Ads within smartphone applications such as the popular puzzle game Angry Birds are turning into a key driver for mobile advertising, as apps become the main distribution method for media on mobile phones, according to a report. In-app spending by advertisers in the United States and Western Europe, where there is a high concentration of smartphones owned by affluent consumers, is set to overtake spending on display ads on mobile websites this year, research firm Strategy Analytics says.

The economy in apps, many of which are free, has taken time to establish itself since Apple (AAPL.O) first launched the App Store for the iPhone in 2007. Google (GOOG.O) also has a thriving app store for its Android phones.

At first it seemed that most developers would have a hard time making enough money from their small software programmes, which were made for anything from playing games to checking the weather or recognising songs.

But advertisers are now increasingly using them to reach the consumers of those apps. Strategy Analytics estimates that advertisers will spend $2.9 billion on in-app advertising this year, while consumers will spend $26.1 billion buying them.

The number of apps downloaded globally is expected to grow 38 percent to more than 32 billion this year.

"Advertisers chase eyeballs, so the fact that brands spend more on in-app advertising than the mobile Web is a clear sign that apps are what consumers are glued to for an increasing range of activities," said David MacQueen, the firm's director of wireless media strategies.

In less affluent economies, consumers tend to use more basic phones that may not have access to app stores, but browse the Web instead.

Figures from InMobi, the world's largest independent mobile ad network, confirm that mobile advertising is taking off, after grappling for years with the small screen size and perceived invasions of privacy on phones.

In a report to be published on Monday, InMobi says the number of ads seen by consumers on mobile phones grew 21 percent in January-March over the previous quarter to 283 billion.