced iAd as if it was the only game in town. Apple talked a good story in wanting to re-invent mobile advertising with flashier rich-media ads. It also brought along some high-profile brand advertisers to the launch – brands that were as eager to share the stage with Steve Jobs as to try out his mobile ad network.

However, the reality was that there were many alternative ad networks selling in-app advertising at the market rate. The competitors also offered the ability to advertise on all mobile platforms, i.e. within Android, BlackBerry, Symbian, iPhone etc apps as well as on the mobile Web.

Due to Apple’s secretive nature, we have never found out how successful iAd was or is. Those analysts that bought into Apple’s spin gave it an inflated market share of mobile advertising, which has been rapidly revised downward since then.

The ever-increasing cost of promoting apps

mobiThinking first wrote about, and questioned the ethics of milking, the app gravy train back in late 2010, in The false economy of vanity apps, but it wasn’t clear then how much brands/app developers were having to pay to promote their apps.

Some interesting new stats from Fiksu (a mobile apps platform) looks at the cost of acquiring each loyal user, comparing how much brands/app developers are spending on paid-for media, with the number of loyal users. A loyal user is someone that downloads then uses an app three times or more (this is a more useful measure than number of downloads, which is misleading as many apps are downloaded, then tried and immediately discarded). Between May and December 2011, the cost of acquiring each loyal user rose 64.5 percent. By the end of 2011, in the run up to Christmas, Fiksu calculated that each loyal user cost $1.81, so to acquire each 100,000 app users costs $181,000.

You can understand why Apple wouldn’t want to be missing out on a gravy train like that, and began to question the logic of pricing itself out of the market.

Cost per loyal user index, according to Fiksu
May 2011 June 2011 July 2011 August 2011
$1.10 $1.27 $1.20 $1.54
September 2011 October 2011 November 2011 December 2011
$1.64 $1.47 $1.43 $1.81
Source: Fiksu (Jan 2012) via: mobiThinking

So is this ad revenue good news for mobile ad-funded apps? Some will make a tidy profit, all helped by the new 70 percent cut (which you should expect Apple competitors to follow), but these will tend to be the most popular and frequently used apps, so most apps won’t see much of this income. The present glut of mobile apps has led to an over-supply of in-app inventory – one estimate by Flurry, a mobile app analytics company, suggested there was more ad space in US apps than in the entire US PC Web.

• If you want to learn more about mobile ad networks check out the mobiThinking Guide to mobile ad networks.

P.S. (21-02-12) Thanks to Tego Interactive for making this post pick of the week in the latest Carnival of the Mobilists, a weekly roundup of the best in mobile and wireless blogs.

• Be the first to know when mobiThinking adds new stats, guides, competitions etc… follow mobiThinking on Twitter: @mobithinking.

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