Ad monetisation basics in mobile gaming

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The first of a 3-part series of a masterclass in ad monetisation from Aurion11 CEO and Co-founder Igor Lautar.

Getting up one day and deciding to create a game is a worthy endeavour. It takes a good idea, capable hands and a lot of brain power to come up with a winning product.

There is a tough decision to make right at the start - how are you going to get paid? Are you going to monetise through in-app purchases or ads? Or both?

The type of monetisation dictates how you create and build your economy and it can seriously affect your gameplay loop. You can add advertisements or IAPs later, but it will require more work and will not be as simple as creating a monetisation plan from the beginning.

How to approach ads implementation often requires making a number of choices - picking ad positions, mediation platforms, integrated ad networks, analytics, connecting it all with user acquisition, etc. It can all get quite confusing and overwhelming.

So here’s a guide on some of the basic concepts of ad monetisation - from the most often used types of ads, mediation platforms and ad networks (demand sources) to the various KPIs that need to be monitored.

This is a starting point for you to start diving deeper into the ad monetisation world.

Chapter 1: Ads and product integration

Ads are a great way to monetise a free game, but it’s good to actually devise the title with ads in mind. For example, you have to think of the technical implementation consequences of making a responsive UI to integrate banners, think about gameplay loops implementing rewarded videos and incentivising users, and on top of that, devise interstitial transitions that are as unintrusive as possible to not break user flows.

There are a number of steps to follow. While it seems daunting, this can all be a process of iteration - not everything has to be done at once, especially if you are struggling with limited resources.

First we will look at the three basic ad types and their most common uses. 

Banners

Banners are the quiet, unassuming ads that rent a small strip of screen space without causing too much drama. They sit in the user’s eyeline but do not break their flow with a full-screen interaction.

Banner sizes can range from simple 320x50 (now actually mostly adaptive - fitting the entire width of the screen) to 300x250 rectangular boxes usually reserved for “scrolling content” (think of an Instagram feed). 

Implementation and positioning of banner ads should follow some basic guidelines:

• Place banners where the user's eyes naturally rest - either the top or bottom of the screen. This also depends on your UI / navigation setup. Avoid placing them in the middle of the content to not disrupt any gameplay or app flows.
• Place banners on screens that are not part of the actual gameplay loop - main menu’s, option screens, pause screens etc. Think of the user experience and the visual impact the banner is making to not disrupt the users’ flow.
• Avoid placing banners too close to any buttons or other clickable elements to avoid accidental clicks and the accompanying user frustration.
• Make sure your UI is responsive to any potential adaptive banners that vary in height and width. 
• Make sure there are no obstructions in the displaying of banners to avoid any potential viewability (viewability meaning that most of the ad is visible for at least a couple of seconds) issues.

Thereafter you can then dive deeper into the display and viewability rates, duration tracking and banner rotation, performance considerations and mediation setups, and various other technical considerations.

But for the first implementation just really think on the positioning and put yourself in the shoes of the user to understand what works best. Test it yourself - if it annoys you too much, chances are it will also affect your users.

Interstitial

Interstitials are the much more annoying cousin of banners - they are knowingly intrusive, sudden and almost unwanted in the eyes of the user. As a result they tend to be, they are a good driver of performance in an ads-based app.

Utilising them does require a bit more thought because you can see some user churn due to the “annoyingness” of the ads. They remain popular with the advertisers, though, because they engage your users with relevant content (when targeted well).

But success can come to bite you as they may potentially entice the user to move to that “shiny new thing” (or competing game) being advertised.

The main thing to think about with interstitials is frequency and placement: how often you show them and at which points.

Let’s touch on placement first. Where exactly do you trigger interstitial ads and how do you decide on that? Well, since apps are so different, it’s tough to nail down an approach that works for everyone, but consider the following guidelines: 

• Place them at natural break points a.k.a transitions in the user journey - between levels in a game, when switching between major app sections (i.e. moving from the settings screen to the main menu), after completing certain major tasks, etc. You should pick moments that are the least disruptive and where you think a user is in a situation where their current activity won't suffer.

