“Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Josh Speyer, CEO at AerServ.
There are many pricing models in advertising, including cost per mille (CPM), cost per impression (CPI), cost per click (CPC) and cost per action (CPA), to name a few. All fall into one of two buckets: brand or performance. While each type of ad has its place in a publisher’s or developer’s monetization strategy, one is more lucrative than the other.
It is my observation that brand-based ad networks tend to be more profitable for mobile publishers. Brand networks use the CPM pricing model, guaranteeing payment regardless of performance, and without the need for the user to exit the app. Brand networks also allow publishers more freedom to optimize ad performance, which both attracts new advertisers and retains existing ones.
However, since there are fewer brand advertisers investing in mobile, app developers can’t afford to stick only to those types of networks. Performance-based ad networks are far from worthless, and in reality there are pros and cons for both types of ad networks.
Fill Rates: The Higher, The Better?
Fill rates are key to monetizing mobile ad inventory, so it is important that publishers work with networks with high average fill rates.
Performance-based ad networks can deliver a 100% fill rate, or very close to it, because there is an endless supply of apps looking for installs or companies looking for new leads. Typically, the agency or advertiser will run a test campaign to ensure their metrics look good before opening up budgets once they know the model works.
This can be dazzling to a newbie developer with dollar signs in their eyes, but there is no way to guarantee the performance of the ads or the quality of the placement. This makes CPA or CPI pricing models less than ideal for publishers, because there is little room for them to optimize ad performance, which is crucial to acquiring and retaining advertiser partners.
Brand networks, on the other hand, typically can’t match that kind of fill rate due to the essential nature of the buyer relationships and campaigns; ad campaigns are sold to advertisers with specific flight dates, campaign goals, KPIs and user targeting. The network’s ad server will allocate impressions selectively based on the campaign parameters, and if the user doesn’t match what the campaign needs, the ad opportunity goes unserved. However, for the inventory that is filled, the publisher’s payment is secure once the ad is delivered. This is the CPM pricing model, which is the way most publishers prefer to operate.
So ultimately, a high fill rate does not necessarily mean the most revenue potential. Brand networks may not be able to promise 100% fill, but they can promise the publisher will get paid, even if the user immediately closes the ad.
The Burden Of Risk
Another factor to consider is risk. Performance-based networks put the burden of risk on the publisher. If the ad performs, the publisher gets paid, but if it doesn’t, the publisher gets nothing. The ad network assumes no risk in this situation, yet the publisher’s revenue is at its mercy.
Brand-based networks take on a larger share of the risk because publishers get paid upon delivery of the ad, regardless of performance. As such, the ad network will optimize impression allocations (fill rate) on their end to ensure campaigns are pacing, delivering and performing to the KPIs set and delivering a good profit margin.
Disruption Of The User Experience
For publishers and app developers, working with performance-based networks presents another unique dilemma: Is payment for the click or install worth disrupting the user experience?
It’s something that many developers don’t consider when looking to maximize their fill. If you’re the owner or creator of the app, the last thing you want is a performance ad popping up and removing the user from your experience, but if the user doesn’t click through, you don’t get paid.
Which One Is It?
Right now, there is a proliferation of performance-based ad networks in the mobile space, primarily due to the immaturity of the market. As the market matures and more publishers demand brand-based inventory, the performance networks will dwindle.
In the meantime, mobile publishers and app developers can maximize their potential profits by ensuring prospective networks are packing enough brand advertisers to deliver a stable revenue stream and a high quality of targeted performance advertisers that will keep success rates high and advertisers happy.