In-App Advertising: How It Works, Benefits, Formats, & Targeting

In-app advertising helps you connect with your ideal audience within the mobile apps they use. Mobile device use has increased a lot. By the end of 2025, there may be 7.49 billion mobile users. Advertisers are tapping into this market to raise revenue by showing ads to audiences within apps.

The market for ad publishers is profitable, with in-app ad spending expected to reach $390.04 billion by 2025. But you need to think about GDPR and other privacy rules when planning in-app ads.

Let's look at in-app advertising, the different formats, targeting methods, and their benefits.

What is in-app advertising?

In-app advertising refers to the display of paid ads to users within a mobile app. It’s a strategy that allows developers to monetize their applications by selling space to advertisers.

The advertisers benefit from awareness creation, improved visibility, and conversions from users.

What makes in-app advertising effective is the highly contextual targeting and conversion-focused campaigns. App developers add an SDK (Software Development Kit) from an ad network to their app. When users interact with the app or the ads, the developers earn revenue.

In-app ads come in several formats, including:

• Banner ads
• Interstitial ads (full-screen ads that show between content).
• Rewarded video ads (users watch a video to earn in-app rewards).

And there are more options available. App developers can pick the types that work best to increase engagement and improve user experience.

How Does In-App Advertising Work?

In-app advertising uses a structured system with two main parts: the buyer and the seller. Somewhere in the middle, you'll find the ad network acting as a broker between the ad inventory sellers and advertisers. The workflow and interactions go like this:

• The app developers will send a request to the ad network for an ad to be displayed.
• Ad networks then use an algorithm to identify the highest-paying ad and display it to users.
• Users interact with the ad through views, clicks, or in-app actions, which are recorded.
• The interactions are reported back to the advertiser, who generates revenue based on the users' actions.
• All the recorded data collected is also sent to the advertisers, who use it to optimize future campaigns.

This efficient buy-sell process satisfies both the advertisers and developers equally. Advertisers reach and engage with a target audience, and developers make money at no cost to users.

With this understanding of how in-app advertising works, here's how it differs from mobile web advertising.

What is the difference between in-app and mobile web advertising?

The main difference between in-app and mobile web advertising is where they appear. In-app ads show up in mobile apps, while web ads display in browsers. In-app ads usually have better tracking and personalization. This often leads to higher engagement rates, making them more effective for performance-based campaigns.

What are the benefits of in-app advertising for brands?

There are several reasons why advertisers choose in-app advertising for their products. Millions of users are constantly on their mobile devices, and the personalization facilities on apps make them productive channels for ads. Below is a list of in-app advertising benefits for brands:

• High Engagement Rates
• Better Viewability & CTR
• Precision Targeting
• Brand Safety & Fraud Reduction

High Engagement Rates

The immersive experiences provided by in-app ads drive stronger engagement. Since users are already committed to a specific app experience, advertisers are more likely to capture them using similar interests. The use of rewarded video ads is also effective at achieving high view-through conversions.

Better Viewability & CTR

The view rates on in-app ads are considerably higher due to immersive ad formats like interstitial, playable, and rich media. Users are more likely to interact with full-screen advertisements or video demos. This consequently results in better CTR, especially at the MOFU and BOFU stages.

Precision Targeting

One of the main advantages of in-app advertising is the features available on mobile applications. They offer access to user data, in-app actions, device models, and consumer behavior per session. This helps with precision targeting, as advertisers can segment users accurately for more cost-efficient and high-performance campaigns.

Brand Safety & Fraud Reduction

Mobile applications from the App Store and Google Play Store adhere to marketplace guidelines and are verified for safety. The environment offers a safe space for advertisers to promote brands with no fraud risk. Ad networks like AdMob also incorporate fraud prevention tools to ensure a clean ad inventory.

What are the main in-app advertising formats?

There are several formats that in-app advertisers can use to fit the app's environment, user preferences, and campaign goals. Whether the goal is to increase visibility and awareness or drive conversions, here are the in-app advertising formats available today:

• Banner Ads
• Interstitial Ads
• Rewarded Video Ads
• Native In-App Ads
• Playable Ads
• Offerwall Ads
• Rich Media Ads

Banner Ads

Banner ads are a type of in-app advertisement that appears as rectangular display units at the top or bottom of the application screen. They can be static or animated, but always non-intrusive to avoid distractions. Banner ads don't enjoy high click-through rates compared to more immersive formats, but they're cost-effective and simpler.

Interstitial Ads

Unlike banner ads, interstitial ads are an in-app advertising format that takes up the full screen. They appear at transition points within an app, such as between game levels or when an app page is loading. Their full-screen format makes them highly engaging but also prone to ad fatigue if not timed correctly to avoid disrupting the user experience. 

Rewarded Video Ads

Rewarded video ads are a type of in-app advertising that rewards users for watching adverts or performing a predetermined action. These rewards can include in-game currency, extra lives, or access to locked levels. Rewarded video ads encourage voluntary interaction and have been shown to increase conversion and retention when integrated properly.

