Mobile advertising spend is on fire. According to a recent eMarketer report, mobile ad spend is expected to top $7 billion in 2013 -- a 77 percent increase from 2012 and a 392 percent increase from 2011. Given this incredible growth, one might expect mobile ad performance to be superior to that of traditional web ads. This, however, isn't the case. In fact, mobile ads appear to have similar problems as traditional web ads -- user fatigue, ad blindness, poor conversion, and accidental clicks -- all which hamper mobile ad performance.
Mobile ad networks have tried to address performance issues by providing end users with incentives, usually in the form of virtual currency or goods. The objective is to reward -- or pay -- a user to click on an ad or download an app. Advertisers benefit from incentivized offers because more clicks equal more downloads, which boosts their app store rankings. As this happens, more organic users will see the app and download it. Sounds like a virtuous cycle, right?
Wrong. In fact, research by Harris Interactive indicates that 62 percent of smartphone users say they downloaded an incentivized app only to get the reward. In addition, only 3 percent of smartphone users who have downloaded an app for an incentive say they use the app regularly.
Incentives reduce the need to focus on quality and build real products that serve a user need. If a developer can churn and burn apps, there's a lot of arbitrage that can be done at the expense of the app store model. Given how deceiving the model can be, Apple banned all apps in its App Store that included incentivized offers. It seems likely that Google will do the same in the future.
To be fair, incentives are working in some categories. A good example is gaming -- a hit-driven business -- that doesn't require a lot of user attention and has a relatively low price point for paid apps. It's usually a one-time purchase, and casual gamers may look for similar apps more frequently. Cross-promotion through gaming-to-gaming, by using the incentivized model and obtaining virtual currency through an incentivized offer, fits well with the gaming ecosystem.
But incentives don't work well in other categories such as productivity and utility apps -- LinkedIn or Evernote. The apps in these categories are highly functional and less hit-driven. Money is made by retaining a user. That means, ultimately, having the user engage with the app and then converting him or her to the paid product. Utilities don't churn out titles. Rather, they build an app and add new features that are valuable to a consumer. A user seeing an incentivized cross-promotion for a utility app in a game may click to redeem the incentive, but will likely never engage in the app. The result is an inefficient use of ad dollars. Although it may seem like the user acquisition cost is reasonable, the reality is that you are paying a high cost for a real user. Here's the math.
Assume a 62 percent install rate, a 3 percent activation rate, and a 30 percent retention rate. In this example, the effective acquisition rate is 0.6 percent. Looking at it in dollars and cents, paying $1.75 per-install would yield a cost of $194.44 per-retained user.
What should mobile advertisers do to efficiently and effectively acquire and retain users? A new approach is required.
When possible, focus on contextual targeting. Some ad networks will provide demographic targeting, which is a good start, but limited. Try taking it a step further and focus on cross-promoting offers that are relevant to the end user. This is a lot like buying an airline ticket and getting an ad for a hotel or car rental. Taking the "what" into consideration will enable a relevant ad to reach the end user. Done correctly, this will increase conversion, activation, and retention.
Buy performance based inventory
Purchasing performance based inventory will allow you to focus your ad dollars on metrics that take you lower into the acquisition funnel -- CPC, CPI, CPA. Paying for impressions is a volume game. You might get a lot of views, but after doing the math you might find out that you paid a lot for almost no return.
Use the appropriate ad format
Some of the current mobile ad formats are terrible. For example, mobile banner ads are hard to view, result in a lot of accidental clicks, and create a poor user experience. Using ad formats that are clean, clear and appropriate for mobile screens will better resonate with consumers. For instance, full interstitial ads with appropriately designed click targets provide the user with the option to accept or decline an offer.
Although smartphones have been around for a while, mobile advertising is still relatively nascent. Efficiently acquiring users in this new ecosystem takes a lot of work and can be costly. Innovation will continue to happen, as more ad networks and publishers try new things. Some will work, some won't. Incentivized ads may get your company discovered, but the ads will not help it to sustainably acquire and retain users.
On Twitter? Follow iMedia Connection at @iMediaTweet.
"Motivation" image via Shutterstock.