In-app advertising is projected to reach US$390.04 billion by the end of 2025, making it one of the most powerful revenue channels for app publishers and developers. When done right, it not only drives significant income but can also enhance user engagement by delivering relevant, well-timed ads. But striking the right balance is critical because poorly placed or disruptive ads can frustrate users and lead to churn.
This guide is tailored for app publishers and developers. We’ll break down what in-app advertising really means, how to make it profitable, and how to sustain that success without compromising user experience.
And most importantly, we’ll show you how UndrAds helps solve the monetization issues, helping you generate revenue through smart ad placements while keeping your users happy and engaged.
What is In-App Advertising?
In-app advertising is a monetization strategy where app publishers (the individuals or companies that own and manage mobile apps) earn revenue by displaying ads within their apps. These ads are shown to users while they interact with the app such as during gameplay, browsing, reading, or other in-app activities.
Instead of charging users directly (like through subscriptions or in-app purchases), publishers can offer free content and make money by showing ads from third-party advertisers. The more engaged and active the user base, the more valuable the ad space becomes.
Key Points for Publishers:
- Revenue stream: In-app ads provide a steady income without requiring users to pay.
- Ad formats: These include banners, interstitials, rewarded videos, native ads, and more, each with different use cases and user impact.
- Ad networks: Publishers connect with ad networks (like UndrAds) that supply the ads and handle payments.
- User experience: The success of in-app advertising depends heavily on delivering ads that feel relevant and non-intrusive.
- Optimization: Publishers can optimize placement, frequency, and formats to maximize revenue while minimizing disruption.
How Does In-App Advertising Work?
In-app advertising works by placing targeted ads inside mobile applications, allowing advertisers to reach users while they are actively engaged with an app. The process involves several moving parts: from app developers who provide the ad space to ad networks and demand-side platforms (DSPs) that connect advertisers with those spaces.
1. The Role of App Developers (Publishers)
App developers or publishers integrate an SDK (software development kit) from an ad network or mediation platform into their app. This SDK enables the app to display ads and communicate with ad servers. Developers earn revenue each time an ad is shown (impression), clicked, or when users complete a desired action (install, purchase, sign-up).
2. Advertisers and Brands
Advertisers (or brands) use in-app advertising to promote their products, services, or other apps. They bid for ad placements based on specific targeting options such as demographics, interests, device type, or even in-app behavior. The goal is to reach the right audience at the right time.
3. Ad Networks and Exchanges
Ad networks act as the bridge between publishers and advertisers. They aggregate inventory from many apps and make it available to advertisers through real-time bidding (RTB) on ad exchanges. DSPs (demand-side platforms) help advertisers automate this bidding, ensuring ads are purchased efficiently and shown to the most relevant users.
4. Targeting and Personalization
One of the strengths of in-app advertising is its ability to deliver highly targeted ads. Using data such as location, app usage, purchase history, and device type, advertisers can personalize messages. For example, a fitness app may show protein supplement ads, while a puzzle game might show rewarded ads for other mobile games.
5. Ad Formats
In-app advertising supports multiple formats, each with its own strengths:
- Banner ads: Small, non-intrusive ads at the top or bottom of the screen.
- Interstitial ads: Full-screen ads that appear at natural breaks (e.g., between game levels).
- Rewarded ads: Ads users choose to watch in exchange for in-app benefits like extra lives or virtual currency.
- Native ads: Ads designed to match the app’s look and feel, blending with the content.
- Video ads: Short video spots, often skippable, ideal for storytelling.
6. Measurement and Optimization
Once ads are running, performance is tracked through metrics like impressions, CTR (click-through rate), CPI (cost per install), and ROAS (return on ad spend). Publishers and advertisers use this data to optimize campaigns such as adjusting targeting, formats, and creative assets to maximize engagement and revenue.
7. Revenue Models
In-app advertising typically runs on several pricing models, each tailored to different campaign goals:
- CPM (Cost Per Mille): Advertisers pay for every 1,000 impressions. Best suited for large-scale brand awareness campaigns.
- CPC (Cost Per Click): Payment occurs only when a user clicks the ad, making it ideal for driving engagement and traffic.
- CPI (Cost Per Install): Advertisers pay only when a user installs the app after interacting with an ad. Widely used in mobile app marketing where growth through installs is the primary objective.
- CPA (Cost Per Action): Costs are tied to specific user actions such as purchases, registrations, or subscriptions, ensuring campaigns focus on measurable ROI.
- Hybrid Models: A flexible mix of CPM, CPC, CPI, and CPA. This approach balances broad reach with performance-driven outcomes, often used by advertisers seeking both awareness and conversions.
Why Is In-App Advertising Important?
