Turning mobile Web browsers into customers may present a challenge for many retailers and service providers. Many online sellers have developed native apps for iOS and Android to produce a better customer experience. The only problem is, people have to download the app.
Facebook (NASDAQ:FB) has quickly become the top platform for developers to promote their apps with app-install ads. Google (NASDAQ:GOOG) (NASDAQ:GOOGL) also offers app-install ads and has been working to index content in apps to include them in its mobile search results pages using deep linking.
Last week, Facebook introduced a way for developers to link to specific content within an app with its app-install ads, a feature that was previously available only on its app-engagement ads. As Facebook explained: "For example, if a travel app is running mobile app install ads featuring a vacation to San Francisco, people who install the app and open it will be taken directly to information about the San Francisco offer."
The feature follows efforts by Google to include links to content within apps not yet installed on users' smartphones within its search results.
Every step a potential customer has to take between seeing a product and purchasing it creates friction. With Facebook's new app-install ad, it's removing at least one step -- finding the thing that sparked interest in downloading the app in the first place. Users may otherwise download the app, open it, and completely forget why they downloaded the app in the first place, getting lost in other features.
By opening directly to specific content -- say a hotel in San Francisco -- it's more likely for the app download to convert into a purchase. Since a purchase is the ultimate goal for most app-install ads, deep linking to a specific part of the app makes the ads more valuable.
However, that alone doesn't mean Facebook will see a meaningful increase in ad prices for app-install ads. Management pointed out in its first-quarter conference call that all ad types are on the same bidding system, so a video ad is only more expensive than a static ad if the video advertiser is willing to pay more than the static advertiser.
But Facebook is currently seeing strong demand for advertisements on its platform. Ad prices increased 285% last quarter while ad impressions declined 62% because of changes to its right-hand column and a shift in its user base to mobile. That means it's likely some app-install advertisers are getting outbid. With the update, app-install advertisers would be able to increase their bid (because of the higher expected return on investment), which would increase Facebook's average ad prices.
But the competition isn't standing still
As mentioned, Google rolled out a similar feature in its mobile Web search results, which lets Web searchers install apps directly from search results. Google doesn't charge for this service, but it does benefit from app installs and in-app purchases on Android through Google Play. It's simply giving developers incentive to index their apps using Google's App Indexing tool.
Getting more apps indexed allows Google to provide better search results for users, but it could also use that data to help sell more app-install ads in the future. Google currently favors Android developers, which puts it at something of a disadvantage, considering iOS users typically spend more on apps. Nonetheless, Google's ubiquity on mobile as a search engine makes it a formidable competitor for app-install ad spend.
Deep linking into a freshly installed app isn't a hard feature to copy, so it's only a matter of time before other competitors in the space offer similar functionality. So the idea that the new feature will draw more ad spend from developers doesn't hold any weight. Still, Facebook's breadth of advertisers of all kinds on its platform ensures that adding value to any one type of ad unit should increase its ad revenue.
Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, 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.