2017 was another great year for mobile. Marketers who put mobile at the heart of their activities reaped the rewards, as budgets continued pouring into the channel. New data from Magna Global has mobile ad sales up 39% in 2017, with an expected additional 27% jump in 2018 to reach 62% of all digital ad sales. That’s a cool $147 billion in spend in case you were wondering.
Within mobile, the app ecosystem continued to grow in 2017, while an upward trajectory is also predicted for 2018:
- Users will spend 30% more money in the app stores in 2018, exceeding $110 billion (App Annie)
- The average user will spend 10% more time in mobile apps — a total of 2.5 hours per day. Although it is true that the top apps — particularly in the social and messaging categories — dominate this metric, users are still spending at least half their time in other types of apps. To put things in perspective, as the #1 app, Facebook is used for 17 minutes a day (eMarketer, comScore)
- Nearly 40% of smartphone owners use at least 20 different apps every month (comScore)
Are marketers taking advantage of the app economy’s success, or is the competition becoming too hot to handle? What are the key trends shaping the app marketing space?
As the global leader in mobile attribution and marketing analytics, AppsFlyer’s scale and partnerships with the biggest players in the ecosystem put us in a unique position to help answer these questions. To do that, we analyzed the following sample of data across 40 top markets worldwide:
- 4.6 Billion app installs
- 15,000+ apps
- 210 million installs with cost data from nearly 100 networks
- $380 million worth of in-app purchases
- 400 million day 30 app opens
- 120 million retargeting conversions
Here’s what we found.
1) Largely broken organic app discovery is leading apps to increase their investment in marketing
Our data shows that year-over-year, non-organic activity is on the rise (+84% jump between 2015 and 2017), while the share of organic installs is dropping (-11% decline in the same time frame).
With more than 2 million apps in the iOS App Store and 3.5 million apps in Google Play (50k and 120k new ones in October alone in each, respectively), an app’s chances of being discovered are beginning to resemble the odds of winning the lottery.
In an attempt to help apps overcome this challenge, both app stores redesigned their marketplaces this year — especially Apple with a major overhaul in iOS 11. But while this App Store change was of course mainly done to try and enhance the user’s experience, the fact that editorial content now plays such a central role in how apps get discovered and spotlighted has actually made things more challenging for app developers and marketers, as our data shows:Also, more and more marketers realize that success can be found by putting their faith in data. With decisions that are made based on robust measurement and analysis, app marketers are increasing their advertising spend because they are getting results as non-organic traffic becomes a goal in its own right, and no longer a means to drive organic traffic.
The non-organic rise is also the result of greater reliance on data, tech and optimization on the media side — we see far greater usage of postback data among our media partners. Many advertising networks are innovating, creating new engaging ad units (i.e. playable ads, rewarded video) and building sophisticated media buying engines.
Ultimately, we have found that for the vast majority of apps, both non-organic and organic traffic are required to make it work. The former can deliver scale, control and quality (at least when data is relied upon), while the latter offers superior quality, helps reduce the eCPI, and increases profitability — even if we’re talking about a fraction of an organic user for every non-organic install.
What’s in store for 2018: As marketers become more sophisticated in their use of data, they will be able to be even more effective in their campaigns — and this will likely lead to increased UA spend. The share of non-organic installs will also further increase as we don’t see organic app discovery mended.
2) App engagement is improving as focus shifts
Most app marketers now understand that an install is only a stage in their funnel — an important one nonetheless, but still only a means. The goal is monetization, especially for the vast majority of apps which are free and rely on in-app purchases and in-app advertising to make money. Without ongoing app usage at scale, driving revenue is extremely hard. Furthermore, app stores’ algorithms are now more focused on engagement than they are on scale.
There are three data points that clearly demonstrate marketers are now invested in optimizing towards post-install metrics:
A) Retention rate up 15% in 2017: By using advanced retention and cohort reports, marketers helped improve their app’s retention by 15% year-over-year. As we can see from the graph below, most of this jump can be attributed to non-organic traffic: Despite the improvement, retention remains a major challenge with only 5-7% of users sticking around 30 days after installing an app.
