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In-App Advertising: Defining the Market and Its Unique Dynamics December 2015 I Introduction The public is consuming media like never before and their media habits, activities, and preferences change rapidly. Today’s consumer is increasingly mobile-first, spending more time in-app, watching a significant amount of digital video, and more open to viewing contextually relevant advertising, especially in exchange for content and access. Given an abundance of media seeking to capitalize on these changing dynamics and attract consumer attention, marketers and publishers must adapt and evolve their media strategies to elevate their advertising message and engage consumers. This is particularly true for mobile. As consumers spend more time on mobile devices, marketers and advertisers seek to reach their ideal customers where they reside. In doing so advertisers and publishers face a number of new challenges: Desktop methods and formats for delivering content do not translate directly to mobile Few marketers, publishers, agencies, and providers have cracked the code on how to deliver datadriven targeted solutions on mobile While not exclusive to mobile, marketers and publishers are hurt by corruption and ad fraud As solution providers recognize these challenges, pain points are increasingly being mitigated through the development of ad formats that capitalize on changes in consumer media consumption as well as advertiser and publisher demand. One format is in-app advertising. As app developers seek to monetize their apps and consumers increasingly embrace an advertising-for-access value exchange, marketers and publishers are turning to in-app advertising. The highly effective forms of in-app advertising, such as reward based or opt-in video, go beyond traditional banners and desktop display formats; they are highly engaging, aligned to the changing consumption habits of today’s consumer, and uniquely positioned to combat ad fraud. The leading in-app advertising formats can empower advertisers, publishers, and app developers to meet their most significant objectives: Advertisers can deliver content, capture audience data, generate insights, and target consumers with new content that provokes engagement and supports branding, awareness, acquisition, and loyalty Publishers can drive traffic, acquire consumers, and get them actively engaged with digital content App developers can monetize their applications with high value CPMs and quality brands that are aligned to the app and user The increasing use of in-app formats and solutions to distribute content sits at the intersection of critical trends related to consumer content consumption and how developers create experiences that engage app users. It is the synergy of interests between these stakeholder groups and a focus on content distribution, engagement, and performance that has created a marketplace for delivery of content in-app. This makes the leading formats a highly attractive medium for advertisers, publishers, and app developers. This paper seeks to define the in-app advertising market, identify the leading formats, use cases and marketer objectives, provide insight into the macro-level trends impacting the rise of in-app advertising and finally, offer predictions on the in-app advertising market’s growth and evolution. II Macro Trends are Making In-App Advertising Increasingly Important 84% of smartphone users say viewing an ad in exchange for rewards is acceptable. A number of trends impacting the marketing landscape make mobile in-app advertising an important format for advertisers and publishers to consider. These trends can be divided into three categories: consumer consumption, format, and the marketing ecosystem at large. Consumer Consumption Trend: Increasing Use of Mobile and Apps Mobile devices now account for 51% of consumers’ total time spent with digital media, up from 24 minutes in 2010.1 With the growth in mobile usage has come increased time spent engaging with apps: smartphone users spend approximately 88% of their phone time in-app as opposed to just 12% in browser.2 Increasingly, consumers are looking for a non-monetary value exchange to keep apps free and are becoming okay with in-app advertising to subsidize the content they are seeing. While 80MM US mobile users will pay to download an app this year, that is predicted to decline over the next four years.3 Alternatively 84% of smartphone users say viewing an ad in exchange for rewards is acceptable.4 Format Trend: Increasing Use of Short and Long-Form Content, Especially Video Content is an increasingly large priority for marketers—77% of marketers are developing content to fuel their marketing efforts, 70% are creating more than they did last year, and 73% plan to increase content creation budget. Best-in-class content is continuously refreshed, able to go crossdevice, and increasingly video-focused.5 Total digital video spending is expected to reach $12.8BB by 2018, of which almost 50% is mobile.6 Video is a top tactic to monetize publishers’ sites, with nearly 50% of publishers using video on their properties as a monetization method.7 Ecosystem Trend: Increasing Corruption from Bad Actors Ad fraud is a top concern for both advertisers and publishers—advertisers