Mobile apps have transformed how brands connect with audiences. The in-app advertising sector is growing by 16% annually and is expected to be worth $821.8 billion by 2033.
Behind these numbers lies a profound shift in consumer behavior, as mobile devices and smartphones increasingly dominate daily routines, entertainment choices, and purchasing decisions.
This evolution signals a clear imperative for businesses: effective mobile app advertising strategies are indispensable for reaching today's consumers.
In this post, we'll explain in-app advertising and how it works and share some best practices for its implementation.
What Is In-App Advertising?
At its core, in-app advertising is a mobile marketing strategy that puts ads directly into mobile applications. Developers integrate these ads using various formats — from banner ads to rewarded videos. Each format serves specific marketing goals while keeping the user experience intact.
Take the Google Play Store: 97% of apps are free downloads as of October 2024. This massive shift toward free apps drives developers to find smart monetization strategies.
For product teams, this means building monetization into the app strategy from day one. Free apps dominate the market, but they need sustainable revenue streams. In-app ads provide that revenue while still attracting users with the free-to-download model.
The real value comes from reaching people where they already spend time. Rather than hoping users find ads in browsers or social media, in-app advertising puts your message directly in front of engaged audiences using their favorite apps.
How In-App Advertising Works
Several parties are involved in the in-app advertising ecosystem.
- Ad Networks: These are brokers that connect app developers (who want to show ads) with advertisers (who want to promote their products).
- Buy Side: This includes app developers and agencies that create mobile ads and plan advertising campaigns. They're the ones looking to place ads in various apps.
- Sell Side: This consists of publishers who use mediation platforms to connect with different ad networks through Software Development Kits (SDKs). They manage the inventory of ad space available in their apps. The SDK helps manage the communication between the app and the ad network so that users see relevant ads.
- Ad Exchange: This is a digital marketplace where advertisers can bid for ad space in real time. It facilitates transactions between buyers and sellers.
- Demand-Side Platform (DSP): This is a tool advertisers use to buy ad space automatically, allowing them to target specific audiences based on data.
- Supply-Side Platform (SSP): Publishers use SSPs to control which ads can be shown in their apps or websites and set different rates for different ad spaces. SSPs are connected to various ad exchanges and networks.
How Ads Are Displayed
- The mobile app sends an ad request to the ad network through its SDK.
- The ad network matches this request with an advertiser's campaign.
- The selected ad is then sent back to the app and displayed to the user.
Real-Time Bidding (RTB)
If the ad is transacted via RTB, the process works a bit differently:
- The app sends an ad request to an SSP instead of directly to an ad network.
- The SSP forwards this request to an ad exchange.
- Multiple DSPs receive the bid request and place bids for the available ad space.
- The highest bidder wins, and their ad is shown in the app.
Benefits of In-App Advertising
In-app advertising offers several benefits like better user engagement, consistent revenue, and improved efficiency.
Ad Revenue
Developers integrate ads into their apps and monetize their user base without charging upfront fees.
This way, they can keep their apps free and reach a wider audience, yet have sustainable finances.
With a steady income stream from ads, developers have the resources to invest in new features, optimize existing functionalities, and fix bugs.
User Engagement
Modern in-app advertising transcends traditional promotional approaches. For example, it uses interactive formats like videos which users can find engaging. Rather than interrupting the user experience, well-crafted advertisements often enhance it.
Precise Targeting
In-app advertising uses sophisticated data analytics to deliver targeting accuracy. These help analyze user behavior, preferences, demographics, and interaction histories. Advertisers can then craft campaigns that resonate with specific audience segments. This precision approach reduces ad fatigue while improving conversion rates.
Efficiency
Programmatic advertising is a key trend in the in-app space. Automated bidding processes ensure that developers receive competitive rates for their ad inventory without extensive manual intervention.
In-App Advertising Examples
Fitness
In-app ads within fitness apps can promote merchandise, event tickets, and fitness gear. For example, a sports streaming app might display ads for sports apparel or equipment from brands like Nike or Adidas.
