A Guide for Engineers Embarking on an Ad Monetization Journey

In-App Ad Monetization 101: Basic Concepts Every Engineer Should Know

COVID is over, but winter has arrived. As economic uncertainty rises and securing investments becomes harder, the ability to generate stable revenue has become more critical than ever in the startup ecosystem.

There are many ways to generate revenue, but in-app ad monetization is drawing particular attention. This method is already used in major Korean services like KakaoTalk and Karrot, proving effective at driving revenue without ruining the user experience.

To successfully monetize through in-app ads, you need to design and implement an efficient, highly profitable ad system by considering various ad formats and analyzing their effectiveness. In this post, I’ve summarized the fundamental concepts that any engineer looking to execute this strategy needs to know.

The Key Stakeholders Behind Ad Logic

Let’s think about billboard advertising. A billboard is a large display located in busy downtown areas or major intersections to show various ads. What process is required to display an ad there? First, there must be an ad to show. The ad to be displayed is provided by the advertiser—the ad provider.

Next, someone needs to decide which billboard will show the ad and how often. The ad broker takes on this role of ad mediation and management. Working with the advertiser, the ad broker builds a strategy to effectively deliver ads to the billboard and controls the frequency and placement of those ads.

Finally, of course, you need the billboard itself. Billboards are typically attached to buildings and provide the physical space to display the ad. When the advertiser, the broker, and the billboard all come together in harmony, diverse and effective advertising campaigns can run right in the heart of the city.

We use a very similar concept in the context of in-app ad monetization. To display an ad in an app, you similarly need an advertiser to provide the ad, an ad mediator, and a publisher to provide the ad space, much like a billboard.

Publisher

The publisher is responsible for requesting and displaying ads. They provide ad space on their app or web page and generate revenue by showing ads to users. For example, an app like Alarmy, provided by DelightRoom, is considered a publisher.

Mediation

Mediation is the entity that brokers ads across multiple ad networks. Through mediation, a publisher sends ad requests to various ad networks simultaneously, and the mediation platform selects and displays the most appropriate ad among them. Platforms like Google's AdMob fall under this category.

Advertiser

The advertiser is the entity that creates and provides the ad, using it to promote their products or services or to raise brand awareness. Advertisers set up their ad campaigns and deliver their ads to the publisher's app or web page via ad networks.

So, How Do We Increase Revenue?

The interaction among the three stakeholders described above—the publisher, mediation, and advertiser—creates the advertising ecosystem. From the perspective of a publisher in this environment, what should be done to increase revenue through ads? It comes down to fetching expensive ads and showing them to as many users as possible. Expressed as a formula, it looks like this:

Ad Revenue = Ad Unit Price * Number of Ad Views

Ad Unit Price, eCPM (Effective Cost Per Mille)

There is a concept called eCPM used to represent the ad unit price. eCPM is a metric indicating how much revenue a publisher can earn per 1,000 impressions. A high eCPM points to efficient revenue generation and means you are showing expensive ads. So how do you find these expensive ads? Mediation platforms generally provide two methods for this.

Bidding

Bidding is a method of finding ads in real-time, much like an auction house. When an ad is requested, it induces bids from various ad candidates and selects the optimal ad in real-time. The "optimal ad" here refers to the ad with the highest unit price among the bids.

Waterfall

Waterfall is a method of checking for ads sequentially according to a predefined order. Imagine the ad unit prices for each ad network are set to $1.50 for Network A, $1.00 for Network B, and $0.70 for Network C. Following the configured priority of the ad networks, it looks for an ad in the order of A, B, and C. If Network A has a $1.50 ad, it delivers that ad; if no such ad is available, it then looks for a $1.00 ad from Network B, and so on.

These two methods each have their own characteristics and trade-offs. The table below summarizes this.

Ultimately, it is best to weigh these characteristics and choose the right method based on your service and the type of ad you want to display.

Number of Ad Views, Impression

Impressions indicate how often an ad is shown to a user. In other words, a high number of impressions means that ads were displayed to many users, multiple times. What should we do to increase impressions—that is, to show ads multiple times to many users?

The first method that comes to mind is increasing user influx. To bring in more users, user satisfaction with the app must be high. It's all about increasing satisfaction with the product so that users keep coming back to it.

Another method is to make a single user see a lot of ads. What are some ways to show an ad to a single user multiple times? If a user explores and visits various screens within the app, you can show them more ads. Also, the longer a user stays on a screen they've visited, the more times you can show them ads.

As you can see, impressions are a metric we can actively increase through actions like improving usability. If we re-express the concepts we've looked at so far into a formula from the perspective of in-app ad monetization, it looks like this:

Ad Revenue = (eCPM / 1000) * Impressions

Conclusion

So far, we've gone over the foundational knowledge for in-app ad monetization. We learned about the key stakeholders in ad monetization—the publisher, mediation, and advertiser—and we also learned that to increase revenue through ads, we need to show high-priced ads to as many users as possible.

In the next article, I will dive into strategies on exactly how to show these high-priced ads to many users, one by one. Please look forward to the next post!

⏰ Curious about DelightRoom's ad monetization secrets?