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For years, we’ve known that mobile usage has been greater than desktop, having surpassed the web since 2014 to be exact. Yet mobile advertising options have been less than ideal, on mobile web or in app. This has left my company Timehop with no choice but to go on an unexpected and unconventional journey to build our own solution. In the end, it wasn’t only worthwhile, it was a fortuitous decision -- one of the best we’ve made so far in our young history.
To appreciate our story, you have to understand the two ways to make money via mobile advertising: through a browser or through an app. Mobile web is a relatively robust ecosystem, thanks to being similar in technology to desktop web. Yet there are several drawbacks to this approach in mobile. Ad blockers limit your audience. Customers may prefer to consume your content in an app. And you lose all of the user experience benefits of building an app.
On top of all of this, advertisers prefer the safety, accountability and efficacy of in-app advertising. In-app mobile ad spend comprises about 80 percent of all US media dollars spent on mobile, according to eMarketer. They’re estimated to have hit $45.3 billion last year, up from $11 billion in 2016. At Timehop, in our early years, we spent considerable effort migrating our first few million users from an email-based service to one that the user consumes in an app. These larger advertising trends were part of our motivation.
The problems and promise of in-app advertising
While consumers spend more than two hours on apps each day vs 26 minutes viewing the web on mobile, those in-app audiences are confined to the top five players, such as Instagram and Snap. These large companies with hundreds or thousands of employees and large demand from advertisers are in a position to build their own ad-serving technology in-house, and dictate to the market - who is yearning for their inventory - how to buy their ads.
For everyone else - from the smallest app to large, top publishers - the solution is more complex. The default solution is to replicate what they’ve done on the web: have an in-house staff directly selling their inventory, then turning to third-party providers for technological solutions to sell the remaining inventory.
Yet because of the challenges of in-app advertising, and its differences from web, third-party solutions leave much to be desired. The technical solutions offered by third parties are more limited than web, and those that exist often make a middling attempt at replicating desktop web technologies, often at the expense of the improved user experience of an app.
In-app advertising solutions also often lag behind their mobile web counterparts. For example, header bidding. It’s all the rage on desktop web and in-browser mobile. Header bidding is a technique where ads are auctioned in the HTML header on the web, rather than as the page loads. All the bidding is done to multiple ad exchanges before the page is rendered. This is opposite of waterfall, where each partner is contacted individually. This new, popular approach to web advertising results in improved revenue for the publisher.
Header bidding obviously makes the selling of ad space faster and more efficient. Yet in-app “header bidding” is a nightmare (never mind that there are no HTML headers in mobile, the name has stuck for simultaneous auctions.) Says Digiday, in its rundown of the situation, “Like much of ad tech, header bidding was built to solve a desktop challenge. But mobile is eating media.”
Third-party technical solutions exist, but they are less than ideal. Many of them rely on software development kits, or SDKs. This means incorporating a big chunk of code into the app. Yet one doesn’t just have to implement the SDK of the company handling the auction. Imagine working with a number of ad partners and integrating each SDK for each one. On Timehop, we have more than 10 different ad partners; if we uploaded each SDK, it would make us a 600 megabyte app. We’d be overloaded and slow, and it would hurt the user experience.
There are other reasons app developers hate SDKs. There’s lack of control, and they’re extremely rigid. If I wanted to change something to make it look right for my users, I’d have to request this change from the ad partner.
The paradox for us and for many publishers is clear: in-app provides greater advertising revenue theoretically, yet the technical solutions aren’t as effective yet. For many publishers, the paradox is immaterial since most of their readers rely on mobile web. Think about it, how many news publication apps have you downloaded? But for Timehop, where millions of users are interacting with our app every day, the problem is acute.
Which led us to start this journey.
Enter Nimbus and a 12x revenue jump
This all explains why we created Nimbus, our header-bidding solution, that rids us of those app-bloating SDKs and enables us to be flexible. Our company consists of 15 people, and it was a sizable commitment of resources to go down this path. But having tried several of the “best-in-class” in-app advertising solutions, we felt we had no choice.
