August 10, 2023

What is rewarded advertising and why does it work?

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What is rewarded advertising?

How does rewarded advertising work?

What is the history of rewarded advertising?

4 benefits of rewarded advertising for mobile publishers

Why does rewarded advertising work?

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Try as you might to create the most entertaining and engaging advertisements possible, if users have to watch them, they may not be all that receptive to your message. But if the choice is theirs – with a desirable reward to compensate them for their time and attention – they’re more likely to enjoy engaging with your message. That’s the ground-floor proposition for rewarded advertising.

Rewarded advertising has stood the test of time as a standby for mobile app advertisers, but how and why does it work? Why did it pick up a negative connotation in some corners of the mobile space, and what modern processes make the best of it while steering clear of opaque or otherwise ineffective business practices? Great questions. Let’s start with a definition.

What is rewarded advertising?

A stylized graphic shows computer windows representing rewarded activities, such as watching videos and surveys.

Rewarded advertising (or reward based advertising) is a form of advertising that encourages users to engage with it in order to receive certain benefits that are teased ahead of time. In a mobile game, the rewards may be given out in the form of bonus currency, while a music streaming app may reward users with half an hour of commercial-free listening. Here are three of the most common types of reward based advertising across mobile:

  • Rewarded video or playable ad placements: A player completes a level in a mobile game and receives a certain amount of in-game currency as a reward. In the same pop-up that shows what the player earned, the game says they could multiply that value by 1.5x if they press a button to watch a 30-second video or complete a brief playable. 
  • Offerwalls: A dedicated page within the app shows a frequently updated list of offers that players can complete to earn rewards. These offers often entail installing other apps and reaching certain milestones within them. Once the user reaches the stipulated milestone, they receive the advertised reward in the original app.
  • Loyalty-driven platforms: A user joins a loyalty-driven platform to find new apps and earn rewards as they do. When they install apps through that platform and continuously play and spend within them, they receive points they can exchange for real-life rewards.

👀 Related reading: 5 essential elements of effective mobile game loyalty programs

How does rewarded advertising work?

Since rewarded advertisements involve at least three interested parties (the user, the app publisher, and the advertiser), a reliable framework for communication between the three is essential. This ensures the user receives their reward, the app publisher receives its payment, and the advertiser is confident the user engagement occurred as desired.

This is accomplished through app-to-app communication. In the common example of a rewarded video advertisement, the publisher of the app integrates a supported video unit from an ad network, likely using the network’s SDK. Then it configures its own servers to listen for an event from the advertiser that is sent out upon completion of an advertisement. This typically includes the user’s ID, the reward they’re entitled to, and a unique ID for the event itself. It may also be encrypted using a private key to prevent users from attempting to spoof the system as a shortcut to rewards.

The above is an example of a typical, one-time rewarded advertisement using post-back events and attribution data. However, these types of systems can also be applied in broader ways to provide continuous rewards based on milestones and actions; for instance, an event signaling a player reached a certain level in a game, or spent a certain amount of money on IAP, could also be used to track longer-term engagement.

To optimize rewarded ad placement, marketers need to understand what motivates players to engage with and spend money on their favorite games. Discover these insights and much more by downloading your copy of The 2023 Mobile Gaming Loyalty Report.

What is the history of rewarded advertising?

A stylized graphic shows a timeline of a customer's journey toward the goal of rewards, displayed on a smartphone screen.

Rewarded based advertising has been a staple of revenue generation for mobile publishers and brand-building for advertisers for more than a decade, as this TechCrunch article1 shows. Its basic proposition, which presents a clear value for both the advertiser and the user, has remained consistent. Sadly, some obfuscated and less-than-ethical business models based around rewarded advertising emerged not long after that, and they contributed to a somewhat diminished reputation for the entire approach.

An AppsFlyer article2 from 2017 noted that long lists of offers may drive users into behaviors that inflate metrics without truly elevating engagement: They download a new app, use it long enough to get the reward they’re seeking, then never touch it again. Apple’s App Store policies also prohibit showing a selection of third-party apps to install from within an app, and its large-scale crackdown on the practice in 2019 cost developers thousands in revenue, as reported by PocketGamer.biz3.