Education
Educational apps can utilize in-app advertising to promote online courses, tutoring services, and educational tools.
Healthcare
Telehealth apps can promote wellness products, health services, and medical aids. For example, a fitness tracking app might show ads for workout equipment, nutritional supplements, or online fitness classes. A meditation app could feature ads for mental health workshops or virtual therapy sessions.
Dating
Dating apps can promote ads for singles events or communication workshops to improve relationship skills.
Gaming
In-app ads in gaming apps can promote in-game purchases, new game releases, or gaming accessories. For instance, a mobile gaming platform might display ads for headsets, controllers, or other gaming merchandise.
Financial Services
Financial apps can incorporate in-app advertising for investment platforms and budgeting tools.
For example, consider the app Slickdeals, which focuses on deal discovery. An ad for BillGuard, a finance tracking app, appears on Slickdeals — it targets a similar audience interested in saving money and managing finances.
Virtual Events
In-app ads related to virtual events can promote upcoming webinars and online conferences. For example, a professional networking app might advertise career development workshops or industry-specific conferences.
Social and Collaboration
In social networking and collaboration apps, in-app ads can promote productivity tools, team-building activities, and social events. A collaboration app might display ads for third-party integrations like project management tools or video calling software.
Differences Between In-App Advertising and Mobile Ads
While mobile web and in-app advertising both target mobile users, they differ significantly in their implementation, effectiveness, and user engagement patterns. Let's see the differences.
Placement
Mobile web advertisements operate within the constraints of browser environments.
They can appear across various websites when the user is browsing. These placements often compete with traditional website content for user attention, like the one in the example image above.
In contrast, in-app advertisements use the native app architecture to integrate directly into application interfaces.
This allows for strategic placement at natural transition points within the user journey.
User Engagement
Mobile web advertising can encounter diminished engagement rates due to "banner blindness," where users ignore ads that disturb their browsing experience.
In-app ads come in interactive formats like rewarded videos, which provide incentives and rewards.
Ad Formats
In mobile ads, standard formats include static banners, pop-ups, and video ads.
In-app advertising offers a variety of engaging formats such as interstitials, rewarded videos, and playable ads.
Targeting
Mobile web advertising relies heavily on cookie-based tracking and broad demographic segmentation. This can lead to less relevant ad placements. Privacy regulations and browser limitations further complicate accurate audience targeting.
In-app advertising leverages first-party data collected from users within the app, allowing for more precise targeting.
Viewability
When browsing mobile websites, users are usually more focused on the content than on ads, which can affect viewability rates.
Since they occupy a dedicated space within the app environment, in-app ads have higher viewability rates compared to other digital advertising formats. Users are more likely to see and interact with them because they don't have competing distractions.
In-App Ad Formats
Several types of in-app ads exist, each with these ad formats in detail.
Instream Video Ads
Instream video ads are short video advertisements that appear during specific moments in an app. There are three types:
- Pre-roll ads appear before the content begins.
- Mid-roll ads appear during the content.
- Post-roll ads appear after the content ends.
As an example of a pre-roll ad, a movie streaming app might show a 15-second trailer for an upcoming blockbuster before users begin watching their chosen film.
Playable Ads
Playable ads are interactive ads that let users try out an app or game before downloading or installing it.
For example, a mobile game might offer a five-minute free version of its gameplay. Users can engage with the game and decide if they want to download the full version. This format is useful as it gives potential users a taste of what to expect, increasing the likelihood of downloads.
Native Ads
Native ads match the app's look and feel and, hence, improve the user experience. For example, a news app might include an article that looks like regular content but is actually sponsored by a brand.
Rewarded Video Ads
Rewarded video ads offer users incentives to watch videos. For example, in a mobile game, users might earn in-game currency or special items after viewing an ad.
Above is an example from the game "The Giant Boulder of Death," where users earn a diamond if they watch a video.
Interstitial Ads
Interstitial ads are full-screen advertisements that appear at natural transition points within an app.