B) The number of retargeting conversions has tripled: Retargeting has been helping brands re-engage their existing user base on desktop for years now, but only in the past year or so mobile — and especially app retargeting — has seen significant increase in adoption. Thanks to improvements in deep linking, apps are able to direct users from a personalized ad to a specific landing page within an app — a crucial element in an effective use of this tactic.C) Tracking different types of events on the rise: Another indication that many app marketers are focusing on engagement is evident in the increase we see in the average number of different in-app events being tracked. When marketers go deep in measuring post-install activity — including more sub-parameters through rich in-app events — it informs them about media spend decisions, segmentation, funnel analyses, effective re-engagement, and more. Therefore, it shouldn’t come as a surprise that we’ve seen a significant increase in the share of apps measuring revenue. After all, it is the most important post-install event for the vast majority of apps.
What’s in store for 2018: Although marketers have significantly increased and improved post-install measurement, many are only scratching the surface in this aspect. With even greater focus on engagement, apps are likely to dive deeper — in the number of events measured and particularly in the depth of measurement of specific events (AKA rich in-app events).
3) The good news and the bad news: revenues are up, but so is media cost
We have found that the cost of media, specifically cost per install (CPI), has increased 28% year-over-year. There are several reasons for this:
- With an increase in app usage, more and more apps are born (170k new ones in October alone). This has only intensified the already intense competitive landscape, which makes it all a standard case of demand vs. supply
- The use of burst campaigns to drive cheap installs at scale has dropped significantly; instead, the focus is on engagement and quality, and that comes with a higher price tag
- Big studios with deep pockets dominate the gaming space. When advertisers are willing to pay $10 or more on a new player, cost rises overall since gaming is the largest vertical, by far
- Facebook and Google dominate the market and their costs have gone up
- Video is proven to be an extremely effective channel, especially for games; as demand grows for video, its relatively high cost increases even further
The good news is that marketers have been getting better at monetization, measurement and optimization. As a result, the average revenue per user (ARPU) has risen 40% year-over-year.
What’s in store for 2018: The increased revenue trend will continue as marketers who implemented basic revenue tracking in 2017 will take it to the next level in 2018 — and results will follow. As far as cost is concerned, it is very difficult to estimate because there are so many factors at play. One thing can be said: it certainly won’t drop. Advertisers can also benefit from increased costs by putting more emphasis on ad monetization as publishers.
4) Fraud: the game of cat and mouse continues
As budgets began pouring into mobile, fraudsters fancied a piece of the pie. In that sense, they have definitely succeeded, polluting the marketplace at an increasingly alarming rate. According a report AppsFlyer commissioned from Forrester, a staggering 70% of marketers surveyed estimated that their fraud rate exceeds 20%:Increased awareness to mobile ad fraud has intensified the battlefield as both sides upped their games. The good guys started fighting back, which forced the bad guys to develop far more sophisticated types of fraud. As a result, more advanced defense mechanisms were built, and so on…
But it was anything but a game with advertisers losing, according to our data, a staggering $2.2-$2.6 billion to app install fraud in 2017. All in all, we found 1 in 10 non-organic installs in 2017 was fraudulent.
Alarmingly, the most dangerous type of fraud was only discovered this year. After launching DeviceRank, we unearthed the full magnitude of what we called DeviceID Reset Fraud. In this type of fraud, bad actors use phone farms to reset their DeviceIDs between each app install on a massive scale, generating a colossal amount of fraudulent traffic that bypasses all other anti-fraud technologies.
DeviceID Reset Fraud is particularly sneaky because it generates seemingly legitimate activity. Fraudsters utilize real clicks on real ads, to create real installs and engagement from real devices – all of which are perpetrated in phone farms.
What’s in store for 2018: We’re seeing fraudsters adapting with increased speed, having become experts at identifying new anti-fraud techniques. And with new capabilities such as the Google Referrer API that will limit click based fraud, it’s possible we’ll see more device farm based fraud. To be one step ahead of the fraudsters, massive scale and an extremely dynamic and adaptive product is required. It is safe to assume that the game of cat and mouse will continue.
