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How the unfashionable world of DR is fuelling Facebook’s rise

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By Ronan Shields, Digital Editor

August 4, 2015 | 6 min read

Mobile app-install ads are fuelling Facebook's ever-increasing revenues, with mobile now generating 75 per cent of its total revenues, using numbers from a recent report by mobile marketing firm Fiksu, The Drum explores some of the causes for the increasing inventory prices, plus how others are getting in on the act.

With Facebook reporting that mobile app advertising helped drive a record quarter for the social network last week, separate research reveals marketers willing to fork out an average of $3.21 to engage with “loyal” smartphone users, a cost that shot up 44 per cent in the last year.

Research published this week by mobile marketing firm Fiksu, demonstrates that marketers are having to pay increasingly large amounts of money to have smartphone users download their wares to their device, and continue to remain engaged with them, with Facebook apparently the industry's main benefactor of this trend given its direct response (DR) ad units' success.

Market dynamics

However in contrast to the sharp rise in the cost per loyal users (CPLU), an increase in the number of apps downloaded means there is more inventory than ever before, meaning the cost per install (CPI) of a mobile app (but not necessarily ongoing engagement) fell in June this year.

The average CPI for an iOS app fell 21 per cent to $1.15, while the cost of space on an Android user’s phone was $2.12 – a fall of 21 per cent, and nine per cent respectively since May – according to Fiksu’s figures, which also recorded a 24 per cent increase in the volume of apps downloaded during the same period.

Fiksu arrived at the conclusions by tracking the average daily download figures of the top 200 Android, and iOS apps, which averages about 8.3 million per month. But, despite the increase in overall download numbers, the average amount of apps people are engaged with on a regular basis remains largely the same, and has done for the past two years.

This led to the contrasting price changes in the CPI, and the CPLU, according to the figures, which also demonstrates the difficult marketers face when breaking into smartphone users’ daily routine.

Rising demand for mobile and video

In a claim that further backs up Facebook’s reports last week, Fiksu also revealed the increase in CPLU was driven up by rising demand for mobile video units, which are increasingly finding popularity with marketers on the socand its picture-sharing app Instagram.

Video advertising generated 27 per cent of the social network’s advertising revenue during the second quarter, according to reports cited by Fiksu, which also claimed that Facebook’s video CPMs rose 15 per cent in June to near $9.

‘Unfashionable’ but profitable

Mobile app install ad units form the crux of Facebook’s mobile advertising business, with the social network also offering ad units that encourage smartphone users that downloaded an app but stopped engaging with the brand – which are often referred to as DR ads.

Such methods of advertising had rarely been employed by large-scale brands who normally use TV ad units for their brand-building campaigns, and are often deemed as the less profitable end of the advertising business as payment is usually only made when they generate a conversion. But the trend toward mobile app usage becoming a more prominent part in smartphone users’ everyday lives means app owners are increasingly willing to pay a premium for such ad units.

So much so, that Facebook reported its record quarter last week with revenues topping $4bn, and chief executive Mark Zuckerberg revealed that mobile advertising generated 76 per cent of revenues during the quarter.

Not just for SMB’s

Indeed, Facebook intends to expand the suite of DR advertising tools it plans to offer advertisers through Instagram, according to comments made by Facebook chief operating officer Sheryl Sandberg while on the same call.

Speaking about Facebook’s app-install ad units, she also went on to how such DR ads are not just the domain of small-to-medium businesses, such as an app developers, noting that such products are now the number one driver of new subscribers for US cable network giant HBO.

Leaked emails from the Sony hacking affair, had unearthed documents allegedly penned by Snapchat chief executive Evan Spiegel that criticised Facebook’s reliance on app install ads. He claimed that it proved the social network had virtually little or no ‘brand budget’, and Sandberg’s remarks seem a deliberate attempt to dispel such rumours.

Google, Twitter et al. also seek to get in on the act

With many people alleging that mobile is causing Google’s CPC - the amount its charges advertisers for every click on their ads - to drop over a period of years, it too is seeking to get in on the mobile app-install gold rush, with the search giant initially introducing them to its search and YouTube advertising offerings early last year. Although the company has yet to talk publicly on how much revenue such ad units are generating.

A desire to tap into the app-install economy was also behind Twitter’s purchase of mobile ad exchange MoPub prior to its IPO in 2013, with the company paying $350m for the outfit, demonstrating that Facebook is not alone in realising the value of such ad units.

With research from Business Insider Intelligence valuing the app-install ad market at $4.6bn, and tipping it to further grow to $6.8bn by 2019, Facebook’s dominance of the mobile app DR niche is unlikely to go unchallenged, the question remains over just how it intends to stay ahead of the game.

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