The move toward a more transparent and sustainable future for in-app advertising is well underway, but the process - especially compared to the shift we're seeing on the desktop - can be frustratingly slow. This is especially true for publishers eager to leverage a more efficient and profitable process to sell their inventory. 

In 2022, we will see the urgency of driving migration from traditional waterfall settings to a more equitable in-app bidding model. How does in-app bidding really work? Why has it become so important? Is it better than the "old way" of monetizing ads?

What is in-app bidding?

In-app bidding is an advanced advertising method that allows mobile publishers to sell their advertising resources in an auction so that all their advertisers bid against each other at the same time. Publishers earn a much higher price (CPM) than would otherwise be the case due to intense competition.

In-app bidding is not a new technology, but rather an app-centric version of in-app bidding, a desktop technology that has been around since 2015. In-app bidding allows web publishers to partner with third-party in-app bidding providers for headers on web pages. The code allows these providers to access multiple ad trading platforms that can bid on the publisher's ad resources simultaneously. In-app bidding ensures that publishers receive the highest price for that display, and the advertisers that place the most value on inventory win the highest bids.

Until recently, bidding was not available for mobile apps, but our mobile-first world needs a bidding model that has been proven to optimize the cost per thousand display for publishers, much like in-app bidding on the web. Technical issues and a lack of actual headers in the app prevented the solution from gaining traction on mobile devices, but the technical barriers have now disappeared - the era of in-app bidding has arrived.

Click "Learn More" to drive your apps & games business with ASO World app promotion service now.

App monetization - In-app bidding vs. waterfall

In-app bidding is the result of advertisers' frustration with Google's DFP ad server (DFP) prioritizing their own ad exchange (AdX) over other demand partners.

As a way to circumvent the DFP, publishers created a hack that allowed them to run real-time auctions of inventory in site headers for demand partners outside of Google's Waterfall ranking to access.

Waterfall

The "waterfall" works like this: the publisher sets the reserve price - the lowest acceptable price for the offered inventory. The top-ranked network tries to facilitate a direct transaction. If this is not possible, the opportunity is passed to the next line in the ad network hierarchy. As soon as the reserve price is reached, the deal is closed.

In the waterfall approach, the publisher's ad server calls ad networks in a predetermined linear order. This order may be based on manually set priority rules as well as historical pricing data, which means the system provides a preferred ranking for the ad network that previously paid the best price for the display.

This creates a bilateral opportunity gap. For publishers, the waterfall system and its reliance on historical data limits the likelihood of receiving higher bids from lower ranked ad networks, thus limiting potential revenue. 

For advertisers, the system limits their access to publisher inventory, which in turn limits the possibility of showing more relevant ads to end users.

In-app bidding

In-app bidding creates a fair and equitable marketplace for advertisers to compete to buy publishers' ad inventory.

By adding a piece of code to their site's header or integrating it into their application, publishers can send requests to multiple sources of demand, who can then bid on available inventory simultaneously.

The waterfall approach may not have completely failed, but headline and in-app bidding has far outpaced its dominance in digital ad sales.

How does in-app bidding benefit your app store ads business?

These days, users seem to be spending more and more time on their phones. In fact, according to E-marketer, the average time people spend on their smartphones in the US is over 3.25 hours. This means that because users are using their phones, your publisher's website should be there as well. In addition, users spend 86% more time on apps than they do in a mobile web environment.

In-app header bidding allows for the most uniform demand competition in real time. Previously, publishers had to integrate directly with ad networks, one at a time, to enable in-app monetization.

Then there was the intermediary, which allowed one integration point for a full stack of many ad networks, but still relied on a "waterfall" approach where orders and prices were manually adjusted for each ad network.

In-app bidding allows all networks with RTB integration to compete in real time, on an equal footing with each other, so there is less money left over.

1. Increase ad revenue

By switching to app bidding, companies increased their average revenue per active daily user by 27% [Game Insight, GSN Games and FUN-GI internal data, ARPDAU lift data; June 2020].

For businesses with smaller teams, app bidding allows you to profit quickly and generate the most in-app advertising from the start, without having to adjust and optimize the placement of your bidding network. Many games have short lifecycles and being able to respond to game performance is critical to maximizing profits. Knowing how your users respond to ads and how much value you can extract from your games makes it easier for publishers of all sizes to adjust their monetization strategies or user experience accordingly. This is a great portal for publishers with high volumes of in-app purchases who are starting to use the in-app advertising model.

Lucky Kat, a mobile game publisher, increased its average effective cost per thousand displays by about 50% after switching to Facebook Audience Network bidding, and Bente Bolland, Lucky Kat's UA and Monetization Manager, said, "We used Facebook Bidding for a week versus We ran a week of A/B testing using Facebook Bidding with traditional Facebook order items. Our ARPDAU has increased by up to 20%. It now accounts for a third of our display counts and keeps our ARPDAU stable. (Lucky Kat internal data; 2020)

For game publishers looking at how to manage in-app profitability, it's important to get a fair price for inventory. As with all sales models, the higher the demand - the higher the price. By using a real-time auction system, app bidding allows all demand sources to bid simultaneously for each display, and this increased competition effectively drives up bids while giving advertisers an equal chance at each display.

