Google (GOOGL 0.43%) and AOL (NYSE: AOL) recently tipped their hands regarding where they believe mobile app space is going. Both companies invested in an in-app company named Vungle. Along with several other companies, the total invested was $17 million.
What Vungle does is work on the integration of 15-second video ads that play within Android and iOS apps. These high-definition streaming video ads are considered to be the future of digital ads because they are more difficult to ignore and marketers are willing to pay a good price for their placement.
The service offered by Vungle helps streaming ads run without glitches and places them in a manner that mobile users don't consider to be overly intrusive. The company's platform is currently viewed by over 100 million users on a monthly basis.
Vungle will use the invested capital to develop tools app developers can monetize. Google, AOL, and other investors hope to get a piece of that action.
AOL's mobile video strategy
As far as digital streaming ad views, AOL is now the market leader. Part of that is because of its acquisition of Adap.tv. This has positioned AOL for the overall strength of streaming video ads in general and streaming mobile video ads in particular.
Where AOL leads in is in total digital video ads viewed. It surpassed Google in the latter part of 2013 because advertisers are looking for premium content to place advertising against, rather than the predominantly user-generated content Google offers via YouTube.
AOL has to continue to provide and grow premium content in order to remain competitive and continue its growth.
Google's mobile strategy
Much of Google's streaming ad strategy is related to its highly popular YouTube property. The tech giant is focusing on boosting the quality of content so that advertisers feel safe about placing their brands there.
In that vein, Google is looking for numerous brands to build their own YouTube channels to create the premium content it needs to attract marketers. If it is able to effectively build out that part of the business, it will gain market share and make it an even more compelling company to invest in.
While mobile ads are the growth area of the future, it's the video ads that will garner the most revenue as that market grows and unfolds.
Yahoo!'s mobile growth
There is a caveat in the in-app segment, and this is the fact that companies are hearing what consumers want and are making their websites more user-friendly. This could slow down demand for apps.
For example, Yahoo! (NASDAQ: YHOO) has really ramped up its mobile business, increasing its user base to 400 million monthly users over a period of 14 months.
The company said in it most recent earnings release that by 2017 there should be about 2.7 billion smartphones being used. Smartphone users check their phones over 150 times a day on average, to give an idea of how much interaction people have with their devices.
Yahoo! says that about 50% of its users are on its Yahoo! network, and this points to some serious engagement. What remains to be seen is if the growing number of customers prefer the website or in-app as the option of choice.
The improvement of web design doesn't concern Vungle CEO Zain Jaffer, however, as he says that about 80% of mobile time is spent in-app. He sees this continuing for some time to come.
It looks like the momentum of in-app growth is sustainable, which means that AOL and Google have made a good move by investing in Vungle. Even if there is a slowdown, it will probably take a number of years before mobile users forego apps for a high-quality site. That time will probably come, but not now.
Even with the strong growth of in-app usage, that's not to say other mobile ads won't be profitable. What investors need to look for is companies that are positioned in all the different types of mobile ads, as that is the growth catalyst of the future in the digital segment.