Native In-App Ads

Native ads that appear within a mobile application will harmonize smoothly with the app’s content and interface. They mimic the layout, design, and context of the app so that they'll be less disruptive and more engaging. Native in-app ads are mostly used on news and social apps, where content-style presentation encourages engagement and click-throughs.

Playable Ads

Playable ads are an interactive in-app advertising format that lets customers try out a product demo before they download it. Whether it's a game ad or a suggested app, this try-before-you-buy experience is a powerful marketing tool for advertisers. It increases interaction and lets users get a feel for what using the product is like.

Offerwall Ads

Offerwall ads are in-app advertisements that present a wall of offers, such as surveys, video views, or app downloads. It's a monetization strategy for app developers and advertisers looking to generate income. Users choose a preferred offer and win rewards without disrupting the original app experience.

Rich Media Ads

Rich media ads are a type of in-app advertising that uses interactive, media-rich creatives to attract an audience. They can be designed in video, audio, or animation formats and may expand or float across the screen. Rich media advertisements are ideal for awareness campaigns and can lead to high conversion rates.

What targeting capabilities are available in in-app advertising?

Advertisers who want to connect with and engage users must do it with precision by incorporating efficient targeting methods. These capabilities are efficient due to the volume and granularity of user data within mobile applications. The available types are:

• Behavioral & Interest-Based Targeting: This targets users based on their in-app actions and interests to show personalized ads.  
• Device & OS Targeting: This filters audiences by device model, operating system, and features like screen resolution.  
• Location-Based Targeting: This uses GPS and IP data to show ads to users in specific areas.  
• Contextual Targeting: This matches ads to an app's content, which is helpful in privacy-focused settings.  
• Wallet Targeting: This focuses on users in blockchain apps, targeting them based on wallet activity and on-chain assets.  
• Retargeting: This aims to re-engage users who have shown interest, encouraging them to complete purchases or sign-ups.

What Are the Top In-App Advertising Platforms?

To run successful in-app ads, choose one of these platforms with strong targeting and performance features:

• Blockchain-Ads
• Google AdMob
• Unity Ads
• IronSource
• AppLovin

Each platform is unique in its strengths and features. Below is a breakdown of what makes each one stand out:

Blockchain-Ads

Blockchain-Ads is a flexible ad network that helps advertisers boost their in-app campaigns. The platform offers various high-impact ad formats, like banners, native ads, and video. It tracks all ads with real-time analytics to enhance ROI and grow user bases effectively. Blockchain-Ads is GDPR-compliant and offers privacy-friendly options for personalized ads.

If you want to explore its targeting capabilities, pricing model, and real-world performance metrics, check out our detailed Blockchain-Ads review for an in-depth breakdown.

Google AdMob‍

Google AdMob is a leading in-app ad platform, thanks to its link with the Google Ads ecosystem. Developers can monetize their apps using video, display, native, and interstitial ads. Advertisers enjoy access to a vast audience. AdMob supports cross-channel campaign management and offers advanced targeting options. It also features automatic mediation and in-depth analytics. Plus, its integration with Firebase makes it a great fit for small and enterprise apps.

Read our comprehensive Google AdMob review to learn how it compares on revenue potential, mediation efficiency, and ad quality.

Unity Ads‍

Unity Ads is built for mobile game developers who use the Unity engine. Its main advantage is that it gives you control over ad placements and user engagement in playable and rewarded video ads. Additionally, Unity Ads includes inventory bidding via Unity LevelPlay, fostering real-time competition for impressions.

Discover the platform’s monetization strengths, developer tools, and best-use cases in our full Unity Ads review.

IronSource‍

IronSource is a full-stack ad monetization platform. It enhances app ARPDAU and maximizes value. The platform offers tools for segmentation and mediation. It also supports high-impact ad formats, including rich media and interstitials. Additionally, IronSource provides real-time performance tracking. This feature helps advertisers expand their user base with ROI-positive campaigns.

Dive into our in-depth IronSource review to see how its mediation features and analytics tools perform in real-world campaigns.

AppLovin‍

AppLovin is a strong ad platform. It connects advertisers with over 1.4 billion daily active users through in-app ads. The platform has an AI-driven advertising engine. AppLovin uses algorithms for personalized ads and real-time bidding on a programmatic exchange. Advertisers can use many ad formats, including banners and rewarded videos. Developers gain from the MAX mediation tool to boost monetization.

For insights into its AI-driven optimization, bidding performance, and developer benefits, read our complete AppLovin review.

What are the common in-app advertising pricing models?

A variety of pricing models are available to determine how advertisers are charged. Each model matches a campaign goal and tracks specific user interactions. Listed below are the most common in-app advertising pricing models:

• Cost Per Mille (CPM) is a model that bills advertisers for every 1,000 impressions on their ad, regardless of user interaction.
• Cost Per Click (CPC) charges advertisers only when a user clicks on the ad.
• Cost Per Install (CPI) is a pricing model where advertisers only pay when a user installs an app after clicking or viewing an ad.
• Cost Per Action (CPA) is charged only when a user performs a predefined action (sign-up or purchase).
• Cost Per View (CPV) is used mostly in video ad formats, where advertisers are charged for video views.

