Post by Kevin Fishner
Mobile advertising in 2014 will mirror what happened to web advertising half a decade ago
Mobile ad revenue per impression will match web ad revenue per impression in 2014. Ad prices go up when an advertiser is able to increase the lifetime value (LTV) of its customers and/or when they increase the percentage of page visitors that become customers (conversion rate). This allows an advertiser to pay more per page visitor, knowing that those visitors have a higher probability to become paying customers (higher conversion rate) and those customers spend more money (higher customer LTV).
We saw this trend in web advertising between 2007 and 2008 with the boom of companies focused on A/B testing to increase customer LTV and companies focused on conversion rate optimization to increase the percentage of page visitors to become customers.1 For A/B testing, Google Analytics bought Urchin in 2005 and Measure Map in 2006, KISSMetrics was founded in 2008, and Mixpanel in 2009. For conversion rate optimization, HubSpot was founded in 2006, Optimizely in 2009, and Unbounce in 2011. From 2006 to 2007, CPC rates increased almost 100%, reaching a peak in 2010 400% higher than 2006.
Showing correlation between company founding dates and CPC price increases and claiming causation is dangerous business. I’m not yelling causation; however, I am saying that the founding of these companies represented a change in thinking for web advertising. The approach to web advertising started as a simple “test a new advertising medium” and moved to a complex “understand every aspect that goes into a successful, profitable advertising campaign.” Interest in both A/B testing and conversion rate optimization surged over this time period, similarly reflecting the paradigm change in web advertising from a creative medium to an analytical, data-driven money maker.
The same analytical, data-driven paradigm shift is underway in mobile advertising, and that is why mobile ad prices will match web ad prices by the end of the year. Advertising economics on mobile are the same as web; however, the medium is quite different due to silo-ed app stores that distribute a company’s product. To reiterate, ad prices go up when an advertiser is able to increase the lifetime value (LTV) of its customers and/or when an advertiser increases the percentage of page visitors that become customers (conversion rate). On mobile, there are 4 key services to help an advertiser maximize its customers’ LTV and its customer to visitor conversion rate. In-app A/B testing (red in the graph below) maximizes customers’ LTV. Deeplinking (yellow), app store optimization (blue), and mobile-web conversion rate optimization (green) maximize an advertiser’s customer to visitor conversion rate.
With these tools, mobile advertisers will maximize their customers’ LTV and the percentage of visitors that become customers, thus allowing mobile advertisers to spend more across ad networks to bring a visitor to its app store page or mobile webpage. Expect each of these trend lines to surge in 2014, just like the first graph plotting web trends in 2007.
1) In-app A/B testing increases mobile customers’ lifetime value
Due to the review cycle of the App Store, it is exceedingly difficult to make small adjustments in your app and measure the effect on customer lifetime value. However, in the last two years Leanplum, Artisan, AppIterate, Apptimize, and many more companies have all launched with intuitive A/B testing products that enable developers to increase the frequency of A/B tests without submitting to the App Store or Play Store.
These services are targeted at product managers and marketers to quickly setup and run A/B tests from an easy web interface. Of course, the services are complete with intuitive reporting to understand if a change impacted key metrics.
2) App Store Optimization (ASO) improves install conversion rates
An app’s page in the App Store or Play Store is the new landing page to acquire new customers. Right now, the average app store page conversion rate (installs/visits) is between 2%-3%, but expect that to rise to 4-5% with the help of ASO-focused companies like MobileDevHQ. If a developer was paying $1.00 per click at a 2% install rate, that same developer could now pay $2.00 to achieve the same cost per install. MobileDevHQ outlines the main factors that contribute to your app store conversion rate: (1) App Description (2) Reviews and (3) Screenshots.
For recommendations on optimizing those factors, read their blog post on The What, The Why, and The How of ASO. MobileDevHQ is making ASO accessible to all apps and a necessary part of mobile product iteration.
3) Deeplinking makes the mobile conversion funnel more efficient
Deeplinking allows an advertiser to display ads for specific products and link directly to the product in-app. For example, Expedia can show ads for flights to New York and when the user clicks on the ad, directly link to the in-app search results for New York flights. Previously, Expedia would show ads for New York flights, the user would click, and then be directed to the App Store. The user would then have to open the app, navigate to search, enter New York details, and finally be shown results. Deeplinking takes a 6 step process and reduces it to 3. The less steps there are, the less user drop-off there is, and the higher the full-funnel conversion rate.
Let’s assume 50% of users drop-off with each step. Without deeplinks, your full-funnel conversion rate from ad to purchase is 3.125%. With deeplinks, it is 25% — an 8x increase. If your landing page conversion rate is 8x greater than your competitors’ and your customer lifetime value is equivalent, you can pay 8x more per ad click and completely crowd competitors out of the ad market.
With URX and deeplink.me launching deeplink products in 2013, expect top mobile advertisers across mobile commerce, gaming, content, and beyond to take advantage of the optimized experience. As these advertisers get advanced with deeplinking, landing page conversion rates will rise and cost per click will rise. Lucas Brown of MobileAppTracking, who partnered with deeplink.me to bring deeplinking to its developers, makes a great point that deeplinking gives life to mobile advertising after the install. “A user can only install an app once. As the industry moves beyond the install, deeplinking enables app developers to re-engage with users an infinite amount of times with advertising campaigns.”
4) Mobile web conversion rate optimization focuses on higher-funnel metrics
Struggles in collecting payment information and providing a clean mobile browsing experience have lead mobile web landing pages to focus on higher-funnel conversion metrics such as subscriptions, content downloads, or contact form completions. Optimizely, Unbounce, and HubSpot are the major players in conversion rate optimization, and they all offer mobile-optimized pages. Yes, mobile still benefits from making landing page adjustments, but the areas that need the most improvement in order to optimize mobile web conversions are the checkout flow and browsing experience. Entering payment details on mobile is a pain — you’re often on-the-go and taking out your credit card isn’t the most appealing option. Several companies (PayPal, Google Wallet, Amazon Payments) have tried to build universal checkouts so users don’t have to enter new payment details with each new site, but then each publisher has to integrate that payment option. No universal wallet has enough publisher penetration to be a great option. Browsing experiences have also struggled on mobile — companies adapt their desktop website into a mobile web experience, or build an independent app. Mobile web pages are rarely built independently with the proper mobile constraints, yet mobile web makes up 28% of total web traffic. 4 So while the app ecosystem is getting more complex with app store optimization, in-app A/B testing, and deeplinking, the mobile web isn’t getting the same love.
Despite the remaining challenges in mobile web optimization, the prevalence of ASO, in-app A/B testing, and deeplinking in 2014 will be the end of this graph:
- A/B testing and conversion rate optimization are very similar — CRO is a subset of A/B testing. For the purpose of this post, I will use CRO to refer to A/B testing only on landing pages. I will use A/B testing to refer to A/B testing deeper in the funnel (browsing pages, checkout pages, etc). ↩
- https://www.leanplum.com/ ↩
- http://www.mobiledevhq.com/thewhat-thewhy-andthehowofaso-presentedatsmx—123/articles?page=1 ↩
- http://marketingland.com/mobile-traffic-now-28-percent-of-total-report-64218 ↩