August 1, 2013, 12:46 PM

Gaining new app users via mobile ads is getting more expensive

The cost to get an app user via a mobile app install ad rises by 12.8%.

Amy Dusto

Associate Editor

Lead Photo

The cost of gaining new iPhone app users via mobile ads linking customers to a download is rising, new research from mobile marketing platform provider Fiksu Inc. finds.

The cost of using such ads to gain a loyal iPhone app customer—one who opens an app at least three times in total— rose by 12.8% in June, it says. Advertisers paid $1.50 on average for such app users customers last month, up from $1.33 in May.

Fiksu measures the aggregate volume of U.S. daily downloads of the highest-ranked 200 free iPhone apps in the Apple App Store, through its App Store Competitive Index. It also measures the average cost of acquiring a loyal customer via mobile advertising in its Fiksu Cost per Loyal User Index. The company collects data on 131 billion app actions, including consumers registering their personal information in apps and in-app purchases, as well as pricing on mobile advertising networks from the apps using its platform for automated app marketing, a spokeswoman says.

Last month’s price change for mobile app install ads reflects the increasing popularity of mobile advertising on Facebook, Fiksu says. “We anticipate that costs will continue to creep up as brands large and small ramp up their spending on Facebook, driving greater competition,” Fiksu writes in its analysis of the findings.

Facebook’s mobile app install ads appear to mobile users in the news feed on the social network’s app and mobile site. The ads encourage consumers to download various apps right then to their smartphone with a few taps. Fiksu does not break out the costs or volume of mobile ads on Facebook specifically in its indices, but looks at the effect advertising on the social network has on mobile ad prices and app downloads.

“It’s no wonder that brands are starting to ramp up their spending on Facebook mobile app install ads as they are driving large volumes of qualified users at extremely cost-effective rates,” says Micah Adler, Fiksu CEO. “Now really is the best time to invest in Facebook campaigns while costs remain comparatively low and before competition starts to heat up.”

Facebook says mobile ads accounted for 41% of its ad revenue in the second quarter. Mobile ad revenue in Q2 totaled $655.6 million in Q2, up 75.5% from $373.5 million in Q1. The social network announced in recent months that it is refashioning itself into a mobile-first platform to address concerns about how it will meet advertising demands as more consumers use smartphones and tablets rather than desktops.

In addition to Facebook’s influence, June’s overall increase in costs for acquiring loyal iPhone app users  via mobile ads is in part a seasonal effect, Fiksu says. The year-over-year cost increase last month was 4%, it says. Meanwhile, last year the month-over-month cost increase from May to June was 14%, nearly consistent with this year’s month-over-month rise. Consumers tend to download fewer apps in the summer months, lowering the return on investment for mobile app install ads, Fiksu says.

In June, there were 5.6 million daily downloads of the highest-ranked 200 free iPhone apps in the App Store, in total, down 5.1% from 5.9 million daily downloads in May, the vendor says. Still, the overall volume of daily downloads of those apps in June was up 22% year-over-year. 199 retailers in the 2013 Internet Retailer Mobile 400 have iPhone apps.

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