Apps without borders: How global exchange rates impact advertisers

The last year ushered in huge advances in ad targeting capabilities — from the continued rise of usage-based, cohort-specific ads to new, cookie-free methods of messaging individual users across devices. Your digital marketing team is no doubt looking forward to the innovations the coming year will bring. However, even in the midst of trying out the newest tools in targeting, one tried-and-true method of pinpointing prospective users remains a staple: geotargeting.

Because international currency exchange rates fluctuate, geotargeting is a critical tool, enabling app developers to discover and focus on the most profitable markets.

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The Home Field Advantage (or Disadvantage)

While most app developers aim to conquer the world eventually, they tend to launch on their home turf. It’s easier and it’s more familiar. But many developers might be better off seeking their fortunes in foreign markets — companies in Brazil or Mexico can make more money by targeting the United States because they’re paid for ad clicks in dollars instead of reals or pesos.

However, this only works if exchange rates are favorable. In order to maximize ad revenue, developers need to pay close attention to global exchange rates before they decide where to launch their apps and how to spend their marketing budgets.

According to a Citibank report, the value of the US dollar is growing at a rate not seen in the last 40 years — this historically strong dollar is exerting a powerful influence on digital advertisers’ spending behavior.

Currency Exchange Rates: Boon or Burden?

A popular urban legend holds that when asked by a reporter why he robbed banks, Willie Sutton replied “because that’s where the money is.” While developers are creating rather than stealing, they not only need to be conscious of where the money is, but also how that money will convert back to their native currency.

When the dollar was weaker, for instance, Brazilian app developers were more interested in advertising their apps in established markets, despite Brazil’s heavy taxes levied on money leaving the country. However, as the Brazilian real has lagged behind currencies like the dollar and even the euro, the majority of Brazilian developers launching ad campaigns for their apps have opted to reduce their tax burden and avoid losses due to unfavorable exchange rates by moving the entirety of their advertising budgets inside the country’s borders, where ROI on the real is higher. In this scenario, keeping advertising within the developer’s country can help manage costs when exchange rates are less favorable.

At the same time, developers launching ad-supported apps should consider targeting countries in which impressions fetch a higher premium. For example, an app developer in India might launch an ad-supported app in the US to take advantage of the strong US dollar. US advertisers targeting US consumers can then fill that space with ad inventory paid for in high-value US dollars. These dollars will convert favorably back to Indian rupees in the developer’s home country.

Launching an ad-supported app in a country with a strong currency means that developers benefit from ad revenue paid in that currency, which is a plus. On the other hand, it also means that unless those developers are relying solely on organic growth, their currency’s decreased buying power becomes a liability since they will need to advertise and market their app in that country to increase their impressions delivered. In short, developers need to factor in both the potential ad revenue enhancement as well as the marketing costs when choosing whether or not to launch in a country with a stronger currency.

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Russian and Chinese Developers Buck the Trend

As far as US developers go, their expansion plans are usually quite predictable: win the US, win the English-speaking countries, take Western Europe, and then look to the rest of the world. Backed by the firm dollars of their primarily American investors, the time has never been better for US-based app developers to start on the path to world domination.

Meanwhile, Russia is an outlier that has largely bucked the trend of confining the marketing budget to the motherland. Despite facing the sizable disadvantage of the collapsing ruble, Russian advertisers have continued to pour five times as much money into the US as into their domestic market. While this initially might seem counterintuitive, it’s important to remember that plenty of opportunistic investors from nations like China and the UK have jumped into the Russian market to maximize their buying power, bestowing significant investments on app developers looking to expand into saturated markets.

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The Chinese developers seem to be riding a similar wave of currency-induced confidence among the softer currencies like the euro, real, and ruble. After a weaker December 2014 through February 2015, the yuan has shot back up and is now on a similar trajectory against the dollar as it was in Q2 2014. This has likely been a factor in budgets being extremely diversified across the globe. In fact, their typically balanced approach to spending marketing budgets has resulted in China barely reinvesting in its own Chinese developers — among the top geographies Chinese advertisers are targeting, China itself comes fifth, just ahead of Thailand.

Small World, Big Picture

When setting expectations for advertisers’ budgets, the precision and efficiency of targeting technologies are key. At the same time, though, app developers developing a go-to-market strategy can’t afford to ignore global currency valuations and similar systemic factors.

In a highly competitive ecosystem, choosing which countries to enter — and when — can make the difference between a failed experiment and a lucrative software business.

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John O’Connor is product lead for Glispa’s Data Management Platform.