Choosing the right pricing model offers advertisers the opportunity to maximize ad campaigns based on their goals. This could be awareness, consideration, conversions, or retargeting. 

How to measure in-app advertising performance

The ability to evaluate the performance of in-app campaigns is the cornerstone to fulfilling all advertising objectives. Different metrics can be tracked at every stage of the user journey to optimize campaign ads. These are the main performance metrics to measure for in-app advertising:

• Impressions and Viewability Rates assess the frequency of the ads and whether it was shown on the user's screen.
• Click-through Rate (CTR) indicates the percentage of users who click on an ad after viewing it.
• Install Rate/Conversion Rate tracks the number of users who complete an installation or undertake an action after interacting with the ad.
• Retention Rate measures the number of users who continue engaging with the app over a specified period.
• Return on Ad Spend (ROAS) calculates the revenue generated for every unit amount spent on ads.
• Lifetime Value (LTV) estimates the total revenue expected from a user for as long as they use the app.

When tracked and analyzed together, in-app ad performance metrics provide an accurate representation of a campaign's progress. Advertisers can then use the results to make adjustments where they're needed or channel more resources to successful ads.

What are the challenges or drawbacks of in-app advertising?

In-app advertising offers the key players in the segment exceptional benefits. However, we can't ignore the limitations that also come with it. Common issues can center around privacy and platform changes, inaccurate analytics, and difficulties with tracking. If left unaddressed, these drawbacks may affect the overall ad performance. These are the main challenges of in-app advertising:

• Tracking and Attribution Difficulties
• Measurement Inaccuracies
• Privacy and Platform Changes

Below is a breakdown of how these challenges affect in-app ads:

Tracking and Attribution Difficulties

Mobile users are likely to change devices for various reasons. This can lead to attribution difficulties, which limit how performance is measured. Privacy and data-sharing regulations also affect the tracking capabilities of platforms that rely on user data.

Measurement Inaccuracies

Misleading in-app performance metrics can be generated from accidental clicks, limited post-installation data, bot activity, or inflated impressions. These make it hard to analyze actual user engagement on in-app ads.

Privacy and Platform Changes

Evolving privacy laws like GDPR and platform restrictions like Apple's ATT and Google's privacy sandbox make targeting more complex. This has resulted in changes from traditional forms of ad placement to more contextual and probabilistic targeting.

What are the alternatives to in-app advertising?

Depending on the objectives, advertisers may consider using other ad formats that align better with the campaign. Here's a list of the alternatives and how they compare to in-app advertising:

• In-App Ads vs. Video Ads
• In-App Ads vs. Display Ads
• In-App Ads vs. Native Ads
• In-App Ads vs. Mobile Web Ads
• In-App Ads vs. Programmatic Ads

In-App Ads vs. Video Ads

The difference between these two is that in-app advertisements appear on mobile applications, while video ads are supported across platforms. In-app ads can be published in video format, but are often short and user-focused compared to those for a wider audience.

In-App Ads vs. Display Ads

Display ads can appear on desktop and mobile websites, while in-app ads are embedded into downloadable apps. Although display ads can be more versatile for cross-platform campaigns, in-app ads enjoy better viewability and conversion metrics.

In-App Ads vs. Native Ads

Standard native ads are often browser-based, while in-app ads blend into an app’s UI. Both are non-disruptive, but native advertising blends with the surrounding content compared to in-app ads which stand out.

In-App Ads vs. Mobile Web Ads

Mobile web ads are shown on mobile web browsers, while in-app ads are built for an app's operating system. This app-specific targeting presents advertisers with more opportunities to do better compared to web apps that rely mostly on SEO.

In-App Ads vs. Programmatic Ads

The difference between them is that in-app advertising focuses on the placement environment, while programmatic advertising is an automated ad-buying method. Advertisers can buy spaces for in-app ads programmatically, but this also applies to other ad formats.

Future Trends in In-App Advertising

In-app advertising is on a fast-rising trajectory as advertisers and developers scramble to get a piece of the growing market. Projections show an annual growth rate (CAGR 2025-2029) of 8.17%, with an expected market volume of $533.92 billion by 2029. The main trends to watch out for are:

• AI-Powered personalization
• Contextual over behavioral targeting
• In-app programmatic bidding

AI-Powered Personalization

The introduction of AI technologies is transforming the digital space faster than expected. With AI-powered personalization, in-app advertising will become more dynamic with no input from advertisers. This will result in a significant boost in ROAS and efficiency.

Contextual Over Behavioral Targeting

Changes to private regulations are gradually phasing out the dependency on pixels and cookies for behavioral targeting. The new frontier will be solely focused on contextual targeting to maintain compliance with every major advertising region worldwide.

In-App Programmatic Bidding

Automated programmatic advertising is becoming the standard for advertisers who want to place ads across multiple inventory sources. This will improve efficiency across ad platforms, increase fill rates for publishers, and less to more scalable ad campaigns.

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