All developers aspire to see their apps as the next Clash of Clans or Netflix, but staying realistic, there are still a lot of ways to make profit out of your apps. But how to make money? In order to help you choose the right strategy, we have looked at the most popular monetization models.
Table of Contents
Monetizing mobile: How to make money with apps
Mobile economy is booming. There are already 7,7 million apps in the main stores, App Store & Google Play. Global revenues from apps are projected to reach over $76 billion by the end of the year (Source: BoA), however only 2% of developers account for 50% of all revenues.
But how to make an app profitable? There are many ways to make money with mobile products, and developers need to find the right one that best suit their business needs. Today we will take a close look to different monetization strategies to help you get an idea about them and choose the right one for your product.
How to choose monetization model
Ask yourself a few questions before you begin:
- What benefit does your product provide? What kind of problems does it solve? Does it serve a need? How often can it be used? The answers will build up to your value proposition – a key thing to analyze when choosing a monetization model.
- What unique features does your app provide? Could they act as an incentive for your users to pay for it?
- What monetization models are your direct competitors using? What are their unique features and value proposition? Analyzing competition will help you identify your own niche and choose the best monetization model.
- How will you achieve a significant volume of installs? Without a growing user base, there is no monetization.
- What is your user acquisition strategy? Think about your user acquisition costs in advance and select an adequate model to generate revenue with the costs that you will have.
Monetization models in Mobile Economy
Let’s see how to make money with apps. Keep on reading!
Premium / paid apps
This is the original business model that first appeared on the mobile market. It works very simple: developers publish their apps on the stores, the users pay a fixed price to install it, developers get 70% of profit, and the stores take the rest.
However, in reality this is not the most optimal monetization model, as it creates a strong barrier to download, and can decrease significantly the amount and speed of installs (ranking factors in the stores), and obviously set an obstacle to your user acquisition strategy. This is why, only 20% of paid apps get over 100 installs, and only 0.2% of paid apps can make it to 10.000 downloads (compared to 20% of free apps).
In the case you want to go for this monetization model, make sure you have a strong value proposition, validated by your users in rankings, reviews and through word-of-mouth, and there are no competitors who provide the same features as your app does, for free. Remember that generally the users don’t like to pay, and each time they do it less and less.
Yet another similar option to paid apps is the subscription-based monetization model. The users are charged monthly for the content provided within an app, and is natural to many streaming services (e.g. Netflix, Spotify), language or educational courses (e.g. Memrise, Babbel), newspapers and magazines (e.g. The New York Times, Zinio).
Apps with subscription model usually succeed in getting steady revenue streams, however this model is not suitable for every product or service. These kinds of apps also create the purchase barrier for their users, and the developers need to work hard on converting and retaining their users. Approaches to improving the conversion can be different: offering a free trial or a limited version, and so on, but retaining the users can become a daunting task and requires an excellent curated content within an app.
Another way to monetize is to use them as a platform to sell goods or services. The app itself is free, and the users spend money on products offered inside.
With the proliferation of smartphones and tablets, those have quickly converted in user’s favorite shopping platforms. This has lead to the concept of m-commerce, as opposed to a traditional e-commerce, with numerous successful examples, such as Amazon, Etsy, Zara, Catawiki, Privalia and many more.
Most online shoppers – 60% – are using mobile devices (Source: ComScore), and 77% of all users has bought something online using their tablet or smartphone (Source: Marketing Directo). Mobile commerce already accounts for 1$ out of every 6$ spent on e-commerce, and by 2018, this category is projected to generate $205 billion in retail revenue (Source: Statista).
However, m-commerce is a specific category and it works only for a some certain business categories.
Freemium apps / IAP
Freemium is a hybrid model between free and premium apps. Originally the freemium model provided free limited version of content to familiarize the users with an app and the separate full version with more functionality or premium content was available for an additional payment.
Now it is less common to have a separate premium version published in the store, so freemium model has got numerous variations, from unlocking an ad-free version, to unlocking new features, tools, filters, memory space, or, in case of games, new levels, characters or currency. Today’s freemium apps opt for mini-transactions without making a user to leave an app and go to the store, but making the transaction right inside of an app.
The key to success in this model is demonstrating a value to the users without asking anything from them first. It’s free to go, but you can then unlock additional premium content for an extra price.
The instantaneity of these purchases and multiple ways to apply it has turned freemium model with in-app purchases (IAPs) into one of the most common and profitable one. Especially in the gaming category: in 2016, 90% of revenue on Google Play and 75% on iOS came from games (source: Android Authority).
The most widely used model in this category is the virtual currency. Users purchase the currency that they can later spend on content, generating a revenue for mobile games. Sometimes a few different virtual currencies can be used, when one of them is primary and a significant amount of it can only be acquired with real money, while the other types currencies can be acquired as a bonus in the gameplay, or in exchange for primary currency.
Due to the many forms of applying this monetization model, in-app purchases have become the top source of revenues among mobile games and account for 43% of all mobile games revenues.
However, the most widely used form of mobile monetization is advertising.
In-App Advertising (Ads)
This monetization model is the absolute winner amongst developers: almost 65% of the largest apps and games in the stores use this model. Advertising can be used as an entire monetization model, just as the complementary one to a freemium model.
This highly effective model has been adopted widely by free apps, as it allows to monetize on the advertizing space and their rapidly growing user base. Mobile apps and games with a significant level of engagement can permit selling ad space, which comes in numerous formats, from the most popular ones like interstitial or “interrupting” ads (full screen banners that need to be closed manually) and video ads, to other numerous banner formats in between. Here you can find a list of the best ad networks to monetize your app.
The key to success with ads, native ads or banner, it to integrate them naturally to the user experience. Interrupting the user performing a certain action can lead them to uninstall. Instead, offering a reward can help motivating the users watch an ad.
Read more | 4 Hacks to Avoid Churn with Mobile Monetization
Global mobile app advertising revenues have already exceeded $80 billion and continue to grow, expected to reach $215 billion by 2021 (Source: Digiday).
Now advertising remains the top source of revenue of apps, accounting for 76% in 2017 (36% with video ads, 30% with banners and another 10% with native ads).
How to make money with apps: final thoughts
If you are still asking yourself which app or game monetization model is the best, there is no right answer. Data shows the prevalence of advertising, however if there is no way to integrate it seamlessly into user interface, it can be rather harmful for your mobile business.
Many apps act creatively and mix different monetization strategies to create one that suits them best and goes in line with their product (offering ads free version for extra money, or providing a user with a possibility to get game currency or valuable content by either buying it, or watching a video ad).
How to make money with apps? It can become a disaster if not done right. While pursuing a goal of maximising your revenue, don’t push the users too much and make your product lose its value because it requires too many in-app purchases or the users are being constantly interrupted by ads. Remember about keeping your value proposition clear and delivering your promises to the users. Those are essential in order to drive growth and ensure high engagement, which, in turn, are the key conditions of the successful monetization.