10 Reasons Why eCPM is The Most Useless Metric in Ad Monetization
The eCPM is widely believed to be the key metric in Ad Monetization. But is this true? Most Ad Monetization managers and senior executives certainly consider it to be.
Drawing from my seven-year journey in the mobile, free-to-play video game industry, I’ve regularly encountered a barrage of questions from ad monetization peers, leadership teams, and clients, all revolving around eCPM.
Typical things I’ve heard include: “This game has an eCPM of $20, while ours is only $12. What are we doing wrong?” and “Game 1 has a $10 eCPM, but Game 2 is at $6. Why aren’t we aiming to balance these figures?”
In this article, I will demonstrate why eCPM, particularly when considered outside of the appropriate context, can be the most misleading and consequently the least useful metric in ad monetization.
If you’re interested in understanding the real essence of eCPM, how it functions, and the top ten considerations before engaging in discussions about eCPM with your colleagues or a boss, then keep reading.
What is the eCPM?
eCPM, an acronym for Effective Cost Per Mille, serves as a key metric indicating the revenue generated per thousand ad impressions displayed to players. It essentially averages out the income across countless ads, since their value primarily stems from player actions like installations and other interactions, rather than just viewing the ads.
In the upcoming sections, we’ll explore various fundamental elements that influence eCPM. These factors are crucial for accurately comparing eCPM values between different contexts. As we progress, we’ll also delve into more complex factors that play a role in understanding and optimizing eCPM.
Basic Factors
1. Ad Format
The type of ad format is a crucial factor, and for good reason. Different formats inherently yield varying eCPMs, making it unreasonable to compare eCPMs without considering the same ad format.
It’s a known fact that banner ads typically have the lowest eCPM, while rewarded video ads and interstitial ads command much higher rates. The reason behind this discrepancy is rooted in the distinct characteristics of these ads.
Rewarded videos and interstitials, for instance, are more engaging due to their full-screen visibility and interactive elements like video or playable features. They also usually include a prominent call-to-action, significantly enhancing player engagement and increasing the likelihood of successful conversions.
The specific combination and use of ad formats in a game greatly influence its overall eCPM. Therefore, comparing eCPMs between different games requires comparing the data for the same ad format.
2. Country
The country factor is straightforward. Irrespective of the ad format, eCPM varies significantly based on the geographical location. For instance, eCPM is generally higher in countries like the United States, Germany, and Japan compared to countries such as India, Egypt, Brazil, and Serbia.
This variation is primarily due to economic factors. Players from the first set of countries typically have greater purchasing power, making them more valuable to advertisers on average. Hence, when comparing eCPMs between different games, a fair comparison can only be made if the games are being played in the same country.
3. Platform
The platform factor used to be quite straightforward. A few years ago, it was a widely accepted fact that iOS users, on average, generated higher eCPMs compared to Android users. This was attributed to the higher purchasing power of iPhone users, who typically spend more on their devices, making them more attractive to advertisers due to their increased likelihood of spending.
However, the landscape has shifted. With Apple’s effective deprecation of IDFA (Identifier for Advertisers), advertising campaigns targeting iOS users have become less effective, leading to lower conversion rates. As a result, it’s now not uncommon to see higher eCPMs on Android platforms. Therefore, when comparing eCPMs between different games, it’s essential to ensure that the comparison is being made within the same platform to ensure accuracy.
4. Scale
Scale is a straightforward concept, easily understood even by those who aren’t deeply involved in mobile advertising, including those who focus more on in-app purchases.
Imagine a familiar scenario: a game launches, player acquisition begins, and the initial few thousand installs roll in. Retention rates are high, Average Revenue Per User (ARPU) looks promising, and Cost Per Install (CPI) is manageable. It seems like the game might be a hit. But as scaling up occurs, challenges emerge. CPIs increase, retention and ARPU falter, leading to doubts about the game’s profitability and success.
The same principle applies to ad monetization. Optimizing eCPM for a small number of impressions is a different ball game compared to dealing with hundreds of millions daily. Factors such as the diversity of ads displayed and the likelihood of installs become more prominent. Therefore, when comparing eCPMs between games, a meaningful analysis requires looking at games with a similar scale of operations.
