How Much in Advertising Revenue Can a Mobile App Generate?
Free apps can generate revenue off their advertising potential.
Mobile app downloads are expected to top 102 billion in 2013, according to research firm Gartner. Unpaid downloads will account for 91 percent of all app downloads, leaving developers looking for ways to generate revenue from their wide distributions. Some developers include in-app purchases to bring in money from their apps, but advertising plays an important role in cashing in off app sales. Mobile app development is an expanding field. Understanding the parameters of advertising revenue can help developers and investors set their expectations.
Mobile App Advertising Basics
Most app-based ads operate through similar arrangements as traditional web advertisements. Developers join ad networks that sell off advertising space in apps to advertisers, who buy spots that will reach target demographics. Advertisers typically pay the network for ads each time someone clicks on the ad. The network then passes a portion of the revenue on to the developer whose app displayed the ad. Some apps might have a strong-enough following that advertisers will work directly with the developer to place ads, which often fetches more revenue than network ads.
Ad Network Payouts
While the most common way for mobile app ads to cost advertisers money and pay out to app developers is per click, there are other commission structures available that pay for views or specific actions. The effective cost per thousand impressions, a measure that equalizes advertising revenue of apps with different click-through rates, ranged between $.53 and $1.12 in 2012. An impression occurs each time a new ad is displayed to a user. So if an app averages 1,000 daily users who see two ads each at an eCPM of $.50, the app would generate $1 on average each day.
The Total Market
Ad-supported apps bring in cash from advertisers. This allows and encourages developers to make the app free to download, increasing the number of users and the value to marketers. Without considering the factors that contribute to how much a single app can make from advertisers, a look at the advertising market can help establish reasonable revenue figures. According to ad agency ZenithOptimedia, global ad spend in 2013 will reach $503 billion, a 3.5 percent gain over 2012. Only 3.7 percent of that will be on U.S. mobile ads, a total $6.2 billion.
Market Share Calculations
A single mobile app cannot earn more advertising revenue than is spent on mobile advertising. Mobile advertising represents a larger portion of overall ad spend each year, and is projected to continue growing at rates over 50 percent through the mid-2010s. While the market is growing rapidly, the amount of money at play is limited and the number of players is increasing because there are few impediments to new developers looking to advertise. Revenue projections should be compared against the size of the market to test whether the growth seems reasonable as a percentage of market share.
About the Author
Sean Butner has been writing news articles, blog entries and feature pieces since 2005. His articles have appeared on the cover of The Richland Sandstorm and The Palimpsest Files. He is completing graduate coursework in accounting through Texas A M University-Commerce. He currently advises families on their insurance and financial planning needs.