Akhil Chandra is the Founder & CEO of Studio Mosaic (www.studiomosaicapps.com), a full service mobile app studio that offers app development and marketing services to clients across the world. Akhil has over 10 years of experience in the technology and marketing space, that includes working with some of the biggest names in the telecom and mobile app industry in India. At Studio Mosaic, Akhil oversees the business development and marketing divisions and regularly consults app entrepreneurs, startups and large enterprises on their app promotion and app store strategies.
An effective monetization strategy is an integral part of creating a successful mobile app! There are over a million apps in the app store today, most of which are free. But the 90/10 rule applies here wherein less than 10% of the apps generate more than 90% of the revenue on the Appstore. Given this highly competitive scenario where users think twice before spending even $1 on buying an app, how do you create a winning strategy that can make your business viable?
Here are 7 ways you can explore to devise the right revenue strategy for your app –
Let’s look at each of them one by one.
ADVERTISING (Free, but with Ads)
This is the most common model which you might have seen most frequently on your smartphone. The strategy is that you keep your app free which essentially means you offer all app features to your user for no charge in the hope of acquiring a large user base. You then start showing these user ads within your app and you get paid every time a user takes an action on the ad (views it/ clicks on it/downloads an app etc.). It works well if you have an engaging app which people use often thereby giving you a high active user base that allows for higher engagement levels with the ads (i.e views/clicks/installs etc.). More the engagement, greater the revenue for you!
If your user base grows to a substantial amount, it makes sense to start offering segmented advertising to you advertisers. This means that you can start allowing advertisers to segment your user base and selectively target the people they want to reach out to with relevant custom messaging. A greater ad relevance would lead to a higher engagement on the ad and therefore more revenues for you as a publisher. The best example of this would be publishers like Facebook and Youtube that started out as regular apps and have, over time, started offering advertising services to clients to reach out to their large user base.
There are many ad formats you can offer to advertisers depending on where and how many times you want to expose your users to ad messages. Some of the most popular ad units which are prevalent in the industry today are –
- Banner Ads
- Video Ads
- Text Ads
- Native Ads
- Offer Wall Ads
Interstitial and Video Ad formats are known to give the highest eCPMs and therefore give the best ROI.
Advertising most popular revenue model but substitution pays better
As per the Developer Economics report, advertising seems to be the most popular monetization strategy across the app store and the play store.
Advertising is most commonly used in games, lifestyle and social networking apps. For instance, Facebook, Youtube, Clash Of Clans.
My Take – Advertising revenues per user are typically very small. It will only be viable if there is a sizable user base of a few hundred thousand users that keep returning to the app frequently.
PAID (Pay to download)
As the name suggests, Paid apps come with a price for download. Since the user needs to pay for them before downloading, this model has a low success rate, given that a majority of the apps on the app store are free. On the flipside, if you do manage to succeed, the returns can be truly rewarding.
Increasingly the Price of Apps is Free
As per this Flurry report, the percentage of paid apps in the app store have consistently been coming down every year.
The average download rate for these kinds of apps would typically be 1/10th the no. of downloads achieved by a free app. So scaling up is a challenge.
The paid model is more common in the business, productivity, health and fitness categories. For instance, PDF Converter By Readdle, 7 Minute Workout Challenge etc. where users may be a bit more open/ willing to pay for the services.
My Take – If you choose this monetization model, you need to make a real compelling case, through the app store preview video, screenshots and description and of course the app content/ services itself, to convince the user to pay before use.
IN-APP (Offering goods for a price within the app)
As the name suggests, the in-app model allows you to offer additional good and services for a price within the app to enhance the user’s in-app experience. The app itself could be free or paid. Apple defines in-app in two ways –
In-App Consumable – These are in-app purchase items which are for one-time usage only. For instance in-app game currency. These days a lot of games allow you to purchase coins or credits for $0.99 or $1.99 etc. These coins or credits can then be used in the app’s indigenius store to buy new characters, lives etc.
In-App Non Consumable – These are in-app purchase items which are purchased once but last forever. For example, unlocking a new level for a game or an app functionality. Free with in-app is fast becoming a popular model for getting a user for the app and then selling him features within.
This model is fairly common across all app categories including games, productivity, photo & video, lifestyle, business etc. and has been popularly used by apps such as Candy Crush Saga, Tinder, Magisto etc.
My Take – This is a highly effective monetization strategy with great scope to scale up. But care needs to be taken while pricing the in-app correctly. What really works is an all-in-one bonanza pack that unlocks all the available in-app packs at a slightly discounted price. It could well be your most selling in-app item.
FREEMIUM (Free with limited functionality)
This is another popular strategy that works on the the principle of ‘try before you buy’. Apps offer the app free but lock certain premium features that would need to be purchased so as to make the app fully functional. The goal is to give the user a taste of what is in store and then charge them to use the app in an unrestricted manner.
This is another strategy which can easily be adopted across most categories and is therefore gaining a lot of preference. Examples of apps that use this strategy are Evernote, LinkedIn and Dropbox.
My Take – This strategy requires you to strike a fine balance between what you give for free and what remains locked. If you offer too much for free, the user won’t buy anything. And if you keep most features locked, the user might drop off. Leaning heavily on on either side can completely ruin your monetization strategy.
SUBSCRIPTION (Charging a periodic fee to use the app)
The subscription model is very similar to the Freemium model except that you limit content or services in place of features. This model allows users to access and consume limited content (or services) or full content (or services) for a limited amount of time, after which they are prompted to subscribe to a weekly/monthly/annual subscription fee.
As is evident, this works great for news, magazine, music and other content heavy apps. Subscriptions also work well for enterprise, productivity, professional creative, cloud storage apps. Examples of apps that use subscription are Whatsapp and Netflix along with Vogue, Entrepreneur and other News & Magazine apps.
My Take – Only and only if you are producing regular and compelling content would this be a great monetization strategy for you. Users often cancel their subscription a few months after using the app and this is a big challenge.
SPONSORSHIPS (Brand sponsored incentivised advertising)
This is perhaps the newest kind of monetization strategy to hit the app stores. A prerequisite for this is that you should be an already established app with a sizable user base. If you have already achieved success by building a huge base of engaged users then you can directly approach brands to discuss possibilities of advertising within the app that incentivise the users while ensuring that it does not spoil the app experience.
The most popular example for this kind of monetization is RunKeeper. The app motivates users to track their running activity by offering exclusive rewards that are sponsored by advertisers.
My Take – This is probably the toughest method of monetization and requires a close resonance between the app and the brand. Also Apple is heavily cracking down on any form of incentivising and therefore you would need to tow a strict line.
Before you select the monetization strategy for your app, try and answer the following questions –
- What is the purpose behind creating this app?
- What is the problem you are trying to solve?
- Which category does your app belong to?
- How will the user experience be impacted based on your choice of monetization strategy? Will it be hampered any way?
- In case of advertising, which are the ideal spots where there is a drop in user activity? This is the point where you can include ads.
A quick hack would be to check the top 10 grossing apps in your category and evaluate their monetization strategy, pricing and in-app integration. This would give you a fair idea of how to proceed with your app.
Finding the right monetization strategy is all about determining the right goals for your app and how it would lead to higher revenues for you without, in any way, spoiling the user experience. And remember that this is an iterative process and it might take a while for you to arrive at the correct monetization strategy that works best for your app. So don’t fret if you don’t get it right in the first shot. You can keep experimenting before you hit the home run!