5. Mediation Setup
Consider two contrasting examples: one game uses a single ad network for its ads, while another employs a complex mediation setup with multiple ad networks, including both bidding and non-bidding systems. This setup features extensive waterfalls, encompassing 20 to 60 instances with varied eCPM floor prices, bid floors, segments, and tiers. In the more complex setup, there’s a higher level of demand and competition among the ad networks.
This competition is key to driving up eCPM. Effective mediation setup and continuous optimization play crucial roles in maximizing ad ARPDAU by boosting eCPM, and many developers are actively engaged in this process. It’s certainly wise to constantly refine mediation setups, conduct A/B tests, and pursue other methods for enhancing the setup. However, it’s also important to recognize other influencing factors.
Conversations in the industry often center around eCPM, focusing on comparing and optimizing mediation strategies to improve it. Yet, many other factors are either overlooked or ignored, leading to potentially incorrect conclusions. For example, if one game’s eCPM is significantly lower than another’s, it doesn’t necessarily indicate a flaw in their approach. The disparity could be attributed to different factors, not just the mediation setup.
The next set of factors we’ll discuss is less commonly addressed, particularly in conversations with C-level executives who usually prefer brief, straightforward answers. Even among experts, these aspects aren’t typically the focus of casual eCPM discussions.
Advanced Factors
6. Player Age (In the Game)
This aspect is particularly fascinating. From the data I’ve observed, players who have spent more time in a game typically exhibit lower eCPM compared to newer players. Ironically, these more seasoned players often represent the most valuable segment in terms of in-app purchases (IAP) due to their superior retention. They’re likely to engage in longer and more frequent gaming sessions and are more inclined to make purchases. So why is their eCPM lower? I have a few theories.
Firstly, these players have been in the game longer than newcomers. If they frequently view ads, they’ve likely seen many of the same ads repeatedly. This repetition can lead to diminishing interest in the ads. The likelihood of a player installing an app doesn’t significantly increase after seeing the same ad numerous times.
Another possibility is that these committed players are more focused on the game itself than on the ads. They might view ads primarily to earn in-game rewards, especially in the case of rewarded video ads or unavoidable interstitials. Regardless of the ad’s content, it might not capture their attention enough to drive an installation.
This kind of data isn’t typically accessible to ad mediation providers unless developers include information about player age in their ad requests. Hence, it’s not commonly available for analysis. Here’s an illustrative example from one game, showing eCPM trends based on player age in October 2023. The data, specific to rewarded video ads on Android in the United States, is relative to the eCPM of new players (Day 0 — Day 1), set as 100%. The findings are:
- Players around six months into the game generate only 38% of the eCPM of new players, more than 2.5 times lower.
- For players between Day 15 and Day 30, eCPM is already halved.
- The most significant drop occurs between the first two age groups. After this, declines between neighboring groups are less steep.
It’s crucial to note that this doesn’t imply these players are less valuable for ad monetization. Their deep engagement with the game likely translates to higher ad engagement and more ad views per daily active user (DAU). This increased impressions/DAU ratio could offset the lower eCPM, provided the game’s ad system design permits.
This leads to a conclusion: comparing eCPMs between different games isn’t straightforward. A game with 50% of its players in the D0 — D3 range and few beyond D30+ isn’t directly comparable to another with 10% in the D0 — D30 range and 40% beyond D60+. Ideally, eCPM comparisons should consider similar player ages.
7. Usage Rate
The usage rate is a vital yet often overlooked metric in eCPM discussions. Available on mediation dashboards, it indicates the average number of ads shown to a player who has watched at least one ad (also known as Impressions/Daily Engaged User or Impressions/DEU, with ‘engaged user’ meaning someone who has watched at least one ad). The significance of this metric lies in eCPM decay. Essentially, each additional ad shown to a player generally decreases the likelihood of them installing an app. Consequently, the eCPM for the first ad a player sees in a day is typically higher than for their tenth ad.
Here’s some supporting data from October 2023, covering both Android and iOS platforms, and focusing on rewarded video and interstitial ads in the United States:
- In every game examined, each successive ad impression is less valuable than the one before it. This pattern holds across Android and iOS and for both rewarded and interstitial ads.