Fortunately, it’s possible to capitalize on the engagement potential of rewarded advertising with transparent and reliable business methods. A recent resurgence in the advertising strategy has helped advertisers drive deeper value and installs while building loyalty, all while shaking off the unsavory reputation that previously dragged down the entire medium.

4 benefits of rewarded advertising for mobile publishers

What does rewarded advertising mean for publishers? The full list of benefits is extensive, but here are three highlights to start with:

  1. More engaged audience: When ads are part of a chosen experience rather than an interruption to it, users are more likely to take action. Aarki’s recent comparative study4 found that the click-through rate (CTR) of rewarded videos were 45% higher than their non-rewarded counterparts and install rates were nearly doubled.
  1. Rewards speak directly to player motivations: According to Mistplay’s 2023 Mobile Gaming Loyalty Report, 56.8% of players view progression as their primary motivator to continue playing a game5. By introducing rewarded advertising, you can seamlessly reduce the friction for players to gain levels and experience new content in an easily monetizable way.
  1. Boosted retention: Rewarded video ads offer better retention than other ad formats, with rewarded video ads found to have the strongest effect on retenion of any ad type in a 2021 study by ironSource6, with 3.5 to 5 times higher 30-day retention rates than its benchmark. 
  1. Improved monetization: Though it may initially sound counterintuitive, rewarded ads also benefitted direct monetization in a 2017 study from Tapjoy, as reported by VentureBeat7. App users who engaged with rewarded ads were found to be 4.5 times more likely to complete in-app purchases.

Each of these benefits points back to the functional advantages that rewarded advertising holds over its more traditional counterparts.

Why does rewarded advertising work?

At its most fundamental level, rewarded advertising works because it puts users in control of the ads they see and gives them a direct reward for their engagement. Rather than interrupting the flow with an unwanted interstitial break, users opt-in to watching a video or interacting with content when it suits them.

While many users can abstractly appreciate the fact that advertisements are necessary for their favorite games to remain in operation, they’d still prefer they weren’t there. However, according to Google’s internal studies8, 50% of users would be less satisfied with their app experience if rewarded ads were removed. Furthermore, nearly four in five mobile gamers prefer rewarded video ads that they opt into over mandatory ads, according to a Tapjoy study reported on by PocketGamer.biz9.

Rewarded advertisements perform synergistically with a variety of different ad formats. As shared by Business of Apps10, rewarded playable ads had a 37% lower CPI and a 2.5% increase in ROAS when compared to non-rewarded ad inventory used for app-to-app promotion. Clearly, users are eager to discover new favorite apps, and they’re all the more likely to stick with them when concrete rewards are in the picture.

When combined with proven practices to build loyalty, the engagement potential of rewarded advertising truly takes off. If you’d like to learn more about how these principles can help your app find more users who stay engaged for longer, reach out to our experts today.

Sources:

  1.  TechCrunch, PapayaMobile & Tapjoy Announce Partnership On New Social Marketplace For Mobile, Sarah Perez, November 2011
  2.  AppsFlyer, Rewarded advertising: The good, the bad, and the ugly, Jasper Radeke, May 2017
  3.  PocketGamer.biz, Devs lose out on thousands of dollars as Apple cracks down on offerwall ads, Craig Chapple, May 2019
  4.  Aarki, Rewarded vs. Non-Rewarded Video Ads: Which Will Come Out On Top?, Aarki, Inc., accessed July 2023
  5.  The 2023 Mobile Gaming Loyalty Report, Mistplay, November 2023
  6.  ironSource, Understanding the impact of rewarded ads on IAP, retention and engagement, ironSource from Unity, August 2021
  7.  Dean Takahashi, Tapjoy: App users who engage with rewarded ads are 4.5X more likely to spend, VentureBeat, August 2017
  8.  Google AdMob, Rewarded ads: a win for users, developers, and advertisers, Google, accessed July 2023
  9.  PocketGamer.biz, 79% of mobile gamers prefer opt-in rewarded video ads to mandatory ads, Ric Cowley, June 2017
  10. Business of Apps, How rewarded inventory and playables can drive ROAS for performance marketers, Christy Labrador, February 2023

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