App-install ads have become the darling of mobile advertising. They've become the foundation for Facebook's (NASDAQ:FB) mobile ad business, with some analysts estimating the ad format accounts for about half of the company's total mobile ad revenue. Flurry estimates app developers spent $6 billion worldwide on app-install ads last year.
The growth in Facebook's business is much to the chagrin of Google (NASDAQ:GOOG) (NASDAQ:GOOGL), which offers app-install ads for display in other apps, including some of its own. But Google has announced some new features to advertisers on its AdMob platform that will leverage two of the main advantages the company has over Facebook.
Mobile web display ads
Google dominates display advertising on the web and the shift to mobile hasn't changed that fact. What changed is that apps became the preferred way of accessing the Internet, rather than mobile web browsers. Still, 14% of time spent on mobile devices is with a mobile web browser. The only app that's used more is Facebook.
What's more, advertising on the mobile web accounts for more than one-fourth of total mobile ad spend. eMarketer expects that split between web and apps to be relatively stable even as the market grows rapidly.
That's why it's notable that Google is extending its app install ads to the mobile web with its Google Display Network. GDN reaches 2 million publishers' websites on top of the 650,000 apps working with AdMob.
The move should help Google to increase its average cost-per-click by placing high value app install ads in place of typical display advertisements. Because Google's ad units operate on a bidding system, simply adding more advertisers to the mix will help boost Google's ad prices.
Paid app data
One of the biggest advantages Google has in mobile app advertising is that it knows which users spend money on apps, and which ones don't. This is extremely valuable data for developers because they don't want to waste money advertising to people who won't spend money to buy the app or pay for in-app purchases.
Another feature Google rolled out to advertisers last week was its Conversion Optimizer for in-app buyers. Conversion Optimizer for in-app buyers will change an advertisers' bid based on the probability that a person viewing the ad will download the app and spend money on it. Naturally, this will increase Google's average cost per click, but will require developers to buy fewer impressions in order to receive the same return. Google can still sell the additional inventory to other advertisers.
Keep in mind, every time one of Google's app-install ads converts on an Android device, it profits doubly. One from the ad payment, and the second time from the app install and subsequent purchases. Therefore, Google may be able to offer better conversions than Facebook at very competitive prices by factoring in its second revenue stream.
One of the fastest growing markets
The U.S. market for app-install ads is expected to grow 80% in 2015. Analysts' estimates peg Facebook's global revenue from app-install ads around $3.7 billion in 2014. If Facebook keeps pace with the market, the social network would add nearly $3 billion in additional app-install ad spending in 2015, accounting for more app-install ad spend than the entire estimated market size in 2014 ($6 billion).
However, Google is doing everything it can to ensure that Facebook doesn't dominate the market like it has in the early going. Google is leveraging its own strengths, and it's matching Facebook's capabilities in other aspects. Providing developers with a broader reach and more targeted ads could help it cut into Facebook's lead.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.