A Complete Overview of App Monetization Strategies

The mobile app market is one of the largest in the world. Billions of people devote billions of hours to their phones and tablets every day. This creates endless opportunities for developers to turn their products into sources of stable income. Today we will explain all possible ways of monetization and how you can make money with your app.

Why monetizing your app is crucial

It should come as no surprise that mobile apps can be extremely solid sources of income. The total number of app downloads in 2018 is 194 billion and its number keeps growing every year.

The overall number of app users globally is exceeding 5 billion and their global revenue is forecasted to reach 189 billion dollars by 2020, according to recent research. Needless to say that so many users present an amazing opportunity for developers to make money with apps.

Worldwide mobile app revenues
Worldwide mobile app revenues in 2014 to 2023 (in billion U.S. dollars) Source: Statista.com

But how to make customers pay you? According to statistics, users tend to spend 50 percent of time in their most favorite app, while 97 percent of time is devoted to their personal top 10 apps. Most people prefer social media, like Facebook and Whatsapp, or entertainment, such as YouTube or Netflix.

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As a smaller developer, you will have to compete for your users’ time with these giants, and choosing the right monetization strategy can either help you by enhancing your app user experience or scare away your audience.

Which monetization model to choose

When it comes to mobile industry, the right monetization model can make or break your success as a developer. There are a lot of options when it comes to app monetization and some would suite certain app types better than others. Once you dive deeper into the topic, it becomes apparent that even nuances like different user behavior in different stores can play a significant role.

These are the most widely used ways to monetize your app. Later in the article, we will also take a more in-depth look at each monetization method.

  1. Premium/light apps: when you create and publish two versions of your application. The light version is available for free and allows users to access its core functionality. More advanced features remain blocked, and to unlock them users have to pay a one-time up-front fee which they can do either by downloading a premium app or purchasing a premium version right from the free app.
  2. In-app subscriptions: subscriptions are charged on a regular basis, usually monthly, once in three or six months or even once a year. They give customers access to additional content that is normally blocked behind a paywall.
  3. In-app purchases: instead of charging for your content regularly, you can create premium content that requires a single-time payment to unlock. An app using this method will usually have free and premium content which allows to lure users in with more general information first and then offer to purchase something more complete or in-depth.
  4. Paid apps: this method assumes that users have to pay for your product before downloading it. Users mostly don’t like to pay upfront, so this approach may work if an app is well-known or there is no other competitors available for free.
  5. Advertising: you can use several ad networks that allow you to display ads in your application and make money for clicks or impressions. Ads are available in a variety of formats, each of which can work better or worse depending on your app category. Furthermore, certain networks provide more options and are more friendly when it comes to the ease of use, while others require some development experience to set up.
  6. Rewarded content: a form of ad-based monetization in which users are offered to complete an action and get a certain in-app benefit in return. Such actions usually include watching a video or downloading other apps from the store.

Analysis of Monetization Models

Let's move to the various monetization models and the advantages and disadvantages of each one.

1. Subscriptions

This payment method is becoming more and more popular. What’s more, according to a study, engagement rate for subscription apps has risen 32 percent from 2017 to 2018, and this trend is only continuing in 2019.

Subscription is a recurring payment that is billed regularly over a set period of time. Every month, for example. Subscribed customers get access to the content or premium features. Subscription is used when you provide a lot of quality content or deliver regular services or goods.

Apps that use subscriptions as the chosen monetization method usually provide a free test period when customers can enjoy all premium features for free. One month or 14 days are popular periods. This helps to improve conversion into paying users.

Example:

For instance, the Spotify app charges money for access to their exclusive library of content.

The most popular streaming service Netflix requires users to subscribe to unlock the content. Netflix provides a free month to try out the service and then offers 3 payment options with the cheapest one having the worst streaming quality and the most expensive one allowing to stream in 4K.

