Is Monetization Evil?

I'm building an app right now, my first iOS app.  It's simple, and I don't necessarily expect it to be a blockbuster.  As a matter of fact, I'm not building it to make money at all.  I'm building it for the experience, as you do.  But I'm giving a lot of thought to monetization because hey, just maybe it could get big.

My super-power is multiplicative!

Which has lead me to think quite a bit recently about monetization.  I think that in some circles, monetization is a bit of a taboo topic.  After all, shouldn't everything be free?!?!  I mean, I'm a developer, an agent for human good.  I should use these skills for the betterment of the human race!  My super-power, while still relatively uncommon, when paired with the super-powers of others is multiplicative!  In light of that, should I not do everything I possibly can to make the product of my skills as widely available as I can, and for free?

Well, yes, and no.  I should make my skills as widely available as I can, but not for free.

"But why not free?" you might ask.

If we ignore those locally in favor of those global, we do a disservice to those around us that are most in need

It's a pretty simple equation, actually:  If my family cannot eat, if they do not have a roof over their head, if they don't have the medical coverage that they need, then I have failed in my first duty, which is not to the human race, but is more specifically to my family.  How can I provide for the general human race if I cannot provide for those closest to me?  Global thinking is great, but if we ignore those locally in favor of those global, we do a disservice to those around us that are most in need.

In light of that, I can honestly say that monetization is not evil.  Monetization is a means to, instead, provide for those around us.

Monetizing Strategies: The Basics in Being a Publisher

So, you've built an app.  Better yet, you have users!  I'm sure it was fun and that you feel good about it.  But now that you've done all of that, you might be considering:  "How can I turn this into a bit of cash?"  After all, that free app isn't going to feed your children, or fund your lawn gnome collection or, just perhaps, allow you to do the thing you've always dreamed of, which is retire from working for the man (or woman) and begin to work for yourself.

You know, that kind of thing can happen if you understand how to negotiate the world of mobile advertising.  So, in light of that, let's talk about the basics.

When you have an app, and when you have users, you have several methods of monetization.  The first is pretty straight forward:  You make your users pay for your app.  There are pros and cons to this, but we'll probably cover those in another post.  

Another avenue is that you have some kind of hook in your app, and that hook means that you can fall back on in-app purchases to get your users to expand what they get from your app.  Maybe you have extra content they can pay for, or perhaps you have a service which they can subscribe to that makes your app better.  You might have heard the word "freemium" batted around, and that's not a bad play when you have a hook.  Basically, you distribute your app for free (which has some real benefits when it comes to advertising your app), but you hold back some key feature that makes the experience richer, better, faster, or more edifying.

Last, but certainly not least, there is the path of becoming a publisher.  A publisher shows ads, of many different varieties, for some other party.  The intention here is that you get paid for the ad placement in some manner.  That's what we're going to discuss today!

The Magic Term

Let me introduce you to a term.  This is a magical term, a term that distills the act of being a publisher down to its most basic and (hopefully) monetizing aspect:


eCPM, simply put, is the amount of revenue you can expect to make from one thousand impressions (or views).  The higher this number, the more money you'll make on a daily basis.

This number is, in part, influenced by a few things.  First off, as should be obvious, the more users you have, the quicker you'll be able to move through 1000 impressions.  As well, the time these users spend in your app makes a difference.  If you have a sticky app, and users spend a lot of time in it, you can put more impressions in front of their eyes.

Ad Types

Another critical factor is the type of impression you're showing.  Rotating banner ads that sit on the bottom of the screen and scroll infinitely typically have low eCPMs (and also annoy the hell out of users).  You can cycle a lot of impressions this way, but the impetus to click is pretty low.

Interstitials, also know as takeovers or full screen ads, when done right, can have very high eCPMs.  For instance, the user has just cleared some level in your game.  As you transition them to the next level, you serve an interstitial impression.  Typically, these are nicer looking and cause the user to pause since they take up the full screen.  As a result, they tend to have higher eCPMs, but you can't show as many of them due to their nature.

