Building a Business with AdSupported iPhone Apps

Can iPhone developers make a living solely based on revenue earned from in-app advertising? Optime Software thinks so. It's a shining example of an iPhone app publisher that has found success in the App Store by offering beloved classic games as free, ad-supported apps. And this business model appears to be paying off for Optime Software because its free apps were downloaded more than 2 million times just in 2008. By constantly refining the user interfaces and utilizing smart cross-promotion tactics within its apps and across free advertising exchanges, many of its free apps continue to remain in the Top 100 charts even to this day.

While most iPhone app developers rely on revenue earned from paid app sales, Optime Software is a company built from the ground up on mobile ad revenue. Obviously, one major key to Optime Software's success is the fact that apps like Dots Free, Checkers Free, Chess Free, Tic Tac Toe Free, Four in a Row Free, and Crack the Code Free provide familiar game play that everyone already knows and loves. There's no learning curve. But with many other competitors offering similar free apps, I was curious about Optime Software's winning formula, so I set out to interview the founder and CEO, Jon Schlegel, to learn more about its in-app advertising strategy:

Can you talk about your experience working with the various ad networks?

"We started off by directly integrating AdMob into all of our free ad-supported applications. However, we quickly found that it's necessary to work with multiple ad networks if you want to make sure that all of your ad inventory gets filled at the best available rate. Therefore, we decided to integrate AdWhirl into our applications as a mediation layer. AdWhirl allows us to dynamically allocate our inventory across many different ad networks. Using AdWhirl, we've been able to achieve close to 100 percent fill rate and dramatically increase our eCPMs. AdWhirl was recently acquired by AdMob, so it will be interesting to see where they decide to take the platform."

Were its in-app advertising SDKs easy to use?

"Both AdMob and AdWhirl were very easy to integrate into our applications. I don't think the average developer would need more than an hour to complete the integration, and most could do it in considerably less time. Don't forget to disable the 'test ad' mode before you go live in the App Store. I know several developers who have forgotten to do that and have lost quite a bit of money as a result [from displaying test ads that don't earn revenue]. We trigger a compiler warning in all of our apps when the 'test ad' mode is enabled to make sure that we don't go live with the test ads."

Do you take advantage of advertising your own apps with AdMob's free Download Exchange? If so, does it generate enough click-throughs and downloads to warrant sacrificing some of your ad revenue inventory?

"Yes, we typically use the AdMob Download Exchange to promote new app releases. The extra download volume that comes from the download exchange can sometimes be enough to push an app into a more favorable position in the rankings. Apart from new app releases, we generally allocate all of our inventory to paid advertising and any remaining unfilled inventory to up-selling the premium versions of our applications. "

You recently started offering paid premium versions of your apps. Were you getting requests from people who wanted ad-free versions, or were you interested to see which version (ad-supported free app vs. paid app) would generate more revenue?

"Yes, we started offering premium versions of our applications in response to user requests. Many users outside of the United States don't have all-you-can-eat data plans and were concerned about the cost they were incurring due to ad downloads. The response we have received from users to the premium versions has been very favorable. Most users will buy the premium version of a game if they use it regularly."

Do you earn more revenue from your ad-supported free apps or from your paid premium apps?

"We earn significantly more from our ad-supported free apps than from our premium applications. The free apps also help drive visibility and create uplift for our premium apps. Many of our premium applications have made it onto the Top 100 lists for their categories entirely based on up-sell conversions from the free version of the app."

If a user is playing one of your free apps but is not connected online (such as an iPhone in Airplane Mode or an iPod touch with no WiFi access), what do you have set to be displayed in the banner ad space?

"Currently, the ad space is left blank if the device isn't connected online. We have considered inserting our own house ads locally on the device when the user doesn't have network connectivity. However, the value is somewhat limited because without network connectivity a user can't immediately take action on an ad. Down the road, we are hoping ad solutions will emerge that cache ads and deliver reporting data to the ad networks asynchronously in order to allow us to better utilize our disconnected ad inventory."

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