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Is in-app advertising broken?

With users displaying a big appetite for mobile applications, marketers have taken notice and are increasingly looking for ways to reach audiences. However, two recent developments suggest that in-app ads may not be working in all instances.

Last week, Facebook said it would end a test launched earlier this year to place its own ads in other developers? mobile apps while eBay said that it will stop running ads inside its mobile apps. The news points to the ongoing difficulties driving revenue via mobile ads, which typically are priced lower than desktop ads.

?If ad performance-driven companies like eBay and Facebook are stepping back from in-app advertising, yes, it?s likely that they are not getting the degree of response they expect from such placements,? said Darus Zahm, vice president and account director at TargetCast, New York.

?That said, I think it raises the bar for mobile marketers to build a better solution for in-app advertising that more effectively connects with consumers and provides them with incentive to interact with the brands advertising through those channels,? he said.

?Just because eBay and Facebook are backing out of the space doesn?t mean there isn?t room for other brands to succeed where eBay and Facebook have not.?

Native ad experiences
These developments highlight two of the key issues facing mobile advertising ? the relatively low cost of mobile ads and the challenges delivering ads on small smartphone screens without negatively impacting the user experience.

Facebook announced plans in September to run ads in third-party apps. However, the social network has decided to pause the test so it can focus on scaling ads in the mobile newsfeed of users, which initial results suggest are successful.

The more ?native? experience offered by mobile newsfeed ads appears to be working for Facebook, with the social media giant is expected to generate $339 million in mobile ad revenue this year, mostly driven by the success of Facebook has had integrating ad products into the core user experience, according to eMarketer.

User experience played a role in eBay?s decision to step back from in-app ads, with the company saying ads appearing in its smartphone apps cluttered up the screen and result in a poor user experience.

?Marketers need to think through the user experience,? said Sloane Kelley, director of interactive strategy at BFG Communications, Bluffton, SC. ?Using a mobile device is a very personal experience ? much more personal than TV or print.

?With that in mind, an in-app ad can feel highly interruptive and even annoying,? she said. ?It?s important for marketers to address that by making the ad relevant through location or demographic targeting.?

?Take advantage of the beautiful display available on many devices or integrate rich video. The best apps are engaging - in-app advertising should be too.?

In-app rewards
What these developments suggest is that taking traditional desktop ad units such as banner ads and moving them to mobile apps may not be the most effective way to reach mobile users.

Instead, marketers need to think about how to leverage the unique characteristics of the mobile platform and mobile users to create marketing strategies that drive engagements.

For example, given that app users tend to be very interested in the content they are engaging with in an app, it may make sense to create more embedded marketing messages.

?Done right, in-app marketing can really deliver,? Ms. Kelley said. ?There are ways to increase engagement by going beyond a typical ad.

?Within some types of applications, it?s possible for marketers to become embedded within a game or content, making the message feel seamless and less interruptive,? she said.

Another strategy that is working for some brands is to sponsor rewards inside freemium apps that users can download for free but need to pay to access additional content.

?Offering a reward for engaging with an in-app ad is another tactic worth exploring,? Ms. Kelley said. ?Depending on the app, this reward could be in the form of in-game currency that delivers instant gratification.?

Driving social interactions
Going forward, marketers are likely to continue to look for ways to improve in-app advertising as apps deliver an overall higher quality advertising platform than the mobile Web.

The key will be keeping the user experience at the core of development plans and insuring that ad units add value to the user.

?Leveraging that technology and rich-media environment delivered by the in-app experience, brands might consider enabling a branded social/sharing functionality in place of typical advertising to better incite consumer interaction, shifting the KPI from a return on investment (CTR/CPA) to a return on user involvement (CPI),? TargetCast?s Mr. Zahm said.

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York