Why Ecommerce Marketers Are Excited About AppLovin

What Does AppLovin Do?

Founded in 2012, AppLovin has become an important player in the mobile gaming and advertising ecosystem. They run two business segments.

First, they own a network of mobile games that generate revenue through in-app purchases.

Second, and that’s what the hype is about, is a software business that gives mobile app developers (gaming and non-gaming apps) tools to distribute and monetize their apps.

Now since many mobile games are free to use (“freemium”), app publishers monetize their apps via ads. AppLovin helps them by aggregating the supply of game inventory and allows other developers to bid on this ad inventory to promote their own apps. In its core, AppLovin has three key products:

AppDiscovery: User Acquisition

‍AppDiscovery serves as their original advertising platform, facilitating performance-based advertising campaigns for user acquisition. By leveraging AppLovin’s machine learning engine (“Axon”), AppDiscovery matches advertisers with app publishers, optimizing ad placements to achieve specific performance targets like app installs. This approach enables advertisers to acquire high-quality users efficiently.

MAX: Maximizing Ad Revenue

The MAX mediation platform empowers app publishers to run real-time competitive auctions for their ad inventory, aiming to maximize revenues. Offered free of charge to publishers, MAX generates revenue by charging third-party advertisers a fee for bidding through the platform.

This process is called mediation and with over 60% market share, MAX is the leading mediation player in the mobile ad space. AppLovin grew its market share in mediation through its acquisition of “MoPub” from Twitter in 2022. This step turned out to be crucial since MAX gives them extensive data to refine their ad targeting algorithms, making their advertising campaigns super efficient.

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Adjust: Analytics for Mobile App Advertisers

AppLovin bought Adjust, a Berlin based attribution software company helping advertisers in attributing credit for installs and user engagement to specific marketing campaigns. This tool offers valuable insights into campaign performance, enabling developers to make data-driven decisions to optimize their marketing efforts.

By integrating these components—AppDiscovery, MAX, and Adjust—AppLovin delivers a strong platform that supports app developers with user acquisition, monetization, and analytics. The synergy between these tools, powered by the Axon engine, positions them as a leader in the mobile advertising industry.

How Does Advertising On AppLovin Work?

The AppLovin Exchange (ALX) is a mobile ad exchange platform that connects advertisers with 140.000 mobile apps to facilitate the buying and selling of ad space. Here's a breakdown of how it operates:

1. Publishers Offer Ad Space:Mobile app developers have available ad slots within their apps. They list these slots on ALX, making them accessible to potential advertisers. It is important to remember that most mobile app games run as “Freemium” models, meaning that users are playing the games for free in exchange for watching ads. In Meta terms, it means a 100% thumb-stop rate, users are not allowed to skip the ad.
2. Advertisers Place Bids:Advertisers submit bids to display their ads in these available slots. This process is conducted through real-time bidding (RTB), where advertisers compete to secure ad placements. Advertisers can choose between mobile ad formats familiar to Meta advertisers, like video or  image ads, and the ads are natively integrated into the app.

3. Real-Time Auction:ALX conducts an instantaneous auction for each ad impression. The platform evaluates all incoming bids and selects the highest one, ensuring that publishers receive the best possible revenue for their ad space.
4. Ad Display:Once a winning bid is determined, the corresponding ad is displayed to the user within the app. In most cases, the app user cannot click away the ad, which makes ad placements more attractive for advertisers.
5. Performance Tracking:Both advertisers and publishers can monitor the performance of the ads through ALX's analytics tools. This data provides insights into user engagement and the effectiveness of the advertising campaigns.

By streamlining this process, ALX offers a transparent and efficient marketplace for mobile in-app advertising.

Historically, only mobile apps were allowed to advertise via AppLovin. But AppLovin took the strategic decision to open their ad exchange to ecommerce advertisers, entering a market that is significantly larger than the mobile app ads market and is dominated by Meta and Google.

Why Ecommerce Marketers Are Excited about AppLovin?

And as we all know, ecommerce marketers are not happy about their dependence on big tech platforms for acquiring new customers. That’s also why ecommerce marketers get very excited when they see a new channel coming up.

And AppLovin offers a new channel for in-app advertising to the vast audience of mobile app users. This audience does not only consist of underage gamers but is skewing towards an older female audience with strong buying power.

For a few months, ecommerce brands with large ad spends on Meta have been invited to test AppLovin’s ad platform. Looking under the hood, how does advertising on AppLovin differ from advertising on Meta?