• One point is also after specific “failures” in the app - if the user runs out of lives or is about to exit the current content. However, beware of a user’s state of mind in such situations so that it does not lead to churn. For example, placing an interstitial after an already frustrating failed level might drive users away.

• Always avoid interruptions - do not put interstitials during gameplay while users are focusing intensely or interacting with a core gameplay loop. This will throw them off, interrupting their flow and will lead to frustration. 

Next up is frequency, that can be a bit tricky. For the basic part, you can either go with a timer-based approach or an events-based system. With timers, you can show interstitials on predefined transitions in intervals of your choosing. For example, showing an interstitial every three minutes at specific transitions.

You could also opt for an events-based system and trigger interstitials based on a group of events that need to happen for users to see an interstitial (i.e. the user has to fail three times in a row or win two levels). These systems need to be implemented, so it takes a bit more time technically. 

As with banners, there are multiple advanced topics you can dive into here also: various interstitial configurations, rigorous A/B testing, user behaviour/cohort-based interstitials, ad quality and duration considerations, user churn analysis, etc.

But for starters, just bringing in that technical support and some good old fashioned common sense for user experience should be a great starting point. 

Rewarded video

Rewarded video is the least intrusive of the ad types since it’s a completely opt-in type of ad. For a rewarded video, a user always decides to either watch it or not - basically to pay for a reward with their time or not.

It’s the only ad type that can tie directly to your gameplay loop and can provide substantial incentive to users in exchange for their time. It is the most powerful of the ad types to achieve great monetisation results, considering you start thinking about them from the beginning.

As previously mentioned they can tie directly into your gameplay loop and can affect the entire game economy (since in exchange for watching them you are generally giving away some sort of currency).

Rewarded video guidelines

Integrate rewarded videos into your app's fundamental mechanics from the start, not as an afterthought.

When making a game economy, rewarded videos serve as ‘income’ for the user, allowing for additional control over how users progress through it. In the case of games (without an economy), you might want to lock certain features, but then allow controlled access by watching rewarded videos.‘One use per day if you want rewarded video’, for example.

Think of how when you would want to give an option to the user and with what you would reward them. For example, failing a level can result in a rewarded video that continues the level in exchange for the user watching it. Use your imagination and explore different approaches. Make it feel like a natural part of the app and give control to the user regarding the choice.

As another example: if integrating a rewarded video as part of a “free spin” every day - what are the users getting out of it? Is it currency, a limited time unlock? Or something else? Watch out that it does not break your economy (especially if targeting more of an IAP-based app).

It’s important to communicate clearly what the value of a rewarded video is. Show the users what the potential rewards are and how they can utilise those rewards.

Also: think on availability. Are you capping the rewarded videos or not as part of keeping the economy in check, or protecting the user experience from being just an endless ad-watching session?

There is much more to uncover with rewarded videos in regards to their positioning, gameplay utilisation, balancing with other ad types etc. But for the starter, just focus on the basics outlined above.

All in all, you can see that implementing ads is not just a simple flick of a switch - it requires some thought of the integration, utilisation and user experience.

After you are done defining where and how to use ads, you can start planning the tech you will be using. Will you tackle the challenge of creating an ad monetisation stack by yourself or will you use some existing solutions?

Chapter 2: Mediation platforms and user acquisition

What is a mediation platform?

When it comes to actually integrating ads, you can think of it as the first two layers of an onion. You’ve got the first layer of your “inventory” - the inventory concept is basically the space or opportunities that you fill with ads. Imagine a blank billboard on the side of the road - you are the person with the billboard and are now trying to find something to fill it with.

The second layer is the system that will fetch this ad for you. In simplified terms: the mediation platform. That is a company that will find the best fit for your billboard. Your ad monetisation stack is a combination of inventory and mediation platforms, working in unison to deliver an impression (an impression is when a user sees the ad, which then gives a signal that it was shown to the originator of that ad).