- Android appears to exhibit a lesser degree of eCPM decay compared to iOS.
- Interestingly, interstitial ads show much greater resistance to eCPM decay than other formats. The discrepancy here is quite significant, and I’m curious about any theories explaining this.
- The rate of eCPM decay from one impression to the next does not vary significantly. The decline is consistent, whether comparing the first and second impressions or the fourth and fifth.
When assessing and comparing eCPMs between different games, it’s ideal to consider games with similar usage rates. This ensures a more accurate comparison, accounting for the impact of ad frequency on eCPM.
8. Blocking Strategy
Ad Monetization Managers have various tools at their disposal to control which ads appear in their games. While it’s not feasible to manage every single ad, certain measures allow for a degree of control. This can range from broad category blocks (like politics or religion) to more specific genre blocks (such as puzzle or casino games), or even down to targeting a single troublesome app or a specific campaign.
In general, the more restrictive a developer’s ad-blocking settings are, the fewer advertisers there are vying for each ad impression. This reduced competition can lead to potentially lower eCPM. However, the impact varies depending on the scope of the blocking. There’s a difference between blocking a few main competitors and sensitive categories, and completely barring several genres known for being significant advertisers.
Therefore, when comparing eCPMs between different games, it’s essential to consider the extent and nature of each game’s ad-blocking strategy. This understanding can provide a clearer perspective on why certain games might have different eCPM levels.
9. Player Source (Your User Acquisition)
The source of a game’s players, particularly through User Acquisition (UA) campaigns, significantly impacts various performance metrics, including eCPM. A relatable scenario is when a game gets featured prominently on the Apple App Store or Google Play Store, like in a hero banner. Such featuring often leads to a surge in organic traffic but can simultaneously result in decreased retention, monetization metrics, and other key performance indicators (KPIs). The reason is that the game becomes more visible and attracts a broader, more diverse audience who may not be the ideal target for the game’s specific experience. They might engage briefly before moving on.
This principle extends to ad monetization metrics as well. The type of players your game attracts at any given moment — whether more organic or paid and within paid, the nature of the campaign — can influence eCPM, even for players on the same platform and country. For instance, inexpensive installs from low-CPI campaigns typically yield lower eCPM. Conversely, players acquired from campaigns focused on more challenging in-game events (like purchases or retention) cost more in UA but tend to generate higher eCPM.
Therefore, two identical games on the same platform and country, using the same ad format and mediation setup, could have vastly different eCPM figures based on the source and quality of their players. When comparing eCPMs between different games, it’s crucial to consider the origins of the players and the types of UA campaigns currently in operation.
10. Advertiser Side (Other Games’ User Acquisition)
Beyond your user acquisition efforts, which influence eCPM through player quality, the demand side plays a significant role in shaping eCPMs. Changes in advertisers’ budgets, whether an increase, decrease, or total withdrawal, and potential blocking of your game can greatly impact eCPM. For Ad Monetization Managers, understanding the demand side can often feel like grappling with an elusive aspect of eCPM.
By now, it should be clear that even with consistency in ad format, country, platform, scale, mediation setup, player age, usage rate, blocking strategy, and player source, there can still be an unknown factor that renders eCPM comparisons between different games invalid.
To illustrate, let’s consider data from five games in the first half of November 2023. Here’s the catch: all these games are from the same genre, and the data is exclusively for rewarded video ads in the United States on Android, with similar scales, the same mediation provider and ad networks, and identical optimization strategies. Player age isn’t a variable here, and usage rates are excluded as we’re only considering the first impression for a user on a specific day. No ads are blocked except for sensitive categories, and all traffic is organic. Yet, the lowest eCPM is still half of the highest one. This makes for a complex explanation, doesn’t it?
As a general guideline, exercise extreme caution when comparing eCPMs between different games. Those quarterly industry reports on eCPM values are interesting, but they should be approached skeptically (think a bag of salt, not just a grain!). A higher eCPM in one game doesn’t necessarily mean superior mediation optimization.
Instead of fixating on absolute numbers, it’s more productive to discuss the strategies employed for optimizing mediation and other elements of the ad monetization setup. This approach focuses on maximizing the value ads bring to our business, rather than simply comparing eCPMs.
