Can ads actually hurt in-app purchase revenue?
If there's one question that had everyone divided for years when it comes to advertising on gaming apps, it's this one.
Some believe that ads do not significantly impact in-app purchase revenue, while others think that they can actually hurt it. So, what is the truth?
This article will dive deeper into the question and discuss whether it's just a myth or a stern warning.
In order to answer this question, we first need to understand how mobile game advertising works.
Generally, ads are shown to users in order to generate revenue for the app publisher. This revenue can come from clicks on the ad or impressions (when the ad is shown to a user). It may even come from the installs of the advertised app.
So, how does this affect the in-app purchase revenue model?
One way ads can do this is by cannibalizing it. In-app purchase cannibalization happens when showing advertising on gaming apps decreases the amount of revenue that an app generates from in-app purchases.
This can happen if, theoretically, rewarded ads discourage players from purchasing in-game items or currency since they can get them for free through rewarded videos or other forms of rewarded ads.
Another way that ads can affect in-app purchase revenue is by reducing the number of people who see or engage with the in-app purchase prompt. This can happen if the ad takes up too much space on the screen or is placed in a position that makes it more likely to be accidentally clicked on. Either way, this may, in theory, lead to fewer people seeing or engaging with the in-app purchase prompt, affecting the revenue for the app publisher.
One more scenario in which ads can hurt IAP revenue is the one were showing too many system-initiated ads (such as interstitial ads) leads to users churning early from the game. Consequently, potential purchases from those users are lost too.
Publishers and developers once feared that in-app advertising on gaming apps might reduce revenues from in-app purchases.
However, rewarded ad formats can actually help publishers and developers increase their IAP revenue.
In fact, several reports have shown that players engaging with the rewards after watching a rewarded video ad makes them more likely to make an in-app purchase.
Rewarded video ads are the most common form of ads used in games with an IAP monetization strategy. These ads offer players the chance to watch a short video in order to receive a reward they’d otherwise have to buy, such as bonus coins or power-ups.
According to Meta, rewarded video ads are increasingly popular among U.S. gamers. In fact, out of 71% of hardcore mobile gamers, 41%, and 30% are OK with rewarded video in games.
Games with strong progression systems and highly competitive players can afford to base their games exclusively on in-app purchases. The rest usually rely on a combination of in-app purchases and ads, called a hybrid monetization model.
According to a study published by Unity, adding ads into a game that previously relied exclusively on the IAP monetization model can boost retention rates and IAP revenue. This also resulted in an increase of 2.3% in day-7 retention rates. Additionally, they saw a 1.1% increase in users who made at least one in-app purchase. Finally, 86% of developers who used rewarded video ads experienced an increase in in-app purchase frequency.
In the case study on "Complementing IAP With Rewarded Ads" published by Fyber, researchers found that those who engaged with ads ultimately spent more than the other participants. After interacting with rewarded ads, the cohorts with the lowest spending showed the greatest increase, spending 40-100% more on IAP.
Despite that, developers still have an uneasy relationship with advertising on gaming apps. They fear ads can affect the player experience, so deciding to start showing them ads is not something they are eager to do.
However, players are now more accepting of ads and value exchange, particularly in F2P games. In fact, they prefer ads that offer rewards, such as rewarded video ads. Additionally, according to the same Unity study linked above, 71% of players prefer ads like a game’s primary monetization model.
Ads that are well integrated into gameplay offer real value to the user and consider their preferences. By implementing these ads, game publishers allow users to take advantage of premium elements while having little impact on the gameplay experience.
The more familiar users become with premium in-game items and experiences, the more likely they are to look for them again, which increases the likelihood of players continuing to spend money on in-app purchases.
The most common type of cannibalization occurs when developers introduce rewarded ads (rewarded videos or even offerwalls) and offer too many valuable rewards, disincentivizing the players from making in-app purchases.
IAP can be a great way to monetize your app, but it's important to make sure that you're not giving away too much for free. Finding the right balance of rewards is essential to keeping your in-app economy healthy.
Too few rewards may mean users are less likely to watch ads, while too many valuable rewards could decrease IAP revenue. This is something that often requires a trial and error approach or doing A/B tests to see what works best for your app.
It is also worth considering how different types of ads will affect IAP revenue. For example, rewarded video ads are generally more effective at driving up IAP revenue than banner ads or interstitials. This is because rewarded video ads tend to be less disruptive and offer a reward. This could incentivize the player to make an in-app purchase once they've had a taste of the premium experience.
Ultimately, it is up to the developer to decide what type of ad to display and how to offer rewards. There is no one-size-fits-all solution, and what works for one app may not work for another. The best way to figure out what works best is to keep testing. That way, you can see what produces the best results for your app.
While some still believe in the myth that in-app advertising may cannibalize their in-app purchases by default, most developers agree that implementing both in-app purchases and smartly placed ads can lead to higher mobile game ad revenue revenues, provided that each is tailored to the user's optimal engagement potential.
In-app purchases may be the answer if you are looking for ways to generate revenue from your mobile game. However, implementing in-app purchases can be tricky. It's important to do it in a way that doesn't disrupt the player's experience.
Are you unsure how to best implement ads into your game that already relies on in-app purchases? Our experts at GameBiz Consulting can help you develop a winning game monetization strategy. With decades of gaming industry experience and dozens of satisfied clients under our wing, we are confident we can help any developer achieve their maximum mobile games ad revenue potential.
Contact us today to learn more about how we can help you with game monetization. We offer a free initial consultation to all new clients, so you have nothing to lose!