3 game monetization trends that are transforming the mobile app economy

The mobile gaming industry generated $46.1 billion in 2017, according to Newzoo and mobile games advertising is projected to expand 97% between 2014-2019.

This growth opens a new level of opportunity for publishers looking to monetize their games. Some forward-thinking publishers who traditionally depended on in-app purchases have added advertising to the mix, and haven't looked back. Early adopters of app bidding are seeing increased revenue by reducing their reliance on manual waterfall optimization. These key trends in gaming monetization have potential to transform the industry.

Publishers Who Diversify Revenue Sources Will Likely See Strong Results

Many gaming developers have adopted the freemium monetization model, which traditionally generates revenue through in-app purchases. But it presents several challenges; namely, its dependence on a small percentage of users to make in-app purchases. Leaving it up to a few whales to generate app revenue is an expensive operating model. A mobile monetization report released by app testing firm Swrve found that only 2.2 percent of players spent any money at all, and 46% of app revenue comes from the Top 10 percent of those spenders. At this point, it's clear to many gaming developers that diversifying revenue sources to include advertising with a freemium model is a more dependable strategy to drive the most revenue from the highest number of players.

How Poptacular's New Monetization Strategy Delivers Results

Julian Stocker, co-founder of Poptacular (and one of our publisher partners) has completely revamped 100 PICS' monetization strategy since launching the game in 2013 and hasn't looked back. "We've actually done a complete U-turn, with most of our revenue now coming from advertising" he shared in a recent interview.

"We decided not to follow the trend of chasing paying players, and instead chose to make all features of the game accessible to anyone through ads."

100 PICS is offered on a freemium basis, and players can use coins they can earn through watching rewarded video ads to access in-game hints and more content. While early adopters of in-game advertising are seeing great results, other developers and publishers continue to hold onto some misconceptions which have held them back from considering the potential impact on their business.

"73% of gamers have indicated that they are happy with the ad-funded model of app games."

Let Go of Misconceptions and Look at Results

One such myth is that gamers hate ads. Many mobile gaming publishers assume they have to choose between monetizing with ads or prioritizing user experience to compete with their peers successfully. But the reality is that most game enthusiasts understand and accept that advertising has become an integral part of the games they play.

As a recent Mobile Games report discovered, when faced with the decision of paying for a game or seeing advertising, 73% gamers have indicated that they are happy with the ad-funded model of app games. Another misconception that has kept some developers and publishers from exploring advertising is the belief that it will negatively impact in-app purchases. But, as we've observed with many clients, 86% of developers who incorporated advertising in their app saw in-app purchasing unaffected, or even climb (Facebook client data). Gamers who see rewarded video are not only 23% more likely to buy the products advertised (compared to interstitial video) but also more likely to spend money on microtransactions within the game. This is excellent news for both advertisers and publishers.

Publishers Who Creatively Integrate Ads See Higher Lifetime Value and Retention with Lower Churn

Early adopters of gaming advertising have discovered that testing how different ad formats and flow types integrate into the game experience is critical for maximizing revenue. The most successful ad placements have helped increase game engagement, lifetime value of players and decrease churn - all without impacting the player experience.

Rewarded Video: Preferred by Gamers, Loved by Advertisers

Rewarded video has become one of the most effective and preferred ad formats, presumably, because it gives players the opportunity to watch an ad in exchange for a reward within the game. Players like gaining additional benefits in the game without having to wait or pay and this reflects well on both the app and the advertiser. For publishers looking to reduce dependencies on in-app purchases, rewarded video offers a compelling demand source. Accessing a more engaged audience with this format means less remnant inventory, longer interactions and ultimately, the possibility for greater CPMs.

Native: Naturally Integrated into the Game Experience

Publishers and developers who are focused on offering a more integrated experience should consider native ads, which can be highly customized to the game interface. Ad units-static display or video-are created by publishers and leverage metadata from Facebook's advertisers. Since they are designed to match the game, native ads feel organic to the experience and are more likely to get noticed. A study conducted with IHS Research firm revealed that native ads are less likely to contribute to user churn and ad fatigue and can result in up to 3X better user retention.

