The Future of Mobile User Acquisition and Monetization

The iOS and Android app ecosystems will grow more crowded and competitive than ever in 2014, and developers need to keep an eye on upcoming trends for user acquisition, monetization and user retention if they want to stay afloat. After a year of reviewing industry conferences, panels, workshops, and fireside chats, with the most recent being GMIC, here are four key takeaways about the trends and best practices from 2013 that will support mobile developers into 2014 and beyond.

CPE, not CPI, is the future of user acquisition.

There is a lot of debate in the mobile app ecosystem about the benefits of cost-per-engagement (CPE) versus cost-per-install (CPI) pricing models. But attendees throughout mobile and gaming conferences this year were eager to know: which pricing model is better at acquiring users?

The answer: CPE. It’s more than just a method—it’s the future.

At NativeX, we found this out for ourselves when we tested how well a role-playing game on Google Play held onto new users when it was advertised through both models using our reward/incentive ad network. For context, we ran the test during the week when that game was featured on Google Play and gathered user retention data for that placement as well. At the end of that week, the app’s seven-day retention rate for users acquired through a reward-based CPI was 12.7 percent, while the rate from a reward CPE system was 19.2 percent. Surprisingly, the CPE pricing model also beat out users acquired through Google Play – only 15.8 percent of users who downloaded the app directly from the featured placement on the Play store stuck around for longer than a week.

New developers must encourage users to spend in-app currency sooner, not later.

It’s now well-established that freemium apps will continue to gain market share over paid alternatives in the coming year, so developers in all market sectors will need new ways of making a profit without charging download fees. During the GMIC “User Acquisition and Monetization 2.0” panel, Paltalk president and former OMGPOP executive Wilson Kriegel pointed out that new developers shouldn't worry too much about monetization without first focusing on high user engagement and retention. His point is insightful – users won’t put up with irritating ads or spend real money until an app becomes a valuable part of their lives.

However, there are engaging, unobtrusive things developers can do very early on in their user retention cycles to clear the way for monetization as quickly as possible. One is getting their users to start using in-app currency as soon as possible. They will have to offer it to users for free in the beginning, of course, but the sooner users recognize the virtual currency’s value to their gameplay experience, the sooner they’ll be willing to buy more. This strategy works especially well for games because spending in-game currency is often a vital part of the game’s functionality.

Ad network mediation is promising, but not without fault.

Ad network mediation, in which developers use a mediation service to pick and choose ads from across multiple ad networks, has been touted as the way of the future for effective monetization. At GMIC, Wilson Kriegel argued that greater choice of ad networks gives developers access to more effective ads overall.

I agree that the mediation system shows promise, but while it’s certainly better than standard ad network integration, it’s not disruptively better.

Several years ago, we incorporated ad mediation into our platform at NativeX. We saw a slight increase in profitability for the partner developers who used that technology, but not a large enough increase to be significant or worth the effort. The eCPM figures we’ve seen from leading in-app ad publishers say the same thing.

The reason is that right now, typical ad networks all source their campaigns from the same pool of advertisers and campaigns. And since most of those ads use the same cut-and-paste formats, mediation doesn’t provide much more choice and flexibility than your average individual network. If the available ads are all distracting or forgettable, they’ll all see the same bad results.

For now, it makes for more sense to focus on developing ads that use innovative formatting to mesh seamlessly with apps and add value to the user experience. Once networks are able to provide diverse formats on a broader scale that are very persuasive, mediation will become more valuable.

For foreign markets, there’s no cookie cutter recipe for success.

Mobile ad solutions should be as diverse as the customers who use them. Different countries, and different market segments within those countries, will need individualized approaches in order to guarantee success. At the Monetization panel, ZQGame Inc. CEO Michael Zhang explained that developers hoping to expand into thriving mobile markets in Asia need to understand local use cases and key demographic profiles instead of relying on their previous experiences in the US.

In-app monetization provides one of many examples of these regional differences. In Japan, for example, in-app monetization is much more common than in America – partially because of the popularity of strategy and role-playing games, which lend themselves well to in-game purchases. For game developers hoping to expand in Japan, focusing monetization efforts on in-app advertising would be an inefficient and counterproductive strategy.