What the mediation platform does is it combines all possible inventory from various publishers and sells these spaces to the networks that can provide so-called demand (the ads that will fill your space). This means that mediation platforms, beside the actual tech they are offering (in the form of an SDK), are also aggregators of inventory, which they put out on offer to the networks.

By knowing these basics you can now search for a mediation platform provider - in the mobile ad world there are not a lot, the most famous being MAX (by AppLovin), LevelPlay (by Unity) and AdMob (by Google).

These are ecosystems for which you can integrate an SDK into your game and everything else will be taken care of by your meditation partner. Your only technical worry is to request an ad from this SDK so that you are ready to fill opportunities when your inventory is ready. 

How does a mediation platform work?

Mediation platforms are inherently systems through which ad selection processes are running. They contain the technical capabilities - the code and logic - to let various networks know that you have inventory ready and available to show an ad.

The primary system through which they choose an ad for your inventory is called an auction. So every time your app has some inventory to fill, the mediation platform will conduct an auction where multiple ad networks compete in real-time to show their ad.

They each submit a bid (that is a price they are willing to pay) and the highest bidder wins and their ad gets shown. So you can imagine those art auctions in movies with the exception that everything is happening in milliseconds. 

Another concept, but a bit older, is that of a waterfall. This is a more rigid approach to selecting an ad from multiple networks where each network is requested in sequential order based on a pre-defined CPM (cost per mille, or the revenue you will get per 1000 impressions).

So you can go and set network one to just respond with ads worth $10, network two to respond with ads worth $8, and so on. You are asking multiple networks at various price points if they have an ad to fill your spot. What some mediation platforms are doing is combining both into a hybrid mediation - combining the best of both worlds. How they do this is a more advanced topic that we can cover later.

Each mediation platform does this auction and inherent selection in various ways and are proprietary systems you don’t have insight into - what they all try to do is pick the best value ad for the current opportunity. This value is translated to revenue you get on your bank account at the end of the month. 

How does a mediation platform tie into user acquisition?

You’ve got an app, it’s live on the store, you are monetising it with your chosen mediation platform. But now you need users. You can either get them through organic growth, word of mouth, virality or you can simply pay for them through your own marketing efforts.

Your mediation platform sees everything happening on the monetisation side - which ad placements perform best, what CPMs you're getting, which user segments are most valuable, how engaged different user groups are. This gives them incredible insight into what your inventory is actually worth and what kind of users generate the most revenue. 

Now the ad networks showing ads in your app are also the ones that can drive installs to your app (by showing your ads in other apps). The mediation platform now becomes the bridge. Instead of just helping you earn from ads it also helps you spend the generated revenue to acquire new users through those same ad networks.

This becomes a closed loop: you earn money from ads shown to your users, you use that money to buy ads on other apps, those ads bring new users to your app, who in turn generate more ad revenue.

The mediation platform manages both sides of this equation - so one platform (like the ones we mentioned before) becomes your all-in-one tool to monetise and grow your user base. 

Chapter 3: Demand sources

We already mentioned the auction and the waterfall and how an ad is chosen in those systems. But who is actually providing those ads? We’ve already mentioned ad networks, which can in turn also be called 'demand sources'. 

Each mediation platform has many demand source integrations - either through the mediation platform’s own network/exchange or through various SDKs those demand sources provide.

When setting up a mediation platform you will need to enable various demand sources - AdMob, LiftOff, Mintegral, Meta, Unity, etc. Each added ad network, a.k.a. demand source, contributes to a bigger possible demand pool that will try and fill your inventory.

And each demand source also contributes to the competition in the aforementioned auction (which makes sense - the more 'people' that bid for a thing, the more the price will go up since they will try to outbid each other to get that thing - of course up to a point, it does not go to infinity, each has their own 'breaking point'). So having a varied pool of demand sources is important to drive competition and also try and fill your unfilled inventory. 

