What is Hybrid Monetization?

May 20, 2021

Hybrid monetization is a blend of different approaches when it comes to how apps, including mobile games, make money. The hybrid monetization model uses a combination of in-app ads and in-app purchases (IAP) together to maximize revenue. Think of it as “meeting in the middle” to get the best of both worlds and strategically placed throughout the app or game. The goal is for developers to maximize lifetime value (LTV) by using any number of those combinations together.

Tony Deane, AppLovin’s Business Development Manager said hybrid monetization is a strategy to improve an app’s user base, and explained, “It helps extend your overall lifetime value. Today, with such diversity in mobile apps, developers need to leverage analytics to grow their users. A hybrid monetization approach helps you do just that by integrating ads in the best way possible to maximize revenue.”

Where did hybrid monetization come from?

Back in the day, the ways to make money in an app were limited. Users could either pay to download or make an in-app purchase. Developers also made money from banner ads and impressions. It was a solid way for developers to turn to new ways to improve their streams of revenue.

Michael Fortune, AppLovin’s Director of Field Marketing and Partnerships, explained, “In the early days when Apple’s App Store recently launched, there were only two ways to make money—one was from selling your app and the other was to set up in-app purchases. But only about 5 percent of users were contributing to revenue. So that meant about 95 percent of users were not being monetized, and this is really what gave rise to in-app advertising.”

In many cases, users weren’t spending as much money on IAP in a given month, so developers turned to new ways to improve their streams of revenue. 

As the market became more competitive, developers began coming up with new ways to serve ads and diversify their monetization strategies. This included improving the experience of how ads are interwoven with the app experience. For example, users could earn currency, unlock features, or upgrade performance by watching an ad.

Hybrid monetization for mobile gaming apps

In the gaming world, there are a few ways to think about how monetization strategies and types of games can intersect.

For hyper-casual games, monetization usually revolves around ads. This is because the genre embraces and benefits from a skill level that is usually simple, which makes these games accessible to a wider audience.

As the level of mastery goes up (think: simulation and casual games), a hybrid monetization combination of both ads and IAP is used. Beyond that, the main monetization method is IAP, especially for role-playing and strategy games. 

What are rewarded video ads?

As the ad technology evolved, developers discovered that rewarded video ads, which are ads that are shown to users, are effective ways to improve their monetization strategy.

Michael explained the benefits behind rewarded videos, which led to the success of these types of ad formats, saying, “Rewarded videos created a value exchange across all parties—advertisers were able to get their content in front of consumers and build a positive association with their ads, and developers could use video in an opt-in format that provided a high-quality user experience. Users would benefit by taking advantage of the reward, for example, in some type of virtual currency if it’s a mobile game, or if it’s a communication app, users could be given credits to text or call their friends.”

These videos can even give users an overview of what in-app purchases are available for them to buy. 

Designing the ad into the app

To create a seamless ad experience for users, sometimes ads are designed into the actual app. If it’s a mobile game, for instance, it could offer the player an extra life for watching a quick ad or a special weapon to progress to the next level. 

Cyril Cael, Senior Manager of Business Development at AppLovin explained, “High quality and popular free games mean a high-quality in-game monetization. It boils down to finding a way to integrate IAP and ads in a way that doesn’t feel obtrusive or essential to the core of the gameplay.”

In-app bidding and what it means for developers

In-app bidding, which is an advertising method where mobile developers are able to sell their ad inventory in an auction, has changed the monetization landscape for developers. 

Michael pointed out, “Developers were able to run a simultaneous auction where they’re able to maximize the value of an impression from a variety of demand partners. Because this is an automated process, it actually gives developers a lot of time back and they’re also able to create more competition for their bidding partners, leading to higher LTVs. So it’s really ushered in a new wave of developers who are leading with ad monetization rather than it having it be a complementary revenue stream.”

It created a fair ecosystem, allowing developers to benefit and gave them an opportunity in real-time to maximize the value for each ad impression, which has led to substantial growth for their businesses.

This has also been a time-saver for developers, as the old way of doing it was through a system called a waterfall, which refers to a less efficient method of ad buying. The waterfall organizes ad networks in a way that uses historical data to try to predict which networks will yield the highest CPMs to increase revenue for publishers.

Did you know? MAX, which is AppLovin’s in-app bidding-based, monetization solution, saved developers hours of work through automation while providing users a better in-app experience.

Other types of ads to help you monetize: Banner ads and interstitial ads

Since the hybrid monetization model stemmed from more traditional ways to present ads, it’s helpful to know more about the different kinds of ads. 

Passive ad experiences

There was a time when apps and websites were all about banner ads, which take up the bottom or top portion of a screen. They can appear as a video, image, or text. 

Banner ads are considered a passive ad experience, as in, the user doesn’t need to do anything. Banner ads are ideal for apps that drive a high volume of traffic and users since they are based on impressions. 

Interstitial ads are full-screen overlays and are more engaging than banner ads. For mobile games, these types of ads are ideal to include in the natural breaks within the game.  

Interstitial ads don’t generate as many impressions as banner ads but they typically have higher CPMs, or cost per thousand impressions, which may yield more significant ad revenue.

The impact of iOS 14 privacy changes and hybrid monetization

With the changes we’re seeing with iOS 14, it’s a lot more important for iOS developers to have a full-stack monetization platform that is able to monetize both segments of users, those who have opted in to IDFA and those who have opted out.

Michael added, “With a solution like MAX, you’re able to split your waterfall into different cohorts to ensure you’re monetizing each segment effectively.”

Hybrid monetization will continue to evolve

As the mobile ad industry changes, so will monetization strategies. New hybrids will enter the scene as developers continue to test what resonates with players and users. 

The most successful developers and app companies turn to hybrid models and maximize profits using a combination of strategies. 

Are you new to mobile gaming and thinking of creating your first game?

Watch our App Hacks video series with AppLovin’s Head of Games, Keith Kawahata, who walks you through a checklist (part one) and user engagement and marketability (part two).

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