How can a mobile platform owner and an app developer maximize in-app advertising revenues?
Alberta School of Business researcher finds:
- An app can be more successful if both the platform owner (e.g., Google, Apple) and the app developer (e.g., GasBuddy) share revenue and promotion costs.
- The platform owner should promote the app and delay ad display until a critical mass of users is reached.
- If users respond positively, the app developer should increase investment in promotion to supplement the platform owner's activities. Otherwise, the app developer should rely on the platform owner to promote the app.
Monetizing the growth of mobile platforms is increasingly important as more and more users adopt mobile platforms such as the Google’s Android OS and the Apple’s iOS. In this study, we use a differential game theoretical model to study the problem of joint advertising investment and in‐app advertising adoption decisions by platform owners and app developers on a mobile platform. A key finding is that a platform owner may delay or even not offer an in‐app advertising program if the revenue from such a program is low, which could explain the termination of Apple’s iAd in‐app advertising program. One unexpected result is that when determining advertising effort or the timing of an in‐app advertising program, a platform owner does not need to consider the app developer’s advertising effectiveness. Another interesting result is that an app developer acts strategically with an increase in ease of app searching: he either follows the platform owner to increase advertising or decreases it to take a free ride, depending on the effectiveness of his advertising effort. Finally, our analysis shows that in order to coordinate the mobile platform system, a central planner should adopt a mixed transfer payment scheme that includes both revenue sharing and advertising cost sharing, regardless of whether competition exists.
The article, "Monetization on mobile platforms: Balancing in-App advertising and user base growth" by Yonghua Ji is published in the Production and Operations Management.
Yonghua Ji is an Associate Professor of Information Systems at the Alberta School of Business. He obtained a BS from University of Science and Technology of China, an MS from the University of Washington, and a PhD in Management Science from the University of Texas at Dallas. His research interests are in the areas of information security, online advertising, technology outsourcing and machine learning. His ongoing projects examine the impact of government outsourcing contracts on high-tech firms’ performance and earnings.