do not want to be charged for fraudulent activity, and publishers do not want bot traffic. An estimated $6.3BB is lost worldwide due to ad fraud.8 While ad fraud impacts exchange based buys due to disconnects between buyers and sellers, high CPM ad formats (such as video) tend to see high levels of fraud as well (~23% of video ads).9 Mitigating exposure to fraud risk is a high priority for marketers seeking to engage audiences and publishers looking to increase traffic. Ecosystem Trend: Rise of Data-Driven Insights and Programmatic Buying and Media Placement Given intense competition for consumer attention across verticals in a crowded media landscape (and fragmentation of what was once a “mass” consumer base into smaller audience segments as defined by their demographics and personal interests), marketers are aiming to implement consumer-focused marketing. Rapidly growing availability of data on consumer activities and preferences is driving a secular shift in marketer emphasis away from generic “mass” marketing and toward programs that are grounded in deeper audience segmentation with targeted offers, messages, and content. Sources: 1) eMarketer (2015), 2) ComScore (2014), 3) Forrester (2014), 4) eMarketer (2015), 5) ion interactive/CMO Council (2014), 6) eMarketer (2014), 7) Brightroll (2015), 8) Whiteops (2014), 9) eMarketer (2015) III Aligning on Mobile In-App Advertising Format Definitions and Use Case Activation Given the rise of consumer app consumption, the flexibility of apps to display various forms of content, the ability to limit fraud with potential placement through an SDK and offer highly engaged audience through consumer self-selection (i.e. download), advertisers, publishers, and app developers have begun looking to distribute advertising in-app as it is a more effective way to engage consumers. It responds to macro-level trends and begins to tackle the imperatives faced by core stakeholders: advertisers and their agencies, publishers, and app developers. Defining Mobile In-App Advertising Mobile display (static or video) advertising which appears within an app environment and is built in through the app’s SDK, can be transacted on a CPM, CPE, CPV, or CPCV basis In-app banner: Ads that appear on the top or bottom of the app screen and prompt users to install other apps, visit websites, or view products. Ads dynamically resize to fit the screen and rotate with the device. Native: Digital content that blends seamlessly within an app environment and is coherent with other media in-app; ads are popular within social or news streams. Identifying the Formats Interstitials (auto-play video, static display): Full screen ads that appear in an app at break points or transitions (e.g., in between game levels, at the conclusion of a video, etc.) Similar to in-app banner, ads prompt users to install other apps, visit websites or view products. Format often requires users to close the ad; videos can be skipped after a certain amount of time. Opt-in, reward based video content: Users are incentivized within the app environment to view video advertising (e.g., earn more coins, extra lives, more minutes, etc.). If users opt in they must view the entire video to receive the reward. Opt-in video is often loaded through app SDK to reduce loading time. In some cases, prior to watching a rewards based video, users are asked a targeting question to tailor their video experience. Understanding the Use Cases IVIdentifying, Defining, and Analyzing Demand Trends from Industry Stakeholders Advertisers and Their Agencies Advertisers and their agencies are directly impacted by the macro trends detailed above but also have a unique set of secular trends that directly impact their advertising efforts. Content marketing Developing short and long form content, both text and video, is becoming high priority for marketers as they seek to engage audiences; additionally, advertisers are focusing on creating quality content due to its importance in driving SEO; search engine algorithms, notably Google, are punishing “content mills” that focus on quantity over quality. Getting around the ad block With the rise of mobile ad blockers, advertisers are turning to opt-in, reward based methods to effectively distribute marketing content that reaches consumers. Multichannel performance As marketers and their agencies are asked to do more with less, the ability to efficiently and effectively meet campaign KPIs becomes critical in selecting partners and solutions; mobile remains a pain point so those providers and formats that can effectively activate the mobile channel are even more valuable. Data-driven and becoming customer-centric The growing availability of data on consumers and their behaviors has armed marketers with a deeper understanding of who the consumer is and how consumer relationships evolve across their respective lifecycles. While marketers have a mandate to activate their data, many struggle to effectively do so. “Video is highly attractive to my client as it extends their reach beyond what they do on TV…it engages people with messages and gives more control over actual views.” -Agency for national telecom advertiser “We’re trying to get all of our providers and clients to focus on multi-channel—it has to be a conscious effort