This is the Google model which we are used to: develop a rankings algorithm and then introduce ads to hightail to the top of that list. So it is no surprise that Google are now testing ads in their Play Store marketplace.
Search is certainly the primary method of app discovery. Research has found that 80% of organic downloads on Google Play occur following a search. There are many optimisations that app developers can make to aid the organic discoverability of their app including keyword optimisation and utilising all of the functionality of the app page. However, there are also multiple uncontrollable factors that contribute to organic app rank including ratings, downloads, rate of downloads, uninstalls and usage.
This new ad solution means that developers can get their app to the top of the search results in a promoted format using keyword targeting. For new apps, that do not yet have the download critical mass to rank well organically, and smaller apps, that are unable to compete with the download numbers of the biggest app creators, this is going to be an invaluable format.
The format is being tested for free by a limited set of invited advertisers in the US for mobile-devices only. The pricing model of this format has not been disclosed and is likely to be widely influenced by the competitive nature of many app categories. The format could be cost per click but more likely to be cost per app install. However, data on revenue per download suggests that the value of a download can be extremely low for most app developers: less than $0.05 so advertisers need to balance the true value of a download with the cost of entering this marketplace.
Potential
At the moment, only one ad is displayed as part of this test but that could conceivably increase. Like mobile search ads, these could occupy the majority of the smartphone screen which would significantly increase the importance of the ad unit. Additionally, developers may be able to tap into the rich audience data within Play Store to target granularly beyond just keyword-level. For example, multiple app developers could begin to drive loyalty through promoting related or new apps to their fan base.
Once Google have completed testing and release this format, the next step is quite conceivably ads that improve usage. Current estimates suggest 80% of apps are only used once after installation and usage is a key metric for improving organic rank and increasing in-app purchases, which are a key revenue source. Last June, Google launched an engagement format for search and display which deep-links to apps to increase usage. Google Play is typically the destination for finding and downloading apps but it could also be an interception point through ad formats to deep-link to app functionality that already exists in a download app.
Ultimately, this is a format that can help app developers gain a voice in a marketplace of over a million apps. It remains to be seen how competitive the market will be and if the format drives enough revenue for developers and Google alike.