You may know how to program, but chances are that developing your first social application introduced you to a whole new concept called advertising. I wasn’t very familiar with it either when I made the transition from TechCrunch into advertising. So, here are the basics.
Most advertising networks give you some snippets of code to place on our application in the form of an iframe. Networks serve ads to your users through these iframes and use a variety of targeting methods to deliver ads. Others require deeper forms of integration. However, I’m not here to tell you about one ad network or another. I just want to touch on some basic information about how advertising works.
There are several forms of advertising that take place on social networks: cost per click (CPC), cost per action (CPA), cost per install (CPI), and cost per thousand (CPM). Each of these methods refer to how the publisher is paid (when the user clicks, installs, takes an action, or views and ad). Each form also has different benefits and detriments for publishers and advertisers.
|+/- Advertisers||+/- Publishers|
|CPC||Pay for trafficMay be abused||Easy goal, drive more clicks|
|CPA||Pay for what you want directly||Sometimes annoying |
Not all traffic converts
|CPI||Pay for what you want directly||Fits well in social network |
Not all traffic converts
|CPM||Advertisers buy high value inventory |
|Developers get a steady stream of income |
High quality brand advertising
Networks often run a variety or one specific form of these advertisements and pay out according to the goals of each advertisement (for clicks, actions, or views).
These measurements are the life-blood of developers interested in optimizing their advertising, but come with important caveats.
- Impressions – The number of ad impressions your application drove.
- Clicks – The number of clicks on ads by users (likely after click fraud detection filtered bad clicks)
- CTR – The click through rate. (The percentage of impressions that resulted in a click.) Putting more ads on page will hurt your CTR because (all else being constant) a user that clicks is seeing impressions that they aren’t clicking on.
- Total revenue – This is the most important metric that you want to focus on, because its what you get paid at the end of the day.
- eCPM – the effective CPM (cost per thousand views) rate. This metric is simply the total revenue you earned divided by the number of ad impressions. It can also be a misleading metric. eCPMs vary greatly by the type of application, and it’s not neccessarily a bad thing. Dating apps tend to drive a lot of page views, which leads to a lot of non-converting ad impressions (low eCPM). However, while the eCPM may be low, the volume is high, making it possible for the revenue to be equal or greater than a higher eCPM application.
Here are several equivalent equations to keep in mind when thinking about revenue:
- Total revenue = impressions x CTR x eCPC
- Toral revenue = (impressions / 1000) x eCPM
What Can Go Wrong
Payouts on ad networks can vary because there are a lot of factors that affect payments. The primary factor that affects monetization is the demographic of the traffic you’re driving. Demographics of the users include source country, gender, age, income, and propensity to click. At present, countries like the U.K. and Australia tend to monetize better.
Gender and age are factors that are taken into account for potentially higher paying targeted campaigns. Brands are also interested in advertising on clean apps that attract their target demo. Income and propensity to click affect how likely a user is to click on ads. As some publishers found with Digg traffic, there are audiences that are more ad blind than others.
After you’ve gotten a demographic to your application, you need to place ads where users can see them. The most common placements are at the top, middle, and bottom of the page. I’ve found that right under the nav bar is a good spot (interstitials are also a good choice). Users can see the ad without having to scroll down, which can cause ads at the bottom of your site to appear to perform worse.
From then on, it’s up to the ad network to do its job of serving the highest value ads to your application. Payouts can fluctuate on ad networks based on the advertiser mix and adjustments to targeting algorithms on the back end. Advertising creatives or methods often become less effective over time, so new designs and offers need to be developed to keep the network fresh. Large advertisers can come on the network and bid strong for a segment of traffic one week and move on the next. Developers can also miss out on these brand deals if they’re not running a network’s code.
Ad networks provide value because they let developers trade development time for ad optimization time. Ad optimization is a process of doing more with less, whereas a smarter strategy can be picking a network and focusing on growing the userbase. More users will grow the overall impression base, create a higher profile application, and serve as a pool of traffic that can be pushed to other applications you develop.