to get people thinking that way as far as budgeting and planning. With top providers, it’s the experience they’re creating more seamlessly across screens that will help us break that barrier.” -Digital strategist for pharmaceutical brands “We have increased spend on native from test last year to being an expectation in the media plan, so it gets a significant portion of budget.” -Agency for global oil and gas consumer brand Publishers Similar to advertisers and agencies, publishers are impacted by a number of trends that represent both challenges and opportunities. Quality traffic and viewability Publishers aim to drive the majority of their traffic organically. However, when they need to purchase additional traffic, publishers want to ensure the audience is real and actually viewing content; bad actors have made it more difficult to consistently ensure high quality traffic. Striving for high levels of engagement Organic traffic drives high engagement; however, purchased audiences do not always drive the same results; publishers are not only looking to deliver audience at scale but also high levels of engagement, not just page views. Assistance with activating mobile Publishers realize the value of mobile for their audience acquisition efforts, though many struggle with execution. Data-driven Similar to marketers/advertisers, publishers are looking to activate the immense amount of audience data to drive additional, highly qualified traffic that will actively engage with site content. “A big focus from advertisers and publishers is quality traffic and ad viewability. As long as providers are able to deliver quality traffic, that’s what we’re looking for and need help with at least over the next 4-6 months on desktop and mobile.” -Audience marketing manager for online lifestyle publications “Customer acquisition is a huge portion of my job…99% of the time we manage our own traffic well, but for that 1% we look to providers for a targeted, reliable audience for content.” -Audience acquisition manager for top-tier publisher App Developers An overlooked, but critically important, stakeholder group in the activation of mobile marketing is the app developers. While the advertisers create the content, the design, look, feel, and ability to drive engagement is the developer’s responsibility. The developer’s ultimate goal is to monetize their app, and they seek out formats, solutions ,and providers that can help them achieve a number of goals. These include: • • • • • Easy integration of formats High value CPMs Well-known brands that align with app audience Legitimate audience and deep supply—decreasing fraudulent audience Transparency into audience V Evaluating Mobile In-App Advertising as a Means for Content Distribution In-app advertising sits at the intersection of major trends impacting the digital marketing landscape and provides a solution that can effectively target and distribute content on mobile. The format best suited to activate the broadest range of use cases on behalf of stakeholders and engage consumers is opt-in, reward based video. While more exclusively priced than in-app banner or other native formats, it is significantly more effective at putting content directly in front of consumers while eliminating concerns around fraud. Content is optimally embedded through the SDK and wholly immersive with limited interference or ability to exit, decreasing load times and increasing engagement and view through. Utilizing a range of available data points such as device ID, in-app behavior, and responses to opt-in questions, reward based video can be highly targeted. Consumers are actively viewing video and content that is highly relevant to them, whether in support of audience acquisition, retention, or branding efforts. As more data becomes available on users, the targeting becomes more effective, allowing for deeper user engagement. As advertisers seek to utilize data to dynamically target and engage consumers, publishers look for unique ways to drive traffic to their digital properties, and developers seek to monetize mobile apps, many have turned to (and will continue to turn to) mobile in-app formats to distribute content and achieve strategic objectives. “Targeting is very important to us and we were happily surprised to find that providers have firstparty targeting; we didn’t think with such good inventory they could layer on targeting.” –Agency for national telecom advertiser “We had outlined a test budget for the in-app video offering. We tested it, got good results, so we kept using them and now have incrementally put more funds to video.” –Agency for prescription pharmaceutical brand “Some partners are video only, other partners offer other native content alongside video content— that provides differentiation—but there’s not a lot of platforms that asks users a targeted question before the video plays. Opt-in video is something that’s special.” –Agency for global oil and gas consumer brand “The opt-in video model is special…consumers are becoming more savvy, and they want something they can opt-in into, something that ads value for them.” –Agency for global oil and gas consumer brand “Targeting performance is consistent and in the content areas we push, we do see people actually go to the next level. That tells me