Interstitial Video: Engaging and Relevant Ads Across Devices

Interstitial video offers a full-screen video experience that triggers between levels in the game, in the moment of relaxation between two actions where the gamer can use the mental pause to interact with the media. The video experience has been recently enhanced for a sleek look, and to avoid latency. Publishers can choose to customize this ad format to control the frequency of delivery within a placement and users can choose to skip the ad shortly after it starts.

Improving User Experience with Flow Types

In addition to choosing the right ad formats, it's important to find the 'flow type' that best fits the game experience. To create an optimal user experience, developers should also consider the player's mindset at the moment they see an ad.

Discovery: A player is more inclined to give an ad their attention when they're in discovery mode; during activities that are not the primary focus of the app. For example, an ad could be integrated to appear when a player is looking at the notification tab. Since they are user-initiated, ad discovery placement can be especially effective for helping drive conversions.

After Task: Natural breaks in ad engagement are another time when game players are more likely to pay attention to an ad. For example, showing an ad when a person has completed an action, such as cleaning the memory.

Publishers Who Optimize Demand Beyond the Waterfall See Increased Revenue

Waterfall mediation is an antiquated, outdated way to connect ad buyers and sellers. Bidding for apps promises to improve ROI for publishers. Gaming companies who are taking steps to get started with app bidding are now testing the revenue impact against current waterfall systems. Common findings include increased efficiency in ad requests and increased competition with higher ad prices.

How Does Waterfall Mediation Work?

Waterfall mediation is the technology that calls on different ad networks in a daisy chain to try to make publishers the most money for each impression. Publishers rank each ad network based on historical average prices. These rankings may be changed manually or automatically based on historical performance after a period. Using average historical prices means that often the demand source willing to pay the most for an impression never gets called. Additionally, because demand sources lower in the chain may only see a few successful impressions, the average prices can be skewed and highly volatile, leading to errors in ranking them. Waterfalls can work. But there are many disadvantages: complicated setup, costly maintenance, loss of revenue opportunity and inability to understand the true value of inventory.

"Bidding is a way for publishers to establish an impartial and open auction over their ad inventory."

How is App Bidding Different than Waterfall Mediation?

As many game publishers are realizing, bidding is the future. Bidding is a way for publishers to establish an impartial and open auction over their ad inventory, by offering every ad opportunity to multiple demand sources at the same time, significantly increasing competition and monetization. Accessing real-time bids and creative from demand sources means that game publishers can eliminate historical averages from their mediation stack, and prioritize winning bids based on real-time data.

Forward-looking app publishers are reading the signs, and have realized that to continue operating with waterfall mediation leaves many untapped revenue opportunities. With more top 500 brands looking to spend advertising dollars in the mobile space and developments in targeting technology that pairs brand ads with players for whom they are most relevant, it's now possible more than ever for publishers to increase revenue

Building Value for Publishers and Advertisers

Accessing demand from Facebook's network of advertisers, publishers can monetize inventory and potentially increase revenue by delivering ads to real people across mobile apps, mobile web, and video. Featuring real-time optimization capabilities, Audience Network supports engaging and valuable formats, like custom native units for display and video, as well as standard interstitial and banner formats. From managing placements, to understanding performance, to setting price targets that align to key goals, Audience Network has a suite of tools built to help publishers grow their businesses, like CPM Targets, Price Setting, Monetization Manager and more.

Focused on positive user experience, Audience Network publishers can take advantage of flexible formats and integrated ad experiences that may lead to increased lifetime value.

Amelia Zins is a Product Marketing Manager at Facebook Audience Network and is based in London. With close to 10 years of experience, working in product management and marketing, Zins has been close to both the gaming and the app monetization space. She works with Facebook's biggest app publishers in building the right monetization solutions to help them grow their business.