5) Google, Apple and Twitter are rapidly growing but Facebook’s leading position is far from being challenged
Google’s piece in the app install pie has increased by almost 50% in 2017 vs. 2016. The search giant was a little slow developing a robust product for app marketers (particularly vs. Facebook) but in the last couple of years, they’ve made significant strides in this capacity, and the results show.
Although Facebook’s percentage share of the growing app install market has not really changed in 2017, its position as the leading choice for app marketers worldwide has not changed one bit either. The social network’s unrivaled scale and top notch quality place it again and again as the #1 media source in The AppsFlyer Performance Index.
Apple Search Ads is another newcomer that jumped into the spotlight, with increasingly higher scale as the product expanded to more markets. Although still far behind in volume compared to Facebook and Google, the tech giant offers superior quality — it captured the top slot in our recent Global ROI Index.
An impressive increase was also achieved by Twitter. The social network’s share in the market has grown 220% year-over-year thanks to a significant boost in scale. We’ve always seen the company deliver top quality users, but struggle when it came to scale. This is no longer the case as Twitter has proven it can offer reach, and marketers sure have noticed.
As the use of video is skyrocketing, video networks also had a solid year — driven mainly by a significant growth in share from Unity Ads and Vungle.
Lastly, with the shift towards quality and increased awareness of fraud, the share of installs delivered by affiliate networks — where control is much harder to maintain — has dropped 60% YoY.
Overall, Facebook and Google offer superior quality and scale but it comes at a cost. In order to be as efficient as they can, we’re seeing more and more marketers add more media sources on top of Facebook and Google.
What’s in store for 2018: Google’s move to the new UAC model was a bold one. As a company considered to be at the very forefront of AI, it will likely pay off and the search giant will continue climbing in market share.
Facebook’s domination will continue in 2018 although it’s hard to grow significantly when you are that large. The company is also investing heavily in automation, especially via dynamic ads, as advertisers will be increasingly encouraged to pump all their various assets into a catalog (product, creative, audience, language etc.) and let Facebook’s machine learning engines take complete control of who sees what combination.
Overall, it will be interesting to see the impact of the automation trend in the market. On the one hand, it brings lots of promise on the optimization and efficiency fronts, but on the other it also reverses the data optimization transparency trend, putting data back in the black box. Will this work for marketers? It remains to be seen.
Apple Search Ads has only scratched the surface as far as market share, but its potential is significant because of broken organic discovery, and the fact it has the best real estate in app marketing — the App Store; not to mention leveraging the power of intent derived from search queries. As it opens to more markets, Apple Search Ads can become a major player alongside Facebook and Google.
All in all, in 2018, the market will move further towards quality as marketers are demanding engaged users who are real. Networks that won’t be able to deliver quality at scale and a proven anti-fraud product are unlikely to make it. As a result, the affiliate side of the business is likely to take an even larger hit than the hit it took in 2017.
This quality-driven consolidation will make the market healthier, while marketers will still have numerous good options to choose from and diversify their spend to maximize effectiveness. In this context, it is important to stress that we see dozens of leading media sources with zero to marginal rates of fraud. We expect to see these strong performers, with highly competitive CPI/CPA rates and low overall fraud, to grow as marketers look to diversify spend and increase efficiency.
Marketers who have yet to put mobile at the center of their marketing activities, will likely do so in 2018. As Forrester research analyst Samantha Merlivat told AdExchanger, “I would say a lot of advertisers still see desktop display as the foundation of everything they do and mobile as an add-on,” she said, “but it’s becoming clear that going forward, advertisers need to flip that around and really be mobile-first in the way they plan digital display.”
As for mobile app marketers, 2018 will offer significant opportunities but also difficult challenges.
On the one hand, competition is fierce, organic is a challenge, retention is still low, media costs are rising and, well, there’s fraud…
On the other hand, we can see that marketers are becoming increasingly sophisticated in their use of performance data for smarter user acquisition and more effective re-engagement. Indeed, UA activity is on the rise, retention is up 15% YoY, retargeting is growing like there’s no tomorrow, while monetization has improved 40% with triple the number of marketers who are now measuring revenue.
Ultimately, it all boils down to an intense, uncompromising and intelligent use of data to find a competitive advantage.
If you build them [data-driven mindsets], they will come.
Here’s to a successful 2018!