I would like to make a free version of the Android app I have, but would like to embed ad on it. I am not sure where I should start? Is there a well known mobile ad company out there that is specialized in mobile advertising?
I have personally used both Admob and Adsense.
I was wary when I first implemented ads thinking that my users would be upset, but I have not received one complaint from over 500,000 active installations.
The only permission that you need to add for either ad SDK to work is the android.permission.INTERNET permission.
Admob is open for anyone above the age of 18 to use, just download the SDK and set up an account. Integrating the ad into your app is very straight forward and the example in their SDK was clear. I used Admob for about 2 weeks, every day I earned double digits (>$9,
Adsense is a Google product and is available by invitation or through the application process. I got into the program via an invitation from a member of the Adsense For Mobile Applications (afma) team. Implementation was nearly identical to Admob, download the SDK, and setup your Adsense account accordingly. They have nice developer resources and are quick to respond when someone has a question.
They both offer an SDK that provided a GUI element which is basically a web view that retrieves ads from their servers.
Overall both ad platforms have given me a good experience. The click through rate has been almost identical between the two but I am sticking with Adsense because in my experience it is more lucrative.
My only complaint is the wait time on payouts. As an Android developer when I sell an application I receive the money for that sale in my bank account within a few days but with both of these services they payouts are monthly, and are processed the month after. So all of my ad revenue earned in March will be processed and paid to me at the beginning of May.
At the time of writing this I am bringing in about as much revenue from ads as I am from application sales. I won't get specific on that number but have said in another post my monthly revenue from application sales is enough to pay rent on a decent place for me and my wife and daughter.
If you have an application that you want to release for free I would highly suggest adding ads to it. Now that I have done it I don't think I will ever release a free application without ads and I plan on going back and adding ads to any of my apps that are currently free and do not have ads.
Feel free to ask any questions here on SO when implementing these SDKs, I will try and respond.
Update Feb 2012
I still use Admob as Google has shut down Adsense for mobile apps.
I still earn about as much from ads as I do from sales on a monthly basis, but my monthly revenue has dropped about 90% over the past year. I am no longer able to pay the rent from my mobile apps, I can take my family out to a dinner a few times a month though.
Update Jan 2014
In March of 2013 I sold the apps that I monetized with ads to a different publisher so I have no insight in to monetization of apps using ads since that time.