Smaato's recent release of their Q3 2016 Global Trends in Mobile Advertising Report brought some interesting statistics to light, in particular the growth of in-app advertising versus its mobile web counterpart. ExchangeWire speak exclusively with Ragnar Kruse, co-founder and CEO, Smaato about what these statistics indicate in the changing shape of mobile advertising.

ExchangeWire: The release of Smaato’s Q3 2016 Global Trends in Mobile Advertising Report shows healthy growth and domination of in-app ad spending on the Smaato platform. Is this true globally, or are certain markets more ahead of the curve with in-app advertising?

Ragnar Kruse: The growth of in-app mobile advertising is a worldwide phenomenon and seen in both advanced and emerging economies. In most of the larger markets, with the exception of Indonesia, in-app mobile ad spending outpaces mobile web spending by a ratio of at least 2:1. In certain markets, in-app has reached 90% or greater of total ad spend, including Russia, China, Sweden, and Germany.

Does this spell the end for mobile web ad spend?

Mobile web is far from dead and still represents 21% of all ad requests and 19% of all mobile ad spending on the Smaato platform. In fact, mobile web ad spending increased 4% from the same quarter last year. We’re also seeing mobile web eCPMs on the rise, increasing more than 10% on average in the third quarter of 2016, versus the previous quarter, indicating advertisers still value this environment.

Why is in-app taking the lion’s share of mobile ad spend? Is spend concentrated on certain apps/sectors, or is it even across the board?

Mobile users worldwide are spending more and more time in apps. Not surprisingly, therefore, 79% of all ad requests on the Smaato platform come from apps. Advertisers are also willing to pay more for the superior user tracking and data availability of the in-app environment. Furthermore, in-app eCPMs are, on average, more than two-times higher than mobile web eCPMs for publishers on the Smaato platform, a trend that has remained consistent with the same quarter last year.

As seen in previous Global Trend Reports, a sub-category with particularly strong in-app spending is Music, part of the IAB's 'Arts & Entertainment' category. In fact, Music represents the largest ad spending category on the Smaato platform, which makes intuitive sense when you consider how long and often people are engaged with their music apps.

In-app advertising has its challenges and the relative walled garden nature of the app ecosystem could provide barriers to entry; but the Smaato report shows it doesn’t seem to be hindering investment. Should this be a concern for advertisers and publishers alike? How will the in-app environment evolve?

The in-app environment offers advertisers a unique advantage to the mobile web – an advantage not available in any previous medium: the ability to reliably track users over long periods of time. The in-app environment allows tracking of device identifiers (device IDs) that are unique to each device. Since a device is typically owned by a mobile user for at least 18 months, on average (and that average is rising as users are upgrading their smartphones less frequently over time), a user can anonymously be tracked via unique device identifier for over 18+ months in an in-app environment.  

On the other hand, comScore, for example, found that on the web overall about three in every 10 Internet users delete their cookies in a month, with an average deletion frequency of about four times per month. Thus, in-app offers advertisers much more reliable user tracking. While many advertisers don't yet fully understand the capabilities of the in-app environment, more and more are catching on, which we then see on our global platform as advertisers are increasingly shifting their advertising spending to the in-app environment.

Header bidding, one of the biggest trends of 2016, has been notoriously difficult to implement across mobile. What has been the challenge with bringing header bidding into the in-app environment?

While header bidding is a tool that was created for an online/desktop environment – not for mobile in-app, which does not have headers – what made header bidding such a hot topic and tool was publishers' desire for universal competition. Publishers want to make sure they maximise the value of their content by getting the most revenue possible for each ad impression. In a primarily desktop and online world, header bidding was an advance in accomplishing that.

In today's mobile and predominantly (headerless) in-app world, publishers still want universal competition, but need a solution that works much faster to meet the dramatic change of speed versus online/desktop at which the mobile environment operates. For mobile, retrofitted solutions originally built for desktop are just too slow and cumbersome, creating significant unwanted latency risk that jeopardises revenue.

How does header bidding need to evolve to allow publishers and app developers to better monetise their in-app inventory?

Header bidding raised an important question from the online publisher perspective: How can I save crucial processing time on requesting multiple ad sources to increase my yield? For the mobile, in-app environment, however, we need to approach that question with a clean sheet of paper instead of what header bidding solutions have proposed today. Otherwise, we’ll get incremental, patchwork solutions. We should be thinking less about how header bidding needs to evolve, and instead how to build innovative solutions that approach the mobile environment in new, creative ways.

Smaato has always been a mobile-first company. We recognised several years ago that we had to build a new mobile-optimised solution from scratch for publishers to achieve true universal competition in an in-app environment – a solution that operates at the lightning-fast speed of mobile, while putting all advertising sources in parallel competition for each ad impression. Others have made attempts to retrofit online solutions to address mobile, but those approaches will never truly be able to optimally deliver what the marketplace really wants – mobile-optimised universal competition in an in-app environment.