Video, now, this is a hot commodity in the right places.  Basically, when it comes time to show the user an ad, you pop up a video of some sort and away they go.  The real benefit for video is that it's highly engaging and typically the action taken after the fact is very good.  Video can come in many forms, including inline in banners, bookended by interstitials, auto-play, skippable, non-skippable, and many more.  eCPMs on video can be very high.

There are several other types of ads, including partial screen ads of many shapes and sizes, but the above covers the basics.

How do you get paid?

How you get paid depends on the type of ads you're showing.  Let's talk about the ad serving lifecycle.

Typical display advertising has three stages:  impression -> click -> conversion.

The impression is when the ad hits the app and is fully rendered.  The click is when the user interacts with the ad, typically by touching it.  A side-effect of this is that the user will likely be taken out of the current view of the app, often into the app store or a mobile web browser of some sort.  The conversion is when the user takes the desired action, such as installing an app (which is the most common in the mobile world), registering for a service, or buying something.

In display, you can be paid on any of these three stages.  An advertiser will set a price they're willing to pay for a given stage and upon completion of that stage, you get some portion of the money the advertiser is laying out.  So, for instance, if an advertiser is willing to pay on the impression (also known as CPM or "cost per impression"), you will get money simply for showing the ad.  If the advertiser is willing to pay on the interaction with the ad, or click (also known as CPC or "cost per click") you will get paid when the user interacts with the ad.  If the advertiser is willing to pay only on the conversion (also known as CPI "cost per install" or CPA "cost per action"), then once the user converts (installs or registers, for instance) you will get paid.

As you move further down the funnel, the prices an advertiser is willing to pay increase.  An advertiser may only pay a fraction of a cent for an impression, but might pay $0.10 for a click as there's more risk involved on your end with capturing that click.  

Another way to think of it is that, if they're paying on the impression, all you have to do is roll a banner on the bottom of the screen and you will get paid (albeit not that much).  However, if you take the time to encourage the user to interact with the ad, then the advertiser has a higher incentive to pay you more.  

The last step in the funnel, the conversion, has the highest payout.  Often conversion payouts can be as high as $1 to $5 per conversion.  The advertiser will often have some measurement on what an acquired user will generate on average (also known as ARPU "average return per user") and they will base the conversion price they're willing to pay on that.  But, you take on a higher burden of risk as not everyone who clicks will convert.  As you step further into the funnel, more and more attrition occurs.

In video, the funnel looks a bit different:  impression -> completed view -> click -> conversion

The added step here, the completed view, is what occurs when the user has seen the entire video.  In video, this is typically where the publisher gets paid.  You've shepherded the user through the impression and all the way through the video.  These videos are engaging and exciting and the click through rate is rather high.  Even the conversion is higher than for other types of ads.  So, by delivering the user to a state wherein they're more than willing to take the good that is advertised, you as the publisher have done your job.  The advertiser will may pay anywhere from $0.02 to $0.10 per completed view, or CPCV.


What does the math look like, you might ask?  Well, it's pretty straight-forward.  

Let's say you have a video ad space that you're going to be moving people through.  You have some number of users that engage with your app daily, and you're able to move 20,000 impressions a day (remember, we measure effective performance from the beginning of the funnel.  The "M" in eCPM stands for impression).  Through a few days of running the ad space, you've come to see that this particular video placement delivers an eCPM of $5.  So, $5/1,000 * 20,000 = $500.

You'll drive $500 a day with this ad placement.  Not bad.

Another ad placement you might have, a rotating banner on a particular view, has an eCPM of $0.50, but since it's rotating, you can drive many more impressions, around 200,000 per day.  $0.50/1000 * 200,000 = $50.  Another way of looking at it is that, for this rotating banner, you will need to generate 2 million impressions to match the performance of the video ad space.  As it turns out, that rotating banner may not be worth it in terms of aggravation to users.

Wrap Up

As you can see, the type of ad you choose to show can have a big impact on your monetization.  Given that, in general, users can tend towards aggravation when advertised at on a large scale, maximizing your eCPM on ad spaces can go a long way to ensuring a committed and engaged audience.

In the next post, we'll cover ways in which you can cheat by turning the whole equation on its head.  Stay tuned.