In-app advertising isn’t just another monetization tactic. It has become a cornerstone of the mobile economy, powering sustainable revenue for developers, delivering measurable ROI for advertisers, and providing users with access to free, high-quality apps. Here’s why it matters:
1. Revenue Generation for Developers
For many publishers, especially those offering free-to-play apps, in-app advertising is the primary monetization model. By earning revenue from impressions, clicks, installs, or in-app actions, developers can fund ongoing app development and deliver better user experiences without charging users directly.
2. Capturing Massive User Attention
- Over 90% of mobile time is spent in apps, not browsers (MobiLoud).
- The average smartphone user spends 3–5 hours daily inside apps.
- Global in-app ad spend is projected to exceed $350 billion in 2024–25 (The Brave.io).
This makes in-app advertising one of the most consistent and scalable ways to reach highly engaged audiences.
3. Better Engagement and ROI
- In-app ads deliver 1.5x higher click-through rates (CTR) compared to mobile web ads (Business of Apps).
- Rewarded ads in gaming apps achieve completion rates above 80%, making them far more effective than traditional ad formats.
- In e-commerce, personalized in-app ads can increase conversion rates by up to 200% compared to generic campaigns.
The result? Advertisers get better performance, and publishers gain higher revenues without sacrificing user trust.
4. Win-Win for Publishers and Users
In-app advertising creates value on both sides of the equation:
- Publishers rely on it as a sustainable revenue model, particularly for free apps.
- Users enjoy free or low-cost access to apps while benefiting from relevant or rewarded ads that enhance rather than interrupt the experience.
5. Efficiency Through Technology
Modern solutions like in-app header bidding ensure publishers maximize yield from every impression by letting advertisers compete in real time. At the same time, performance-based pricing models (CPM, CPC, CPI, and CPA) give advertisers the flexibility to pay only for the outcomes that matter most to their campaigns.
In-App Advertising Formats and Examples
In-app advertising comes in different shapes and sizes, each designed to capture attention without completely disrupting the user experience. Choosing the right format depends on the type of app, the audience, and the advertiser’s goals. Let’s break down the most common formats with real-world examples:
1. Banner Ads
- What it is: Small rectangular ads that appear at the top or bottom of the app screen.
- Pros: Simple, inexpensive, and non-intrusive.
- Cons: Limited space means lower engagement compared to other formats.
- Example: A news app displaying a banner ad for a local restaurant at the bottom of the article.
2. Interstitial Ads
- What it is: Full-screen ads that appear at natural transition points, such as between game levels or during app load screens.
- Pros: High visibility, better for brand awareness.
- Cons: Can feel disruptive if not timed well.
- Example: A mobile game showing a car ad after the player finishes a level.
3. Rewarded Video Ads
- What it is: Ads users choose to watch in exchange for rewards like in-game currency, discounts, or premium features.
- Pros: Extremely high engagement and positive user sentiment.
- Cons: Works best in gaming and entertainment apps; less suited to utility apps.
- Example: In Candy Crush, users watch a 30-second ad to earn extra moves.
4. Native Ads
- What it is: Ads designed to match the look and feel of the app’s interface.
- Pros: Less disruptive, blends seamlessly with content, higher click-through rates.
- Cons: Requires careful design to avoid misleading users.
- Example: An e-commerce app showing “sponsored” product listings alongside organic search results.
5. Video Ads (Non-Rewarded)
- What it is: Short videos, either skippable or non-skippable, that play during natural breaks in the app experience.
- Pros: Great for storytelling and brand awareness.
- Cons: Can frustrate users if unskippable or too frequent.
- Example: A streaming app showing a 15-second non-skippable ad before a TV episode begins.
6. Playable Ads
- What it is: Interactive ads, usually for other mobile games, that allow users to “try before they download.”
- Pros: Highly engaging, drives installs effectively for gaming apps.
- Cons: More complex to design.
- Example: A puzzle game ad letting users play a mini version of the game before prompting them to install.
7. Rich Media Ads
- What it is: Interactive ads that may include animations, swipe gestures, or expandable elements.
- Pros: Creates immersive experiences and strong engagement.
- Cons: Higher development costs and potential for longer load times.
- Example: A retail brand running a 3D shoe try-on ad within a shopping app.
Each in-app ad format serves a different purpose: banners for simple awareness, rewarded ads for engagement, interstitials for visibility, and native ads for seamless integration. The most successful publishers and advertisers mix formats strategically to maximize both revenue and user satisfaction.
In-App Revenue Models
In-app advertising operates on different pricing models, giving publishers multiple ways to monetize while allowing advertisers to choose based on their goals. Here’s a closer look:
1. CPM (Cost Per Mille)
How it works: Advertisers pay a fixed rate for every 1,000 ad impressions, regardless of clicks or installs.
- Best for: Building brand awareness at scale.
- Example: A fashion brand pays $8 CPM to show its banner ad to 100,000 users inside a lifestyle app, focusing purely on visibility.
- Why it matters: Ensures consistent revenue for publishers since payment is tied to impressions.
