Monetization is probably the main point of publishing an app in the App Store – for majority of app publishers that is. But still, a lot of app monetization strategies don’t work as expected even with record numbers of active users or downloads.
In app monetization, it is important to have insights into user behaviour and their lifetime value (LTV). It is also important to have a balance between user acquisition and revenue generation since this go hand in hand. Some app monetization models require an investment in user acquisition before any profit can be expected.
There is no single app monetization model that fits for all apps; even with paid apps, there is much room for improvement and experimentation. In this article, we’ll have a look at app monetization models and the inherent advantages and disadvantages that comes with implementation.
Premium Apps
Apps can be purchased in the Apple App Store from $0.99 to $999.99. Only about 6% of app revenue come from paid apps without any in-app purchases.
Advantages:
- Every download has a definite ROI.
- Competition among other paid apps is low but the market is initially small.
- Users of premium apps tend to be more engaged and more likely to avail of an in-app purchase.
- Developers can focus on improving the app rather than on experimenting on what freemium app monetization model to use.
Disadvantages:
- A lot of users would rather download a similar free app that they can try out first.
- Users would demand for the app to be of high quality and value. It could either deliver certain functionality or services, or it could be a high quality game with an excellent copy.
- User acquisition is much more expensive.
- The upfront payment is not an assurance of revenue since there is still the 30% cut from Apple. You need to reach a certain number of downloads before the app can be profitable.
- Downloads are quite low (around 500 times a day for about 90% of paid apps).
Premium apps are not everyone’s cup of tea. Most developers offer a ‘lite’ version of their apps to entice (and intrigue) users into trying upgraded features that’s only available in the premium app. There’s also a balance between charging a small amount and the revenue it will generate. If you charge an app for $0.99, one thousand downloads would just be $990. If you charge $9.99, one thousand downloads would yield $9,990 but it would take longer before you can achieve that number of downloads since every increase in price tier causes a decrease in daily downloads.
Paymium
The paymium app monetization model can be considered a hybrid. It is premium meets freemium in-app purchases. Users are asked to pay upfront and within the app, in-app purchases are waiting to be bought. Paymium accounts for 4% of app revenue.
Advantages:
- Revenue grows even after the app is bought.
- Paymium is excellent for proprietary content and services.
Disadvantages:
- You need to have a strong brand. You are basically pricing your brand by selling an app for a fee, much more when you are demanding users to pay again to access certain features. Only a few brands can successfully pull this off.
- Users may not be keen on spending additional amount on an app they already paid for.
In-App Advertising
Users don’t need to spend a cent. You are paid by ad networks to place targeted ads of brands and other app publishers within your app. This is excellent if the type of app doesn’t suit the use of in-app purchases.
Advantages:
- Ads commonly doesn’t disrupt user experience and only uses a small amount of screen space
- Good way to collect user behaviour data.
- Revenue from in-app ads are on the rise and can be quite lucrative. Within two years, revenue from in-app ads increased by 1.7 times. It is also estimated that by 2018, the mobile in-app ad spending of ten major countries (for mobile app revenue) would exceed their spending on online search ads.
- The in-app ad model had matured with continual innovation and adaptation.
Disadvantages:
- A lot of users find ads annoying and screen space hogs.
- According to reports, lesser than 15 percent of publishers make $10,000 a month out of in-app ads.
- In-app ad revenues vary depending on geographic location.
Sponsorships (Incentivized Advertising)
Reward wall is a common example. Users are offered rewards in exchange of watching an ad from a sponsor publisher (and downloading the advertised app) or completing other tasks. You get a percentage from every redeemed reward. How much you’ll get depends on the ad network.
Advantages:
- This is a better advertisement strategy. Banner and interstitial ads can become quite intrusive. Here, it’s the user’s option to claim the reward or not.
- The promise of a reward is quite enticing for users and it can become quite profitable especially if the app has a lot of highly engaged users.
- You can also engage in incentivized install campaigns for your app to increase installs.
Disadvantages:
- Apple may reject apps with incentivized ads since under its guidelines, it is prohibited to promote apps other than your own and offering in-app credits to users who watch videos of other apps.
Freemium
The freemium app monetization model offers a free app with “gated features” that need to be purchased in order to unlock. These features may include access to a level or items and tools that can aid in performing an in-app task. Majority of top gaming apps use this app monetization model.
Advantages:
- This model is excellent in engaging users more in the app especially if the in-app items enable then to spend more time in the app.
- It can be used in different app categories with much room for innovation.
Disadvantages:
- Users may feel like they are being tricked if the gameplay/task is too difficult to achieve and the purchase of the in-app items seem to be the only solution to progress.
- Users must have high engagement in the first place.
- There’s a bad rap about the freemium model’s “misleading disclosure” about the app’s true cost.
Virtual Goods
In-app purchase is under the freemium app monetization model but some of the virtual goods for sale cannot be considered as “gated features”. The goods are sold and used only within the app, and are mostly in the form of in-game currency or items for aesthetic purposes that aren’t really essential for the user to progress in the gameplay or task. In-app goods can either be consumable or non-consumable. There are different types and categories of in-app items that can be sold within an app.
Advantages:
- The risk is low and the profits cannot be limited the way there is a limit on the number of ads you can show on your app.
- It enriches and personalizes the user experience. A lot of users want to collect in-app items to decorate and use for their avatars. In-app items can also create a sense of mystery and keep the users interested especially when only a few items are revealed at each level of progression in the app.
- This app monetization strategy is flexible and can be implemented in innovative ways which can also include affiliate programs.
Disadvantages:
- In-app items can be slow to monetize since only the highly engaged users will have interest. You need to have a lot of “whales” in order to have a killing in the sales.
- In-app items are included in the cut Apple gets from your revenue.
- A lot of refunds can be requested since a lot of children are known to discriminately buy in-app items that according to EU officials are: ‘direct exhortations to children to buy items’.
Subscriptions (Paywalls)
This is similar to the usual “free trial” model where you get to use the product for free for a certain period of time and after that, you will be paying a recurring fee. A paywall model can also be used. Publishers have used paywalls even before the advent of apps. Readers are allowed to view a certain number of content per month; once they reach the limit, they are requested to sign up for subscription to continue viewing content. This app monetization model is great to supplement ad sales (especially if it is declining).
Advantages:
- There is a continual flow of revenue since subscriptions are more often auto-renew.
- You are more likely to retain users in this app monetization model.
- Users are given the opportunity to experience the app without any gated features.
Disadvantages:
- Some users forget about the trial period and are therefore automatically charged the recurring fee without knowing it. They then consider this monetization strategy as a scheme to extort money from unwitting users.
- The free trial model is a great bait for users but only a few percentage of these users end up buying or subscribing to the product.
- This model is not applicable to most app categories.
