In order to acquire new users, application developers are spending more than ever on advertising. Social network ad spending is expected to reach $1.3 billion by 2010, according to eMarketer.
Developers have been turning away from more traditional advertising models, like cost-per-mille (CPM) and cost-per-click (CPC), in favor of cost-per-install (CPI; a developer only pays for ads that result in a user installing his or her application). Because developers only pay for installs, many of them assume that CPI is more cost-effective and results in better lead quality than other advertising models. According to Netvibes, a leading widget marketing platform, CPI advertising is “purely performance based.”
But what is the relationship between installs and performance? Installing an application is the first step to becoming an active, engaged user, but it does not guarantee active engagement. Developers who run large CPI campaigns consistently show initial spikes in user growth, followed by a quick drop-off in usage, which raises doubts about the claim that CPI advertising is “purely performance based.”
Incentivized CPI advertising, in which a user earns virtual currency in one application by installing another application, has resulted in even poorer lead quality and retention. A top Facebook application recently told us that they ran two separate incentivized CPI campaigns and found that not a single user that they acquired from these two campaigns ended up staying with the service. The “users” that had installed the application were motivated primarily by the offer of free virtual currency and cared very little about engaging with the newly-installed application.
Clearly, it is time to rethink CPI advertising. Rather than treating CPI advertising as a better alternative to other advertising models, developers should instead capitalize on its unique benefits. Installs give developers access to valuable information about their new customers, including age, gender, location, interests, marital status, educational background, friends, and more. Developers also acquire reliable communication channels, which allow them to talk to their customers and engage in relationship marketing so that they may maintain sustained, valuable customer relationships.