These ads often show up between levels in games or during loading screens in other types of apps.
Expandable Ads
Expandable ads are interactive advertisements that expand when users click on them. This format allows users to see more content without leaving the app.
For example, tapping on an expandable ad might reveal additional product details or options to purchase directly within the app.
Banner Ads
Banner ads are small advertisements that appear at the top or bottom of the screen. They are one of the most common ad formats due to their simplicity.
Here, the USA Today app features a 'Burger King' ad; users can click on "Click Here" to know more.
In-App Ad Pricing Models
Mobile advertising relies on diverse pricing strategies. Each model targets different business outcomes. Let's examine five pricing models.
Cost Per Mille (CPM)
In CPM pricing, advertisers pay for every 1,000 impressions. This model is ideal for apps having high daily active users. Brands favor CPM when launching awareness campaigns or bringing new products to market.
Cost Per Click (CPC)
CPC models prioritize performance. This model is best for campaigns that drive traffic to websites and landing pages because advertisers pay only when users click on the ad.
Cost Per Acquisition (CPA)
CPA structures reward concrete results. The model tracks specific user actions — from newsletter signups to product purchases to app installs. And payment occurs only when the desired action is completed. It demands more from both the ad creative and the app's audience quality.
Cost Per Install (CPI)
App growth teams rely on CPI pricing to scale their user base. This model tracks successful app installations; advertisers pay when a user installs their app after clicking the ad.
Cost Per View (CPV)
CPV is suitable for video ad campaigns. Advertisers pay based on how many times their video ad is viewed.
Best Practices for In-App Advertising
Here are some key strategies for developers to consider to make the most of in-app advertising.
User Segmentation
Not all users behave the same way or have the same preferences. This is where user segmentation becomes important.
By dividing your audience into specific groups based on demographics, interests, or behaviors, you can deliver ads that feel relevant and personal.
A great example of user segmentation is the Snickers campaign on Spotify, which uses the tagline, "You are not you when you are hungry."
When a Spotify user listens to music outside their usual preferences, an ad for Snickers appears only to them. Users can click on "Learn More" to find out more about the product.
The campaign plays on the idea that hunger can change how we feel and act. By connecting with this common experience, Snickers engages users and reminds them that a Snickers bar can help them feel like themselves again.
Strategic Ad Placement
Ads placed in the wrong spots can annoy users and lead to app uninstalls. Strategic ad placement means positioning ads where they're most likely to be seen and clicked without disrupting the user experience.
For instance, placing an ad during natural pauses — like between game levels or while a video is buffering — ensures users are more receptive to the message.
Similarly, productivity apps can display ads during task completion screens rather than interrupting ongoing work. This thoughtful placement keeps the app's flow intact while improving ad visibility.
A/B Testing
What works for one app or audience may not work for another.
A/B testing helps you find the right combination of ad formats, placements, and messaging by comparing two versions of an ad to see which performs better.
For example, you could test a rewarded video ad against a banner ad in a gaming app to determine which format drives more engagement.
Similarly, you might experiment with different messaging (for example, "Learn More" vs. "Shop Now") to see which call-to-action resonates more with users.
App Analytics
Without data, it's impossible to know if your in-app advertising strategy is working. App analytics provides insights into how users interact with your app and which ads perform well. This information helps in making informed decisions about future campaigns.
For example, analytics might reveal that rewarded video ads generate higher engagement compared to interstitial ads in your app. You can use this insight to allocate more resources toward video content while phasing out less effective formats.
Boost Engagement With Smart In-App Advertising
In-app advertising isn't just about monetization—it's about creating seamless, engaging user experiences that benefit both users and businesses. By leveraging precise targeting, strategic ad placements, and data-driven optimization, developers can generate sustainable revenue while enhancing user engagement.
As mobile usage continues to grow, refining your in-app advertising strategy is essential to staying competitive. Whether you're a developer, marketer, or product manager, now is the time to explore how in-app advertising can fuel your app's success.
Ready to maximize your app's revenue and user engagement? Start implementing these best practices today.