they are engaged in the content beyond just generating a page view.” -Audience acquisition manager for top-tier publisher “A lot has changed quickly over the past couple of years as demand is shifting quickly to mobile and especially mobile apps. We need to adjust how we work with partners on mobile because that is where demand is and the scale.” -VP of ad sales for mobile social network “Consumers notice a difference but don’t know why with opt-in video. It feels friendlier to them. We only buy opt-in and don’t plan to buy on a straight CPM.” -Developer of multi-platform games VI Predicting the Growth and Evolution of In-App Advertising Given the macro-level trends that impact individual stakeholder groups, the in-app advertising format is primed for growth. We believe the next phase of growth for the format—and subsequently the providers that support it—will be marked by a number of key elements: In-app solutions will become increasingly reward focused—84% of consumers believe that rewards based, opt-in ads are very acceptable or somewhat acceptable in a mobile app. Moreover, users are more likely to download content and have increased respect for brands through opt-in ads. Meanwhile, 50% of surveyed respondents find full-screen video ads very unacceptable and disruptive.10 In-app solutions will develop more advanced targeting based on providers’ ability to collect first party insights; this is especially true for those with opt-in reward based solutions as the provider is using download data to help initial targeting, and then constantly refining targeting with first-party data gathered through survey questions. 66% of surveyed smartphone owners who said their preference for viewing inapp advertising is reward based as rewards and the ads themselves are more relevant to their interests VII Conclusion As the market scales, there is potential for increased brand budget to flow into mobile specific formats, alongside performance based budget. There will be a shift away from programmatic buying of pre-roll video content due to limited engagement and fraud. Video based pricing models will evolve—CPE, CPCV—as agencies train their clients beyond the CPM. Marketers will look to solution providers that have robust analytics and reporting and can accurately determine in-app ROI. A confluence of trends in the advertising and marketing ecosystem—including native, content, video, mobile, and fraud mitigation—combined with the unique needs of advertisers, publishers and app developers has led to the creation of a distinctly mobile marketing format that can effectively target and engage consumers. As marketers, advertisers, and publishers continue to search for methods of effectively reaching and engaging consumers, the development of mobile in-app solutions devoted to content distribution (notably video) and the use of the providers that power its placement will continue to rise. Source: 10) IPG Media Lab (2015) About Winterberry Group WINTERBERRY GROUP is a unique strategic consulting firm that supports the growth of advertising, marketing, media, information and technology organizations. Our services include: CORPORATE STRATEGY: The Opportunity Mapping strategic development process helps clients prioritize their available customer, channel and capability growth options, informed by a synthesis of market insights and intensive internal analysis. MARKET INTELLIGENCE: Comprehensive industry trend, vertical market and value chain research provides in-depth analysis of customers, market developments and potential opportunities as a precursor to any growth or transaction strategy. MARKETING AND DATA TRANSFORMATION: Process mapping, marketplace benchmarking and holistic system engineering efforts are grounded in deep industry insights and “real-world” understandings— with a focus on helping advertisers, marketers and publishers better leverage their core assets and respond to growing market demands for responsiveness driven by the power of data, digital media and marketing technology. TRANSACTIONAL DILIGENCE: Company assessments and industry landscape reports provide insight into trends, forecasts and comparative transaction data needed for reliable financial model inputs, supporting the needs of strategic and financial acquirers to make informed investment decisions and lay the foundation for value-focused ownership. Additionally, Winterberry Group is differentiated through its affiliation with Petsky Prunier LLC, the leading investment bank serving the technology, media, marketing, e-commerce and healthcare industries. Together, the two firms provide one of the largest and most experienced sources of strategic and transactional services in their addressable markets. For more information, please visit www.winterberrygroup.com In Partnership with Jun Group "Jun" means truth. Our advertising platform is the honest, efficient way to get millions of people to engage with video and branded content across devices. The world’s best-known brands choose Jun Group because everything we do is brand-safe, visible, and transparent. Jun Group is based in New York with offices in Chicago, Detroit, Seattle, and Los Angeles. Please reach out to Dan Frisbie, Executive Vice President, Media at 917-301-2694 or visit http://www.jungroup.com for more information.