2. Improve operational efficiency

According to an IDC report, technological developments have led to easier and more efficient implementation and maintenance of app bidding than in recent years, making it a more friendly option for smaller publishers [IDC, The State of Header Bidding and In-App Bidding; April 2020].

By adopting in-app bidding, publishers can use this time to focus on more impactful areas of their business, including optimizing the app experience, easily integrating with new demand partners, and increasing user acquisition. For example, after adopting app bidding, social game developer Pixel Federation reduced in-app ad management time by 30%, eliminating the need to manually manage its Audience Network display placements in the waterfall system. (Pixel Federation internal data; 2020)

For example, ultra-casual game developer Voodoo has reduced its ad operations time by 10% since moving to bidding. Instead of spending that time on routine waterfall maintenance, the team can focus on A/B testing ad integrations, new intermediary and ad network features, and optimizing average revenue per daily active user. (Voodoo internal data; 2020)

These efficiencies don't just apply to larger market leaders; growing publishers are also seeing major efficiencies from using app bidding. As a growing publisher, Lucky Kat has not only benefited from improved ad results, but has also reduced the amount of time spent on ads by approximately one hour per game per week.

3. Get more demand

By applying bidding, publishers can easily add any number of demand sources with minimal impact on operational resources, which is especially beneficial for smaller publishers. And because it is a flat model, application bidding can significantly reduce latency and improve the user experience. On average, we found that bidding reduced ad latency by 38% to 88% compared to the waterfall method. [Facebook internal data, based on 2 to 10 calls to Audience Network's waterfall, APR/2020]

App bidding is quickly becoming the best-in-class method of in-app monetization as more and more game publishers begin to realize its potential. While the top 10 publishers using Audience Network profitably are now using bidding, it is also opening up new opportunities for smaller publishers. App bidding will not only allow publishers to achieve operational efficiencies and increase revenue, it will also help create a more equitable advertising ecosystem for both buyers and sellers.

How to start in-app bidding?

When it comes to in-app bidding, most of the trouble boils down to one thing - choosing the right solution. You shouldn't judge in-app bidding solutions by their fancy slogans or websites.

It's important to do your research before choosing an in-app bidding partner. In addition to choosing the right partner, you should also consider whether in-app bidding is right for you. In addition, you need to learn how to properly analyze the data in this model.

Below is a list of best practices that every publisher should consider before transitioning to in-app bidding.

1. Look for diverse sources of demand

In-app bidding solutions can serve their purpose when they encompass a large network of intermediaries and a large demand-side market. For this reason, you should ensure that there are a sufficient number of demand sources competing in your auctions.

According to Facebook Audience Network, this can be achieved by working with at least three demand sources. If you use multiple ad formats and place them in different locations, you should aim for more.

This should be done whether you rely on a mediation partner or an in-house mediation solution. Only when this diversity is achieved will there be healthy competition. If you lack a source of demand, you jeopardize your fill rate (and revenue).

2. Quality reporting is a must

How do you know if the in-app bidding platform is working as promised? The answer is simple - reporting.

Don't rest on your laurels when it comes to reporting. An in-app bidding solution should bring you transparent and detailed reports. From these reports, you should be able to see all of your demand partners, as well as a wealth of auction-related data. With the help of such data, you will be able to gain actionable insights and identify potential growth opportunities.

3. Make sure the solution has the right tools

A good in-app bidding platform should bring you the tools to manage your demand partners. In addition, with it, you should be able to optimize traffic distribution at the placement level.

Another important set of tools for these platforms are audience segmentation tools. These are tools for optimizing inventory pricing in real time. With them, publishers can understand the true market value of their advertising resources.

Only by using these tools can you truly act on the findings in your reports.

4. Measure app promotion performance with data analytics - ARPDAU

Since the introduction of the waterfall model, cost per thousand display has been the ultimate success metric. Everything else is less important. However, in in-app bidding models, the main focus is on another metric - ARPDAU (average revenue per active daily user).

Unlike cost per thousand displays, this metric measures overall fill rate and revenue, rather than the performance of each ad network. By tracking ARPDAU, you can easily evaluate performance. Simply review your app's ARPDAU before and after merging bids.

During this process, you may notice a drop in CPM for some ad networks. Don't panic about this. This usually means that these ad networks used to have access to high-value users because they had the highest position in the waterfall. In the auction system, these networks have access to all display counts. Therefore, they are also getting lower value users. This may have a negative impact on their cost per thousand showings, but overall it should have a positive impact on your ARPDAU.

That's why it's critical to remove the floor price from bidding networks. Sure, having them can increase the cost per thousand display, but they will result in a loss of impressions and ultimately lower total ad revenue.

5. A/B Test different in-app bidding solutions

You can never be completely sure that you've chosen the best in-app bidding solution for you. Therefore, even if you are already using an in-app bidding platform, it is not a bad idea to A/B test other solutions.

Some publishers use multiple in-app bidding solutions at the same time, and this approach works for them. Others don't go all out with their bids. Instead, they use the hybrid approach mentioned earlier.

6. Recognize your needs

Switching to in-app bidding is not necessarily a good idea for all publishers.

Many publishers have previously invested in their own in-house intermediary solutions. Others have built solid partnerships that help them profit from advertising. If this approach works for these publishers, it may be more effective to stick with an existing solution than to adopt in-app bidding.