What Is In-App Mobile Advertising and How Does It Work?

When the App Store launched alongside the original iPhone in 2008, it offered just 500 apps and represented a market worth roughly $206 million. By 2023, 1.96 million apps are available on the App Store, and consumers are predicted to spend $33.9 billion in app stores that same year.

The numbers behind screen time reinforce the opportunity: 86% of people use other devices while watching TV, with between 68% and 76% of viewers reaching for a smartphone to look things up, scroll social feeds, or respond to messages.

For advertisers, in-app mobile advertising sits squarely in the path of that attention. This article explains what in-app advertising is, how it differs from mobile web advertising, and how the ad-serving machinery behind it actually works.

Key Points

• In-app advertising (also called mobile app advertising) refers to displaying ads within mobile apps on smartphones and tablets.
• Mobile apps serve ads through a software development kit (SDK) — developers must integrate an AdTech vendor's SDK into their app before ads can be displayed.
• Gaming, social, utility, and entertainment companies rely heavily on in-app advertising (IAA) as a primary revenue stream.
• Because app developers earn revenue from serving ads, the model allows publishers to keep content free for users — driving downloads while generating scalable income.
• The app economy is dominated by free-to-download titles. Only approximately 5% of users make in-app purchases (IAP), making advertising the main revenue engine for most apps.
• According to data.ai's research, time spent on Android phones per day has reached 5 hours in the top mobile-first markets, app downloads hit 255 billion in 2022, and global consumers were downloading more than 485,000 apps per minute.
• The main in-app ad formats include playable ads, interstitial ads, offerwalls, rewarded video ads, video ads, expandable ads, standard banner ads, and native ads.

The Growth of Mobile Advertising

A few milestones help explain how mobile advertising evolved into the industry it is today:

• The handheld mobile phone was developed in 1973, but the first text message wasn't sent until 1992.
• In 1997, a Finnish news provider began offering free news headlines via SMS.
• The first phone capable of sending email was released in 1999.
• Mobile marketing took institutional shape in 2000 when the Wireless Advertising Association in New York and the Wireless Marketing Association in London were founded around the same time; together they merged into the Mobile Marketing Association in 2003.
• 2006 saw the launch of AdMob, the first leading mobile advertising platform, giving web developers and publishers a way to monetize mobile ad inventory.
• In 2007, Google's Mobile AdSense was introduced, allowing mobile-optimized websites to display the same ads as their desktop counterparts.
• Also in early 2007, the launch date of the first iPhone was announced — a development that would fundamentally reshape mobile advertising by introducing a touch-sensitive, multi-sensor interface that let users interact with ads in entirely new ways: shrinking, enlarging, and rotating them.
• The iPad went on sale in 2010, and Apple followed within days by launching its iAD advertising platform.
• Facebook Mobile Ads launched in 2012. Before that, Facebook generated no revenue from its mobile app because no advertising infrastructure existed within it.

The ripple effects of the iPhone launch continued for years. Users began spending more time inside apps than on the mobile web, which forced marketers to develop new tactics to capture attention in an environment where users are largely focused on a single screen.

Data from data.ai's State of Mobile 2023 report captures the current scale:

• Time spent on Android phones per day has reached 5 hours in the top mobile-first markets.
• App downloads hit 255 billion in 2022, with consumers downloading more than 485,000 apps per minute globally.
• Mobile ad spend is predicted to reach $362 billion in 2023, despite tightening marketing budgets across the industry.
• App Store spend cooled to $167 billion in 2023 (–2% year-over-year), driven by a decline in gaming spend that had been artificially inflated during the pandemic.

What Is In-App Advertising?

In-app advertising (also referred to as mobile app advertising) means displaying ads within mobile apps on smartphones and tablets. Brands run campaigns across multiple apps to drive brand awareness and conversions — the same fundamental goal as any other digital advertising channel, just within a different environment.

Gaming, social, utility, and entertainment apps are particularly dependent on IAA. Because developers earn revenue from the ads they serve, users can access the app for free. That arrangement keeps download numbers high and provides a scalable income stream for publishers.

Most modern apps follow a freemium model: free to download, with optional paid upgrades that unlock additional features, remove ads, or enable purchases. Given that only around 5% of users ever make an in-app purchase, advertising revenue is the dominant model for the vast majority of apps.

How Are In-App Ads Served?

Mobile apps require a software development kit (SDK) in order to display ads. That means app developers must integrate an AdTech vendor's SDK into their codebase, which defines the ad space, the ad medium (text, image, native, video), and the ad format (banner, interstitial, etc.).

At a high level, ads are served through one of two routes: an ad network or real-time bidding (RTB).

Like all digital advertising channels, the in-app ecosystem is split between a buy side and a sell side.

• The buy side includes advertisers and agencies responsible for designing creatives, planning campaign strategy, and activating campaigns.
• The sell side includes app publishers making ad inventory available, typically by combining a mediation platform with multiple ad networks through an SDK.