Nimbus is our ad server, which brings the “header bidding” process to in-app mobile. Nimbus holds a simultaneous auction for 10 (and counting) major ad networks at the beginning of every user session, delivering the highest-paid ad to the user. All without resorting to implementing innumerable SDKs. Prior to Nimbus, we managed clunky waterfalls - passing our user from one ad provider to the next, waiting for someone to bid. This resulted in lower income, and a degraded user experience. On top of that, we had a bloated app. At one point, we had four ad partner SDKs in our app. Horrendous.
No more. We started Nimbus in mid-November 2017, and had a beta launch by the end of that month, just in time for the holidays. We started with video, which generates higher CPMs. And, if I may be so bold: We killed it. Daily revenue grew by 12x during November and December.
After the new year, we started implementing static images, as well as viewability scores and anti-fraud features. Even though video inventory dropped, which put some pressure on revenue, sales are still a healthy 400 percent above where we started. Moreover, it’s only been three months since launch and already the product has paid for itself, meaning we’ve already made more revenue than the cost of development. Post holidays, we’re now at around 7x our pre-Nimbus revenue, with significant room to grow.
Building your own in-house solution isn’t easy. We had our own challenges, which include having a small team. Yet fortunately, we had the right mix of expertise in mobile development and programmatic advertising on desktop. The combined knowledge enabled us to build Nimbus. This kind of talent isn’t easy to find. There are probably only a handful of people who can do this in New York. And for any person with expertise in mobile programmatic, they’re likely going to work for Facebook or Google. We were lucky to hire a programmatic partnerships exec and two engineers from the same programmatic company that was going out of business. All this to say that it’s hard to replicate what we built.
As for the audience size, there’s little value in spending the money to build a solution if you don’t have viewers to see the ads in the first place.
Publishers backs’ are against the wall
Of course, none of this would have been possible had we not had a sizable mobile audience to begin with. We think of ourselves as “too big to be small and too small to be big.” Millions of daily actives is a sizable number, so long as you’re not comparing yourselves to Facebook or Snap.
For large publishers, this is a conundrum. One study conducted by Nielson and The Knight Foundation showed a significant imbalance that news organizations have with regards to readership on their websites and on their dedicated apps. What’s clear: consumers don’t like downloading news apps.
According to the report, “mobile users who access news through apps spend more time reading the content, but the overall audience for apps is small.”
For large publishers, their backs are against the wall. Audiences are moving to mobile. But on mobile, their audiences are looking at a browser, when the real ad money takes place in apps. And apps are dominated by Facebook, Twitter, Snap and their ilk. Says Digiday, “Apps theoretically present a huge opportunity for publishers since eMarketer estimates that 86 percent of the time users spend on mobile is spent in apps. But publishers have struggled to monetize their content in apps, and many of the most popular apps simply do not belong to publishers. A spokesperson for App Annie said that only two (ESPN and CNN) of the top 200 most-downloaded apps last month belonged to publishers.”
Therein lies the problem for these publishers. Let’s say I’m Coca-Cola and I call a news organization with a small-in app audience and say, “I’ve got a new ad campaign for Diet Coke with Lime, and the digital side of it is $20 million. I’m going to send it out in $2 million chunks spread over in-app advertising, branded content, maybe an event, or maybe a big show. Please send me a proposal.” The news organization would make their proposal to the brand, but without a large in-app audience, they’d essentially be missing one segment the brand wants to target.
This is what sets us apart from many other apps out there. We have an in-app audience and we have beautiful ads that are full screen and highly, highly viewable (we have excellent MOAT scores!)
At Timehop, now both pieces are in place in-app: audience and monetization. It’s taken years since we first migrated over from an email list, but we’re there. We have a sizable audience of daily active users - several million. And we can now effectively monetize them. We can do it quickly. We can do it with a polished user experience fully integrated into our product. We’re even ready to accept full screen vertical video ads - some brands have re-purposed their Snap ads for Timehop. We would love to see more of that.
We’ve also begun setting up Private Marketplaces [PMPs] with brands and trade desks, giving them priority access to advertise with our users, helping us maintain quality advertising for premium brands, and sparing us from the more shady corners of the programmatic world.
Not only that, having both pieces in place has allowed us to control our own destiny. Staying a small team has helped, to be sure. And now with both pieces in place we can look forward to building the many, many other product innovations we have in the pipeline.
We’re excited for what comes next.
(Image source: retailitinsights.com)
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