Commodity Marketers are a critical component to much of the world’s economy. The model is used to trade a wide range of assets – from a barrel of oil and a pound of coffee, to the value of an Apple stock and even future weather patterns. In this piece by Mariano Saenz, CEO and co-founder, Winclap, Saenz discusses what he believes is a key issue faced by mobile app developers: throwing a lot of money at user-acquisition campaigns, paying higher and higher CPIs, with not enough ROI to show for their expenses.
The success of a commodity market hinges on an important concept: the price of an asset is wholly based on the inherent value it offers the buyer. The more a buyer values it, the more he or she is willing to pay for it (to the great benefit of the seller).
But commodity markets also recognise that what is one person’s treasure is another person’s trash. A trader who’s hot to purchase Google stock, and willing to pay top dollar for it, can only do so if there is another trader willing to sell it because, in their eyes, it is overvalued at the moment. Put another way, pricing will always be dynamic as buyers and sellers consider hundreds of variables, all of which affect their market behaviour. Each and every one of those variables plays a role in their decisions to buy, sell, and at what cost.
We see that the inherent value of assets is defined by a set of circumstances that’s unique to both the buyers and sellers. I suspect that just about every mobile app developer would like to apply that same principle to their user-acquisition campaigns. What’s holding them back?
Let’s go back to the stock market example. In the days before computers, equities were bought and sold on trading floors, where traders of a particular product or security gathered in individual pits, with buy and sell prices shouted out. That model limited the stock exchanges ability to scale, and so computers were introduced to automate it. Today, the stock markets leverage the most sophisticated technology in the world – high-frequency trading, blockchain – to support the markets’ exquisite pricing dynamism.
We desperately need pricing technology to support dynamic pricing in digital advertising as a whole, and especially for campaigns where the goal is to seek new users for mobile apps. In 2016, advertising for mobile app installation campaigns topped USD$5.7bn (£4.09bn) and continues to grow. Yet the market still relies on a fixed cost-per-install (CPI). Why does this multi-billion market continue to reject all of the financial sophistication to support dynamic pricing that benefits just about every other sector on earth?
The fixed CPI just doesn’t make sense for anyone involved in the transaction, because behind every (non-fraudulent) install is a human being who may be a valuable or not-so valuable customer for a business. Why pay the same price for all installs?
Many in the industry will counter that the CPI model gets around that concern by paying a commission only when a consumer takes a desired action, such as booking a first ride, placing an order of a specific value, or reaching a particular level in a game. While that’s good, what happens if that customer never books another ride or makes a purchase again? Does ROI differ between customers who convert within three days and those who convert within nine months of install? If so, how do you quantify the value of each of those users?
In a certain way, the cost-per-install model is easier for both the buyer and the seller, because no one has to do the work of calculating the ROI of individual users, much less develop or implement the pricing technology needed to support that level of dynamism. But it also means that sellers assume a greater risk if they sell on CPA, as they paid only if the customer takes a specific action. Dynamic pricing lowers that risk, providing a benefit for the seller as well as the buyer.
But I believe this seeming convenience will stymie the market, and potentially put a lot of great and innovative mobile app developers out of business. With fewer consumers downloading mobile apps, combined with the sheer volume of apps in apps stores, mobile app developers are throwing a lot of money at user-acquisition campaigns, paying higher and higher CPIs, with not enough ROI to show for their expenses.
We already see related parts of our industry apply greater financial sophistication to transactions; in March of last year, NASDAQ rolled out NYIAX, bringing fintech to ad tech. And one can hardly open a business journal without seeing an article on how blockchain will revolutionise digital ad sales. So why do mobile app developers have to be satisfied with a one-price-fits all for their campaigns?