An ad network acts as a broker: it matches a publisher's available ad inventory with advertiser demand and handles the transaction.

An ad exchange takes a more open-market approach — rather than selling impressions in bulk, it lets advertisers select target audiences and bid on individual impressions, much like a stock exchange for ad space.

Two other core platforms complete the picture:

• A demand-side platform (DSP) gives advertisers centralized access to inventory across multiple ad exchanges.
• A supply-side platform (SSP) lets publishers manage their in-app inventory and make it available to advertisers through ad exchanges and DSPs.

Ad network transaction flow: An ad request is sent from the mobile app to an ad network via the SDK. The ad network matches the request with an advertiser's campaign, selects an ad, and returns it to the app for display.

RTB transaction flow: An ad request is sent from the mobile app to an SSP via the SDK. The SSP passes the request to an ad exchange, which distributes a bid request to multiple DSPs. Each DSP evaluates the request, matches it against active campaigns, and returns a bid response. The ad exchange runs an auction among all competing bids — the highest bid wins the impression, and the winning ad is served to the user.

In-App Advertising vs. Mobile Web Advertising

Here's a summary of how the two environments compare:

Mobile browsers don't require an SDK — ads are served the same way as on desktop websites. In-app environments do require SDK integration, which also establishes the rules around ad placement, format, and medium.

Despite users spending more time in apps than on the mobile web, the mobile web offers broader contextual and audience targeting opportunities. Because new web pages are created continuously, advertisers can reach audiences based on their interests across the full breadth of the internet — making scale a clear advantage for mobile web.

Most standard ad formats work on both channels. Native ads blend into surrounding content regardless of environment, and video ads are effective on both surfaces.

Where in-app pulls ahead is viewability. According to eMarketer research, the global viewability rate is higher for in-app ads than for either mobile web or desktop:

The reason is straightforward: ads inside apps are harder to dismiss and typically more prominent than browser-based ads. There's also a meaningful personal dimension — desktop and laptop computers are often shared, but smartphones are personal devices. Installed apps carry a strong connection to a user's daily routines, making the in-app environment particularly well-suited to creating relevant, personal advertising touchpoints.

In-App Ad Formats

Choosing the right ad format depends on campaign goals. Each format carries different trade-offs around engagement, intrusiveness, and monetization potential.

Playable Ads

Source: MarTech

Playable ads function like interactive samples — users try out software through a mini-game before being prompted to install it. Because they're interactive and opt-in by nature, they tend to be well received, deliver a positive user experience, and generate the highest eCPMs in the industry.

Interstitial Ads

Source: Instapage

Interstitial ads are rich, full-screen static or video ads that appear at natural breaks in an app's flow — when a user opens the app, navigates between pages, or transitions between levels in a game. By showing at these natural pauses, they minimize disruption to the user experience. Users must take action to close them or proceed to the desired content.

A notable subtype is the splash ad: a full-screen interstitial displayed when an app opens, before any other content loads.

Offerwalls

Source: ironSource

Offerwalls operate as mini-stores embedded within an app. They present a list of tasks — watching a video, signing up for a service, completing a survey — that users can complete in exchange for an in-app reward. Because the user initiates the interaction, offerwalls extend session length and rank among the stronger eCPM performers.

Rewarded Video Ads

Source: Brid.TV

Rewarded video ads offer users a tangible prize (in-app currency, unlocked content, extra lives) in exchange for watching a video. They are displayed voluntarily and have the added benefit of encouraging in-app purchases and increasing return visits.

Video Ads

Source: GamesBeat

Standard in-app video ads run between 15 and 30 seconds. Because mobile users typically can't multitask the way they can on a desktop, their attention remains more focused on the ad — which tends to translate into stronger performance compared to desktop video placements.

Expandable Ads

Source: FunMobility

Expandable ads are typically rich media units that blend banner and interstitial characteristics. They begin as a teaser banner (320×50 pixels) and expand to 320×480 pixels after a user taps them. The expanded state gives advertisers considerably more creative real estate to deliver their message.

Standard Banner Ads

Source: Google

Standard banner ads range from 320×50 to 300×50 pixels and are typically static or animated. They most commonly appear anchored to the top or bottom of the screen.

Banners are the most widely used in-app ad format. Historically criticized for low engagement, they perform well when placed in the right context — their passive, non-intrusive nature means they can coexist with the user experience rather than interrupting it.

Native Ads

Source: MediaPost

Native ads blend advertising messaging with user-centric content. Rather than receiving a finished creative, publishers receive the components of an ad — headline, image, description, call-to-action — and decide how to assemble and present them in a way that fits naturally within their app's design. This means there is no single established standard for native ad form or size.

In-app advertising has matured from a nascent experiment into one of the dominant channels in digital media. Understanding how the ecosystem is structured — the SDK layer, the ad network and RTB pathways, the buy-side and sell-side platforms, and the range of available formats — is the foundation for making informed decisions on either side of the market.