App monetization refers to how a business can leverage a user-base to earn money from their respective mobile app. While many enterprises wish that developing and launching a mobile application will result in instant revenue, this is far from reality. Unfortunately, the process is much more complicated than that. With over 1.8 million apps available in Apple’s App Store and more than 2.5 million apps available through Google Play, not only is it important to launch an app that users fall in love with, leaders also need to ensure they select the proper app monetization strategy to convert those users, otherwise, revenues will be lost.
The strategies for accomplishing this are varied, as there are paid apps, in-app purchases, advertising, and other options. Whether you are trying to monetize your app for the first time or looking to optimize the revenues of an already successful app, this guide will provide you with insights into the latest app monetization strategies.
App Monetization Strategies
Advertising Based
This model generates revenue by selling ad space and displaying ads within the app. In-app advertising offers advanced targeting options to advertisers, which means they are willing to pay to reach the most desirable audiences. According to eMarketer advertisers spend more money on mobile devices than on TV — and by 2022, mobile advertising in the US will exceed TV, print, desktop, and radio, thus making this model an extremely viable monetization option for a business owner to choose. However, It’s important to note that this particular model requires a large active user base to generate substantial revenue.
In-app advertisement ensures that apps can remain free (see more on this below), eliminating the price point barrier for first-time downloads making it easier to scale an audience, and allows users to familiarize themselves with all the ways a product demonstrates value.
In-App Advertisement Formats
When using an advertising-based monetization model, it’s imperative to ensure the advertisements are relevant and targeted to a specific user base. Poor quality, intrusive or irrelevant ads can be harmful to engagement and retention initiatives. Therefore, there is a wide variety of ad formats available that allow business owners and advertisers to accommodate the user experience in a way that isn’t disruptive.
Interstitials
Interstitial ads are a reliable form of mobile advertising. An interstitial ad will display the ad creative within the entire mobile screen. Not only do interstitial ads afford more room for ad copy, but they also necessitate action. Whether the user initiates a click-through or closes the ad, a response is required.
The timing and frequency of interstitial ads need to be strategic. Intrusive advertisements, especially ones that take over the user’s screen, can frustrate a user if they occur too often or at times that don’t agree with the user experience.
Banner Ads
Banner ads can come across as spam from a user perspective. This format will pan into view from the top or bottom of the screen. Although this format is relatively easy to use, it is typically not well received.
Personalization is essential for this type of advertisement. Banner ads should be high quality and targeted otherwise they are seen as irritating and inconvenient.
Native Ads
Native ads are the chameleons of in-app advertising being that they have situational definitions. At a very high level, native ads fit into an app’s interface without interfering with the user experience. In other words, a native advertisement will adopt the look and feel of other content on the platform. Facebook ads that appear as user-generated content are a great example of this format.
Rich Media
Sometimes referred to as multimedia banners, rich media advertisements incorporate a dynamic element of interactivity. Rich media banners include creative aspects like an interactive video with dynamic CTAs, parallax scrolling, QR codes, or social media components. This ad format is incredibly flexible and customizable.
Panel or List Ads
Much like the name implies, these ads recommend multiple advertisers at once. The main difference between a panel and a list ad is the amount of real estate afforded to each advertisement. Unlike list ads, panels don’t include as many ads and reserve more room for copy. With fewer ads, advertisers have the opportunity to position themselves distinctly from the competition.
Pay-Per-Download
This monetization model is the oldest and most straightforward app monetization strategy. Before downloading, app users are required to pay a one-time fee and upon download have access to its full functionality. While this model ties revenue directly to the number of downloads an app receives, it’s not necessarily the most lucrative model. While in the early days of apps, paid apps were in the majority, user’s expectations have now shifted. For one, the potential user feels uncertain about the exact fit of the app to their needs and preferences. It’s difficult to convince someone to pay for something they haven’t tried, especially when there are so many free alternatives. Today, charging an upfront price can be a barrier to growth.
If a business owner; however, chooses to use this model, it is important to note that converting searchers into users requires an exceptional app listing, great press, excellent reviews, and a marketing plan prepared to communicate the app’s value over other, similar free options. Furthermore, the lifetime value (LTV) of users in this kind of model isn’t necessarily higher than it is for other models.
In-App Purchases
As the majority of apps on today’s market are free (freemium apps) the in-app purchases monetization model has become increasingly popular. This model allows users to purchase items within an app, whether physical or virtual, which is particularly effective for mobile games (i.e. extra lives, in-game currency). When done right, in-app purchases allow app publishers to deliver real value to the users, resulting in a win for both the business owner and the user.
While this model can make sense for a lot of business owners, they should keep in mind that not all users are willing to pay for these items. However, recent reports do suggest that willingness to spend in-app is increasing. Sensor Tower reports that the amount users spent in-app in 2019 was 17 percent greater than in 2018. For those interested in using this model it is important to ensure the user experience is engaging enough to encourage repeat use without purchases and that the purchase options are enticing.
Freemium
The freemium model offers a free download but includes additional premium features that users have to pay to access. This model is centered around an app’s ability to attract free users and entice them enough to have them pay to enhance their experience. The advantage of this monetization method is users have the chance to try the app before they pay for anything—unlike the pay per download model. The disadvantage is it’s difficult to strike a balance between offering too many or too few free features.
Driving revenue from a freemium app is dependent on engagement. A successful freemium model delivers an engaging experience to every user, regardless of their purchasing decisions. Freemium apps are so effective because they build trust by demonstrating value and quality without requiring anything from the user.
Subscriptions
Similar to the freemium model, subscriptions focus on gating access to content rather than features (the same model that many online publications and streaming services employ). Users download the app for free and can access a limited amount of content before they are prompted to pay for a subscription, functioning as a free trial. The advantage of this model is it provides developers with recurring revenue. However, like the freemium model, it can be difficult to determine how much content a user should access before they’re required to subscribe. This model is also quite limited by vertical; it typically works well for news and entertainment apps.
Choosing the Right Monetization Model for Your App
Selecting the model that is right for your app and overall business objectives is dependent on a variety of factors, but a monetization strategy needs to be laid out before launch. Business objectives will dictate the app monetization strategy that your app employs. Here are some considerations to keep in mind while planning a mobile app monetization strategy.
Start with the App
At a base level, business owners need to consider what their app does. What problem does it solve? How does it solve this problem? What is the service/purpose? How much does it cost to develop the app?
As already discussed, some models will lend themselves better to particular types of apps. For example, subscription models work best for services like music or video streaming, news and entertainment, and other applications focused heavily on content. In-app purchases, on the other hand, are lucrative for free-to-play games and apps centered around products, for example, shopping/retail apps.
Look at the Competition
When defining a mobile product, competitor research should be a priority. Researching apps that are similar or are in the same vertical is an essential aspect of product development and determining potential monetization models. Namely, how are competitors monetizing? How well are their models working? Is there a gap that presents an opportunity? Can something be done differently to accelerate revenue generation?
Look at Your Target Users
Another aspect of product definition that helps choose the appropriate mobile app monetization strategy is user research. Who are they? What do they want? Most importantly, what are they willing to pay for, if anything? As a general rule, users need to be shown value to make purchases. For apps that are pay-per-download, demonstrate value before acquisition; with free downloads, the value proposition needs to show through the experience or utility of the app.
Regardless of the app monetization model you choose for your application, remember that it is not an afterthought. It should be baked into your business plan well before the launch of your app. The last thing you want is to invest in a product that has no useful model in place for generating revenue.