Pros:

  1. Customers are likely to use the app for multiple months which contributes to a higher LifeTime Value.
  2. Allowing users to access the content for free before asking for payment is a great way to test premium features and improve conversion into paying customers.

Cons:

  1. Unless your app provides extremely high-quality content or a valuable service, it will be hard to retain customers.
  2. To keep the users engaged an app needs to have a very large or very frequently updated content library.
  3. It may be tricky to find a good middle ground between providing enough incentive to upgrade to a premium plan and not providing too much in the free version.

2. In-app purchases

One of the most popular monetization methods. Despite the fact that only 5% of users make in-app purchases, the revenue gained from this small percentage surprises the revenue made from all other users by 20 times, according to research.

In-app purchases are simply paid-Prosems available in your app. They can exist in a variety of formats:

  • additional content like new training programs in a fitness app.
  • an upgrade in a multiplayer video game that gives the user an advantage over the opponents.
  • a certain amount of in-game currency that can be obtained in exchange for real-world money.

The defining feature of purchases is that a user obtains premium content permanently in exchange for a single time payment within the app.

Example:

An example of an in-app purchase would be the ability to obtain football players for your club in EA FIFA series of games in the ultimate team mode. Even though it is possible to progress in the game without spending money, customers can speed up their progression by buying stronger players for their squad.

Image courtesy of AndroidCentral.

Pros:

  1. The core application can remain free of charge which allows attracting more users and improves the conversion into download.
  2. You can still use other monetization methods such as in-app advertising or even charge for a premium app where all paid features will be unlocked.

Cons:

  1. Only 5% of users in app stores actually purchase anything in apps.
  2. It is difficult to predict your revenue from time period to time period.
  3. Customers sometimes make purchases accidentally and your business model should include the possibility of making several refunds.

Google Play Store vs Apple App Store statistics:

In-App purchases are significantly more popular in the Apple App Store as compared to the Google Play Store. 7.1% of iOS users make at least one purchase every month versus just 4.6% of Android users.

The average purchase: iOS — 12.77 USD vs Android — 6.19 USD

3. Paid Apps

This monetization method is pretty straight forward. Users can only download your app as soon as they make an upfront payment. It works best for applications that solve very specific problems of a relatively narrow target audience or provide a lot of value to the customers. Mobile games also often require up-front payment to download the full version.

Example:

Image courtesy of AppFollow

Minecraft is currently the top downloaded paid app. Mad popularity and high levels of trust allow this game to get sold so well despite its steep price for a mobile app (moreover, it includes in-app purchases as well).

Pros:

  1. Since you are getting a fixed amount per download it is very easy to calculate your revenue.
  2. You can expect that customers will leave a good review as all features are unlocked from the get-go and intrusive, and spammy advertisements are completely absent.

Cons:

  1. Getting downloads is more difficult as the trust level is low when you are a lesser-known developer. Users will always rely on app reviews, so you must keep them positive.
  2. You are competing with similar apps that may provide the same core functionality for free, even if the high standard of user experience is somewhat lacking.
  3. You are basically saying no to all other monetization methods if you make your app paid. Users will be disappointed to discover that some functions are hidden behind a paywall or there is distracting advertising.
You need to get a very high rating of at least 4 stars if you want the majority of the customers to even consider downloading your product as long as there is the up-front payment.

4. Mobile Advertising

The mobile advertising market is one of the fastest-growing ad markets on the planet, with global spending on mobile advertising forecasted to reach $274 billion in 2019.

Mobile ad marketing allows developers to earn money while keeping their products completely free. News, entertainment, gaming, and e-commerce apps often approach this method.

Using ads does compromise user experience, as some ad formats can be quite intrusive and distract from your app or content.

Example:

The Huffington Post and Mail Online both adopted mobile ads to monetize their apps.

