If you’ve ever traded 30 seconds of attention for an extra life, discount or premium access, then you have experienced Incentivized Advertising first-hand. The concept is simple; Users voluntarily complete a task – usually watching a video or installing an app – in exchange for a reward. For product and growth teams, the strategic question is not whether it works, but whether it works sustainably with their business model and their target market. In many mobile ecosystems, this model is also used to drive incentivized app downloads, helping advertisers reach users who are willing to engage with rewarded actions.
Why Incentivized Advertising is Still a Driver of Growth
There continues to be large-scale growth in mobile advertising. U.S. Digital Ad Revenue reached a staggering $258.6 Billion in 2024, with a year-on-year growth rate of 14.9%. Out of that total, Digital Video accounted for $62.1 Billion with 19.2% increase over the previous 12 months. Video-based formats are not at the fringe of providers’ monetisation strategies; they are central.
This movement will inevitably benefit incentivized mobile ad networks, specifically, rewarded video formats. Because users opt-in, engagement with those types of ads is structurally much higher than forced formats. Based on 2023 large-scale industry data, rewarded video engagement increased by 3.2% year-on-year globally. Within gaming categories, approximately 1/3 of daily active users engage with rewarded ads. Word games had about 38.4%, and RPG’s had approximately 37.6%.
Different placements have different performances as well, ads placed at “pain points” such as when a user runs out of lives, achieve around 38.1% engagement, compared with 23.8% engagement for ads placed between levels. This supports one of the most important rules of advertising: timing dictates success or failure.
Strategic Advantages of Incentivized Advertising
Retention is the key to transforming into a monetizable app. Research conducted on rewarded video users indicates a significant correlation between the amount of time a player engages with rewarded video ads in the early stages of play and the amount of time they stay in the application over the long term. Some report that the day-30 retention among early rewarded video players was about 53%, while the day-30 retention for general players was approximately 13%.
While retention numbers can vary by app, they clearly indicate an important relationship: when something such as rewards reduces user agitation or user friction, incentivized advertising can help to create consistency in the user’s behaviour rather than create inconsistency in their behaviour.
Monetization Without Immediate Paywalls
Many developers face challenges when trying to achieve good UX and earn good revenue early in their apps’ lifetime. A hard paywall typically causes users to churn at very high rates in weeks one (i.e., new users are least likely to pay for the app) after installing it. Incentivized Advertising offers a third option whereby non-spending users generate revenue through engagement.
According to some studies, users who engage with incentivized ads are more likely to later convert into paying users than users who do not engage with such ads. Thus, Incentivized Advertising can work as a bridge, helping app developers monetize non-paying users today while also cultivating future paying users.
Using Offerwalls for User Acquisition
Offerwalls are an aggressive form of incentivized advertising, where users are paid for performing actions outside of the app such as installing other apps, submitting their information to fill out surveys, etc. Offerwalls have historically been considered controversial; however, new evidence suggests they have performed well in retention in some cases.
For example, a large-scale study on users acquired through offerwalls showed a 45.8% improvement in day-one retention rates versus similar cohorts acquired through rewarded video and interstitial ad campaigns; 86.1% improvement for day-seven retention rates; and 71.7% improvement for day-fourteen retention rates.
While offerwalls appear to be a viable option as an acquisition tactic due to their ability to drive users into a long-term paying trajectory, quality will depend heavily on how established campaigns align task goals with true user interests. There must also be robust fraud detection protocols in place as a part of the offerwall system.
Economic Inflation Affecting Your Application Through Incentivized Advertising
Every reward has an associated cost; even a virtual currency has an operational expense. Too much value added to a system (through the use of Incentivized Advertising) can produce economic inflation in an application and damage the scarcity principles of an in-app economy, as well as reduce the urgency to purchase. In an app centered on subscription-based revenue or discount-based purchases, consumers may be conditioned through a model of “watch to save” to delay their purchase rather than move forward with making purchases based on urgency.
Creating the correct balance of rewards for the users is both an exercise in financial management and an exercise in user experience (UX) design.
Potential for Fraud and Low Intent Users
Adding rewards for taking action will create a greater opportunity for abuse of the system. Offerwalls are at a greater risk of being targeted for fraudulent installations, as well as incomplete purchases. Apps utilizing Incentivized Advertising will require strong validation processes, anomaly detection, and a well-defined process for post-back tracking of installations and completed actions in order to protect their revenue from erosion.
Without controls in place, short-term revenue may undermine the long-term value of revenue for the application.
The User Experience is at Risk of Oversaturation
Engagement rates upwards of 46% have been reported for applications utilizing more than 15 ad placements per session; however, this does not mean that more ad placements will always yield greater success. Oversaturation will increase the probability of user fatigue and a lack of trust from the user.
The psychological advantages of Incentivized Advertising is that it allows the user to have control over their ability to earn value; due to this fact, if users feel pressure to take advantage of the format or if they feel that they are being continually prompted or forced into an action, it will redefine the nature of the format from being an option, to becoming something intrusive; thus negating the advantages of Incentivized Advertising.
When Incentivized Advertising Makes Strategic Sense
Ideal scenarios for Incentivized Advertising:
- Apps with natural friction (cooldowns, lives, premium feature previews).
- Free-to-play apps that are optimizing lifetime customer value.
- Ecosystems with balanced currency.
- Teams capable of sophisticated cohort analysis.
Higher-risk scenarios for Incentivized Advertising:
- Premium brands that rely on ad-free environments.
- Learning/productivity apps where skipping effort can sabotage the final outcome.
- Products without fraud detection measures in place.
Long-term success with Incentivized Advertising will happen when it enhances the user’s experience versus compensating for an app’s low retention.
Implementing Incentivized Advertising
It is important to roll out in a controlled manner to improve the outcome of Incentivized Advertising:
- Start with one incentive tied to a meaningful user need.
- Limit daily frequency to ensure users are not oversaturated.
- Test different incentive values to understand incentive elasticity.
Analyse the incremental impact of using Incentivized Advertising on retention and ARPDAU versus a shift in sources of revenue.
Cautiously expand into offerwalls that have a limited scope and establish/test validation controls.
Conclusion
Incentivized Advertising is not a guaranteed growth strategy, nor is it automatically a reputational risk. It is a tool. Current market data indicates high levels of engagement, measurable retention improvements and increased advertiser usage of video formats. When implemented with economic discipline and at times and places that are user-centric, Incentivized Advertising could be used to increase monetization without diminishing the experience of the user.
