App monetization: An inside look

When developing an application, the elephant in the room is typically monetization. Whether or not you ideate and build with this at the forefront of the discussion, deciding how a program will make money ultimately decides its shelf life.

Appodeal, recent closer on a three million dollar round, seeks to grow their programmatic ad mediation service. Pavel Golubev, Founder and CEO of Appodeal, stated they “believe that the ad industry is unfairly built in favor of advertisers.” Their mission is to bring the power back to mobile app publishers.

The platform itself is simple: app publishers integrate with Appodeal’s software development kit one time, then the software receives offers from ad networks and RTB exchanges to compare in real-time before negotiating prices per impression with these demand sources.

Traditionally, the term RTB stands for real-time bidding which in a sense is ‘real-time buying’ technology for advertisers. Appodeal actually turns that philosophy on its head in order to benefit developers. Focused instead on a ‘real-time selling’ technique that maximizes revenue for app creators and alleviates the fear of inflated bidding prices by advertisers.

TNW spoke with Golubev on the process of app monetization and best practices.

TNW: What are the primary challenges and/or obstacles with generating ad revenue in a mobile environment?

Golubev: I believe the initial challenge that mobile publishers face is creating a monetization strategy that does not interfere with user flows. At the end of the day, you want to build an app that will be used by millions and to do so you need focus on increasing your Daily Active Users (DAU). The last thing you want is to annoy users with ads.

So the primary challenge is to find a balance between showing profitable ads and not annoying your users to the point of leaving your app forever. One strategy to achieve that is to identify the level of user engagement that move casual or first time users to daily active users.

TNW: Why should someone use an programmatic ad mediation as app monetization platform?

Golubev: In many cases, mobile adtech use terms that can be confusing even for industry veterans. When mobile app publishers hear “programmatic ad mediation” or “programmatic selling” or “real-time bidding (RTB)” many don’t see them as new concepts. That’s because most advertisers have been using real-time bidding and programmatic technologies for few years now. So when you hear “RTB exchange” everyone understands that it’s a real-time bidding technology for advertisers to buy ads. But in RTB, simply, is a process.

Let me describe programmatic ad mediation on farming industry for example:

You are a farmer (mobile app publisher) who grows tomatoes. This season you grew enough to fill five boxes of tomatoes and you need to sell them. And you need to sell it fast. Previously, you would call a couple of local distributors (ad networks) to pick one that can buy more from you at a better rate.

When distributors are selected you are unlikely to change them – it’s too much of a hassle. The distributor’s job is to buy from you as cheaply as possible so they can deliver vegetables directly to grocery stores, bars and restaurants, and still have healthy margins.

You soon realize that selling to a single distributor isn’t the most profitable way to sell your crops. So you hire an independent sales rep (a mediator, so to speak) whose job is to call all the distributors in your area and help you create a prioritized list (waterfalls in traditional mediation) based on historical average prices they pay to farmers. From now on you use this prioritised list and contact each distributor one by one. If the first distributor on your list is only willing to buy three boxes of tomatoes then you need to call the next distributor on your list and so on.

But market conditions change frequently: distributors sign new contracts with grocery stores and unfavorable market conditions can impact harvest.

Now imagine that you can connect to a new technology allowing you to sell every individual tomato that you produce. Restaurants, bars, grocery stores can all make an offer to buy your vegetables in a real-time, auction-like process next to distributors. As a farmer you maximize your revenue and minimize time needed to sell or manage your list of distributors.

This is what programmatic ad mediation, or programmatic ad selling, brings to mobile app publishers.

TNW: What method of monetizing apps do you think is most effective and why?

Golubev: Paid apps can be very profitable but the challenge is to get user to pay for something that they haven’t tried yet. Many paid apps have free versions for users to engage. Freemium model is a good strategy in this case.

In-app purchases are very popular with gaming apps. Most of the top game publishing companies generate most of their revenue through in app purchases. Even though only a small portion of players are willing to open up their wallets, they generate a significant portion of revenue for mobile app publishers.

Still monetization via mobile ads one of the most popular and effective ways for app publishers to make money. The main reason being there is a larger audience for free mobile apps.

TNW: What are some tips you would give to a new app developer looking to monetize their product?

Golubev: Developers should think about monetization strategies as they think about the concept for a new mobile app. Very often app developers put off the monetization and revenue discussion for way too long. I believe it is a mistake.

TNW: How do you see the “app ecosystem” evolving over the next decade?

Golubev: New tools will make it easier for anyone to create new apps. Even now, we see the raise of app development frameworks that help launch apps with limited coding or design experience.

In 10 years, mobile ad buying and selling will be 100 percent automated. All data enrichment, analysis and optimization will be done with machine learning algorithm. In fact, a significant portion of our developers are now working on designing and testing our own machine learning algorithm to completely automate ad selling for mobile app publishers.

Read next: Google’s new mobile ad format lets you try an app for 60 seconds without downloading it