There is a technical caveat when enabling more and more demand sources: most of them require their own SDKs to function. So on top of implementing the SDK of the mediation platform, you will have to take care of also implementing those demand source SDKs.

Why, do you ask, doesn’t the mediation platform take care of everything? Well it actually could, but most demand sources would like to keep control of how their ad is displayed, analytics and performance data, and not rely on those of the mediation platform. Hence they want their SDK to be implemented alongside for it to do the actual showing of the ad.

The mediation platform performs the auction and the winning bidder then shows the ad through their own SDK to maintain that control over their own data.

The relationships can get somewhat complicated, but don’t worry, the technical part really isn’t that bad. What it does bring is a bit more maintenance taking care of SDKs and updating them throughout your app releases to stay up to speed with the latest changes.

Chapter 4: Making sense of performance KPIs

Now you have your ads, your chosen mediation platform and also the ad networks all working in concert to deliver impressions and generate revenue in your app - awesome! The only thing that remains is monitoring the performance of this system you built - how do you go about checking if what you have is working correctly and delivering results?

Usually the analytics starts with implementing a way to cover the most important and basic metric there is - how many users are actually in my app?

We usually measure that with DAU (daily active users). DAU is usually calculated by some sort of core event that happens when a user launches the app - that is your fundamental signal that someone actively used your app that day. An important consideration is to count each user once per day - if someone launches your app 10 times in a day, that is still one DAU and not 10.

With the DAU metric implemented you can now tackle some more important ad performance metrics. We base one of the most important KPIs (key performance indicators) on DAU: the ARPDAU (average revenue per daily active user).

It is an important metric because it normalises the revenue you earn and is not affected by fluctuations in daily active user numbers. With this metric you can measure all your efforts with any potential performance A/B tests, changes by adding more demand sources, or any other optimisations you may be doing on your ad monetisation stack.

Note that the value of ads greatly varies by platform and country, so it is also good to look at your main markets separately to avoid the issue of ‘where the DAU is coming from’.

Besides ARPDAU, eCPM (estimated cost per mille), impressions and fill rate (the amount of impressions divided by the amount of ad requests) play an important role in performance monitoring. They are all connected in a relationship of cat and mouse.

High CPMs may result in less impressions and lower fill rates but higher revenues, while lower CPMs may result in more impressions, higher fill rates and the same revenue.

Your goal is usually to find that sweet spot between CPM, fill rate and a good in-app user experience (see picture below). 

Glossary

Here’s a small glossary of the most common expressions associated with performance monitoring:

• ARPDAU - Average revenue per daily active users; measures how much revenue you generate on average from each daily active user (in practice ARPDAU 1,000 is used more to make numbers easier to read).

• Bid floor - The minimum price a publisher will accept for an ad impression in a programmatic auction (usually given in eCPM).

• CTR - Click-through rate; percentage of users who click an ad after seeing it (clicks/impressions).

• Conversion rate - Percentage of users who complete a desired action (like making an IAP) after clicking an ad.

• DAU - Daily active users; a metric that measures how many unique users engage with your app on a given day.

• eCPM - Estimated cost per mille; a metric that normalises revenue or cost across different ad formats and pricing models by calculating how much you earn or spend per thousand impressions.

• Fill rate - A percentage calculated by dividing filled impressions by total ad requests.

• Impression - A single instance of an ad being displayed to a user, regardless of whether they interact with it.

• LTV - Lifetime value; the total revenue you expect to generate from a user over their entire lifetime in your app.

• SOV - Share of voice; the percentage of, for example, total impressions that your app captures compared to other networks in a given market.

Wrapping up

This was a basic rundown of ad monetisation from ads integration to mediation platforms, demand sources and performance tracking. It’s a lot to take in, but honestly, this is just scratching the surface. There are layers and layers of optimisation opportunities, technical considerations and strategic decisions to further improve your monetisation efforts.