AppLovin vs. Meta Advertising

Both AppLovin's Axon engine and Meta's advertising platform leverage AI to optimize ad delivery, but they differ in data sources and targeting methods.

Data Sources

• AppLovin:Axon utilizes machine learning algorithms trained on extensive first-party data from their portfolio of mobile games and ad platforms. This data encompasses trillions of daily in-app events, enabling Axon to predict user behavior and preferences accurately.
  
  
• Meta:Meta's platform relies on vast amounts of user-generated data from its social media services, including Facebook and Instagram. This data includes user demographics, interests, and behaviors, which Meta uses to create detailed user profiles.

Targeting

• AppLovin:Axon focuses on in-app advertising within mobile games, delivering ads that are contextually relevant to the gaming experience. AppLovin has less access to user-level data (than Meta), and their ad targeting is based on the context of the app users (i.e. which game they are playing), rather than on individual user level data.
  
  Only if AppLovin manages to reliably map different contexts, will their algorithms be able to serve the right ads to the right app users, thereby increasing the likelihood of user interaction and conversion. It is important to understand that AppLovin cannot target on user-level data, therefore, they will also struggle to exclude lists of existing customers from customer acquisition campaigns.
  
  This is common practice in ecommerce marketing and might pose a big challenge for AppLovin.

• Meta:Meta's advertising platform delivers ads across its social media services, appearing in users' news feeds, stories, and other placements. These ads are designed to blend with organic content, aiming to capture user attention without disrupting the browsing experience.
  
  Since Apple’s privacy updates, Meta has access to less user-level data, therefore precise targeting based on demographics or audiences is not possible anymore. Instead, Meta targets based on the engagement rates with different creatives.

Performance and Efficiency

Both platforms have demonstrated great success in optimizing ad delivery and improving return on investment for advertisers. Axon 2.0 has been credited with driving substantial revenue growth, with the company's software platform segment growing by 66% year-over-year to $835 million in Q3 2024. Similarly, Meta's advertising platform has been a major revenue driver, leveraging its extensive user deliver effective advertising solutions.

Key Takeaways for Ecommerce Marketers

We believe that AppLovin offers a huge opportunity for ecommerce marketers because

• Creatives:Ad buyers can use the same image or video creatives that they use on Meta, without having to adapt to new content styles and quirks like TikTok is forcing them to do. Until today, brands still struggle to adjust to TikTok’s raw, uncut formats that perform well on TikTok. This makes it easy to start.
• Audience:It might sound counterintuitive to some, but most of the audiences for mobile apps are skewing toward female and older audiences. It is not only kids playing mobile games, but older generations spends hours using mobile apps and games, and do not seem to mind clicking on ecommerce ads
• Efficiency:Their AI capabilities enable ecommerce merchants to deliver personalized ads to potential customers, increasing the likelihood of engagement and sales. Currently, ecommerce brands testing AppLovin report high returns and incrementality, although any final conclusions cannot be made. A big caveat is that AppLovin does not allow to exclude existing customers from ad targeting, which in the long term can lower the long term potential of the channel.
• Scalability:Their network of apps have 1.4 billion daily active users (DAUs) worldwide, compared to 3.3 billion DAUs at Meta. It's a vast pool of users that advertisers can target. And first results from ecommerce brands show that they can scale to similar ad spend levels like on Meta and the return on ad spend results look very strong.
• Attribution:AppLovin measures the performance of their ads with a 7-day click attribution window, which is a robust measurement framework that many Meta advertisers also apply for their campaigns.

This allows advertisers to measure the impact of their campaigns, and compare them to other channels. In contrast, TikTok is still trying to introduce new attribution methods, focusing on longer attribution windows and view (rather than click) events. Every ad platform will try to display its impact in the best light, but for now, they seem to play according to the same rules that ecommerce advertisers are used to.

Conclusion

AppLovin's use of AI in mobile advertising offers ecommerce merchants a promising channel to diversify from traditional channels and tap into new growth potential. The ad platform is only available to US ecommerce advertisers who spend moren than $20K per day. And it is not available for European advertisers yet. But we will closely follow whether AppLovin will emerge as a solid channel for ecommerce, or fade as just another trend.

What is clear is that ecommerce marketers will need to continue innovating on mobile shopping experiences that can perform well in different contexts and across mobile channels. It is challenging to efficiently convert users who come to your store after watching short videos, but how to convert users who have been playing CandyCrush?

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