Has Tapjoy solved monetization of free apps on the iPhone and Android?

TapjoyTapjoy, the small development shop that brought us the incredible TapDefense for the iPhone [iTunes link], has quietly built out an extremely strong toolset to provide monetization options for app developers. Through two strong offerings, they claim to increase ad revenue for free apps by more than 250%. I first met them at the TechCrunch50 DemoPit, and was thoroughly impressed by the Tapjoy platform.

First, they aggregate ads from all the major mobile ad networks and serve the highest-paying ad for an app. This method leaves the developer with nigh an unfilled ad; Tapjoy boasts a 99.9% fill rate. Second, they enable developers to sell virtual goods within their apps (such as extra points in Mobster or extra towers in TapDefense) for real money. They do this by providing the user with the option to download an app in exchange for the virtual good. Be sure to read about this later on in the article, because it is truly the most innovative 3rd party platform I’ve seen on the iPhone all year.

First, the ad aggregation. Similar to AdWhirl (recently acquired by AdMob) and Mobclix, Tapjoy has a platform that combines ads from 10 mobile ad networks and provides your app with the one that has the highest PPC. And this platform is completely free for developers. In the nacent mobile advertising market, fill rate is crucial to developers, since the major ad networks are struggling to independently keep up with demand for advertising. Tapjoy, like AdWhirl and TechCrunch50 startup Mobclix, scours the networks for the highest paying ad and fills your ad with that advertisement. Meanwhile, they are collecting a gold mine of data about the habits of the users of the roughly 1,000 applications running the Tapjoy SDK. Co-Founder Lee Linden told me that ad networks like Tapjoy because they provide the networks with a large amount of data and increased fill rates. Furthermore, they work hard to build relationships with the networks – something that will serve them well in the long haul.

in-app virtual goodsThe second, and more unique, offering of Tapjoy is its virtual goods platform. Essentially, if you have an Android or iPhone app and want to add an in-app revenue stream, this is the way to go. You create extra level packs or upgrades to your app (such as additional characters or special skins) and provide them to your users for free. The users can only get these upgrades if they download another free or paid app as well. Publishers of free apps pay $0.25 per download, and Tapjoy takes 50% of the price of any paid app sale. They track the sale using the device owner’s Unique Device Identifier (UDID) so there is no confusion on whether the app is downloaded or not. This is a win-win-win scenario for all three parties. Of course, the developer at the point of sale earns revenue he never would have gotten otherwise via the in-app virtual good sale. Tapjoy says apps with the virtual goods system see between $75 and $150 per day per 1000 daily-active-users. The publisher gets to buy downloads at $0.25, which is far cheaper than the $0.70-$1.00 cost of buying a download via traditional mobile advertising. Publishers are getting more than 10,000 new installations per day via this method. Finally, Tapjoy may just be the big winner – they’ve created a cash cow of an ad business. In fact, Tapjoy has more demand from the publishers to pay for downloads than they do developers selling in-app virtual goods.

Clients such as Playdom and Papaya have taken the most advantage of the virtual goods platform, and Tapjoy is expanding its rapidly expanding its client base: Digital Chocolate, Gogii, imeem and ngmoco are all on board, along with hundreds of smaller publishers. They have worked extremely hard to build relationships with these clients as well; both co-founders Lee Linden and Ben Lewis provide all of their customers with their cell phone numbers. Lee joked about how they’ve had a few late-night wake-up calls from their clients.
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