- Stat: The global average CPM for in-app display ads is ~$5.50, but in finance and e-commerce it can exceed $10.
2. CPC (Cost Per Click)
How it works: Advertisers pay only when a user clicks on an ad.
- Best for: Driving website visits, app store traffic, or product page views.
- Example: A food delivery app runs a native ad in a news app, paying $0.40 each time a user clicks and lands on the download page.
- Why it matters: Performance-focused and risk-friendly for advertisers since they only pay for engagement.
- Stat: Average in-app CPC ranges between $0.20–$0.60, depending on vertical and targeting.
3. CPI (Cost Per Install)
How it works: Advertisers pay only when a user installs the app after clicking or interacting with an ad.
- Best for: App marketers looking to acquire new users.
- Example: A gaming company runs playable ads in another game and pays $1.50 each time someone installs their game after trying the demo.
- Why it matters: Extremely popular in mobile marketing because it directly ties spend to growth.
- Stat: Global CPI averages $1.25 on Android and $1.75 on iOS, but CPIs in the U.S. can reach $3–$5+.
4. CPA (Cost Per Action)
How it works: Advertisers pay only when a user completes a specific action after engaging with an ad (purchase, registration, subscription, etc.).
- Best for: Performance-driven campaigns focused on ROI.
- Example: An e-commerce app pays $12 when a new user not only installs the app but also makes their first purchase.
- Why it matters: Guarantees advertisers are paying for high-value outcomes, not just impressions or installs.
- Stat: CPA rates vary widely but often range between $5–$20+ depending on the value of the action.
5. Hybrid Models
How it works: Combines different revenue models for flexibility, often using CPM for awareness campaigns and CPI/CPA for user acquisition.
- Best for: Complex campaigns where advertisers want both reach and measurable outcomes.
- Example: A fintech app pays on CPM to build awareness through banner ads but switches to CPI/CPA for install and sign-up campaigns.
- Why it matters: Helps balance scale (via impressions) with performance (via installs/actions).
In-App Advertising Best Practices
1. Leverage AI-Driven App Store Optimization (ASO)
- AI tools analyze user intent and competitor trends to optimize app titles, keywords, and visuals.
- Strong ASO increases installs organically, creating more opportunities for in-app ad monetization.
2. Diversify Paid Channels
- Move beyond Google and Meta by testing TikTok, Connected TV (CTV), and retail media for cheaper CPIs.
- Diversification spreads risk and helps reach niche, high-intent audiences not active on traditional platforms.
3. Invest in Rewarded Ads
- Rewarded video ads offer users in-app perks (coins, lives, discounts) in exchange for watching an ad.
- These formats achieve high completion rates (often above 80%), making them popular with both users and advertisers.
4. Adopt Native & Contextual Ads
- Native ads blend seamlessly with app content, creating a less disruptive ad experience.
- Contextual targeting ensures ads are relevant to what users are doing in the app, boosting engagement and trust.
5. Harness First-Party Data for Personalization
- Collect behavioral and preference data directly from your app to personalize ad experiences.
- First-party data future-proofs targeting strategies against privacy changes like ATT (Apple) and Google’s Privacy Sandbox.
6. Use Influencer Marketing & UGC
- Partner with influencers to create authentic content that resonates with their followers.
- Repurpose influencer-generated content (UGC) as in-app ads for higher trust and engagement.
7. Referral Programs & Gamification
- Encourage users to invite friends with incentives like bonus credits, discounts, or exclusive features.
- Add gamified elements (leaderboards, streaks, badges) to make referrals fun and viral.
8. Experiment with Playable & Interactive Ads
- Playable ads let users try a mini-version of a game or product before downloading.
- Interactive ads (swipe, tap, expand) keep users engaged longer and improve conversion rates.
9. Implement Smart Frequency Capping
- Limit the number of times an ad appears to the same user within a set time frame.
- Prevents ad fatigue, protects user retention, and balances revenue with experience.
10. Measure with Privacy-Safe Analytics
- Use incrementality testing, cohort analysis, and media mix modeling (MMM) to measure performance without invasive tracking.
- Adopt attribution tools like Apple’s SKAdNetwork to stay compliant while still capturing insights.
Conclusion
In-app advertising remains one of the most effective ways for publishers to monetize their apps while keeping them accessible to a broad user base. When implemented thoughtfully, with the right formats, placements, and partners, it can drive meaningful revenue without sacrificing user experience.
Success lies in finding the balance between monetization and engagement. By staying informed on trends, using data to optimize performance, and choosing ad partners that align with your goals, publishers can turn in-app ads into a long-term, scalable growth strategy.
Ready to Monetize Smarter?
UndrAds helps app publishers increase ad revenue without compromising user satisfaction. With intelligent ad placements, real-time optimization, and dedicated support, UndrAds makes monetization seamless and sustainable.
Start growing your app revenue with UndrAds today. Contact Us.