After growing 70% in 2014, the in-app advertising market is poised to triple in size by 2018, according to a recent report from IDC and App Annie. I estimate the market to be about $25 billion in 2014 based on an estimate from eMarketer that put in-app ad spend at $13.67 billion in the U.S. alone, and a separate estimate that says the U.S. will account for approximately 44% of global mobile ad spend this year.
That means the amount of spending on in-app advertisements is set to explode during the next four years, adding more than $10 billion in total ad dollars per year. There are three main companies set to benefit from this rapid shift in spending: Google (NASDAQ:GOOGL) (NASDAQ:GOOG), Facebook (NASDAQ:FB), and Twitter (NYSE:TWTR).
Google's mobile struggles
While it's hard to say Google is really struggling with mobile -- it still accounts for around 40% of the market -- it simply doesn't dominate the display ad market like it once did on desktop. Most of that market share comes from Google's excellent positions in search and mobile web advertising, but the company is significantly weaker on in-app advertising. What's more, its share in mobile is shrinking rapidly as competitors innovate and attract more developers, and users shift to more app usage over mobile web usage.
Google has remained quiet in how its mobile ad business is going. It doesn't break out its mobile ad revenue, and simply aggregates its average cost-per-click across all of its ad units. Perhaps guess Google is taking the grade-school advice, "If you don't have anything nice to say, don't say anything at all."
Google does have strengths. It controls its own apps, like YouTube and Google Maps, which are extremely popular and make it relatively easy to target ads to users. It also exercises some control over the most popular mobile operating system and app store in the world, Android and Google Play, which may sway some developers to stick with Google's software development kit and the monetization capabilities that come along with it.
Additionally, that same IDC/App Annie report shows app-store revenue is poised to double through 2018, so Google is hardly missing out on the significant growth in the app economy.
Twitter is going after the fastest-growing mobile ad markets
Twitter acquired MoPub, the leading ad server for mobile developers, in 2013, for $350 million. The acquisition gave Twitter a foothold in the mobile ad market outside of its own app, and Twitter has been able to extend its own ad units to third-party developers through the property. But the key to Twitter's future success with MoPub and third-party developers is its new software development kit -- Fabric
Fabric includes several key differentiating features. Most notably, Fabric includes a new sign-up process called Digits, which eschews email addresses in favor of sending a confirmation code to a phone via text.
That feature is particularly useful in developing markets, where mobile devices are typically a user's primary computing device, and signing up for email isn't necessary. The feature gives Twitter a strong position in some of the markets that skew heavily toward in-app ads over app-store purchases, like India and Brazil.
Facebook is coming on strong
Facebook recently announced an addition to its LiveRail property to support native and display ads within mobile apps. It's also layering Facebook's targeting data on top of LiveRail's current system, which relies on cookies.
The improvements to LiveRail are just the latest efforts on Facebook's part to move its advertising business beyond its own apps and website. The company bought Atlas in 2013, and it relaunched the demand-side platform last year. It added cross-device retargeting and improved tracking capabilities.
Additionally, Facebook launched the Facebook Ad Network, which extends Facebook ads to other apps. LiveRail was the third piece to the puzzle, which works with developers to fill ad inventory from exchanges (like Facebook Ad Network), or demand-side platforms (like Atlas).
Facebook also benefits from the fact that it owns the most popular apps in the world, with Facebook, Instagram, Messenger, and WhatsApp. The former provide advertising opportunities, while the latter offer the potential to gather data on users. With the new capabilities for users to connect with businesses via Messenger, for example, Facebook can gather valuable retargeting data for use across its partners' apps.
Who's your money on?
Facebook appears very well-positioned to capitalize on the huge growth in in-app ad spending. There's plenty of growth to go around, but Facebook's superior targeting capabilities will allow it to average higher costs per click than Google or Twitter. That, alone, gives it an advantage in ad dollars, as well as attracting developers. Facebook finally has all the pieces in place to monetize other apps, and has shown excellent strength in monetizing its own app.
Twitter also has a strong value proposition for developers -- especially in developing markets where ad revenue accounts for a large percentage of total app revenue.
Overall, I'd expect Twitter and Facebook to grab overall mobile advertising share from Google, and account for the majority of in-app advertising growth going forward.