Image courtesy of Splitmetrics

Pros:

  1. Apps remain free for users allowing to acquire a large user base and improving the conversion into download.
  2. There are a lot of ad providers and ad formats, which allows you to pick the best option.
  3. You can mix in-app advertising with other monetization strategies. A good example is to provide a paid premium version of an app which is ad-free. This will allow you to benefit from customers willing to make an in-app purchase and those who don’t want to spend any money at the same time.

Cons:

  1. If you make ads too intrusive, you will compromise user experience and scare your users away.
  2. Ads must be relative to your users’ interests in order for this monetization strategy to work.
  3. You need to design your app with ads in mind from the get-go to make sure that they don’t end up covering important elements of the interface or content.

Types of mobile ads

Mobile ads are not as straightforward as some of the other monetization methods because of the variety of different formats and providers.

Image courtesy of idownloadblog

Choosing the right format for your app directly influence your revenue and the overall effectiveness of this monetization strategy.

1. Interstitial Ads

Interstitial ads always take all space of a screen and can come in the form of a video or a static image. They usually appear after a user performs an action, like moving from one article to another or clicking a button to start a new level in a video game. Sometimes interstitial ads will appear before exiting to the home screen.

Usually, users will be forced to watch an ad for a few seconds before an “X” symbol will appear, allowing them to close the screen and continue to interact with your application. Even though customers have to spend some time looking at the ad before they are able to close it, interstitial ads are not too intrusive as they don’t really block content and usually are very easy to exit.

Image courtesy of Quora

2. Banner ads

Banner ads are probably the most recognizable ad format because we have seen them so many times while browsing not only on our mobile devices but also on our PCs and Macs.

They can come in multiple formats some of which take more of the screen space than others. Thus, the USA Today app has chosen an unobtrusive banner at the bottom of the screen that expands when clicked.

Image courtesy of Funmoblity
Image courtesy of Mobileads

The image above shows two ad types, one of which is interactive. The rich banner on the left allows users to tap on it to display alternate information, increasing the engagement.

Some of ads take up more screen space than others which can increase the conversion into clicks and your ROI as long as the targeting is spot on.

3. Video ads

Video is an extremely engaging format and as long as an ad is well crafted and targeted correctly. One can expect a high click-through rate from this form of mobile advertising.

Keep in mind that a video ad will usually run from 15 seconds up to a minute before it can be skipped which can certainly aggravate some users.

Image courtesy of Florencia Vago via Medium.

4. Native ads

Native advertisements are designed to look like normal content of your app, which makes them the least intrusive type of mobile advertising that does not distract from user experience.

If your app has any feed, a native ad would be the best fit, as it looks like one of the news entries. With a proper targeting it will only enhance the experience, providing customers with relevant information.

Image courtesy of Developer Network

You can see in the example above that the Yahoo News app shows an advertisement right before the news, it looks like another article in the feed and does not distract from the content.

5. Rewarded content

Rewarded ads look very similar to normal ones except they provide users with a certain benefit for watching them.

Such a benefit may include a small number of in-game currency, progression points or exclusive collectible items. Whatever it may be, the key is that users receive an incentive for watching an ad.

In case of video ads, once clicked on, they can’t be skipped halfway as opposed to normal videos.

Image courtesy of Applift

Other ways to monetize your app

Monetization methods described above are the most popular ways to make money with your app. However, there are other alternative ways that can work well, especially for smaller developers.

1. Partnerships and sponsorships

You can partner with other companies directly and exchange traffic to enhance your other monetization methods. This is most effective when your partner provides a product that is close to the interest of your own user base and preferably even enhances your own app’s experience.

Another way of direct interaction with other brands is securing sponsorships. For example, if you have a skateboarding blog, you can reach out to skate companies that produce gear and include information about them in your articles in exchange for a reward.

Of course, securing sponsorships will be easier if you contact smaller companies at first. Getting noticed by large corporations requires you to have a very big user base.

2. Donations

If your application provides a lot of value to a community of people centered around an activity, like photographers or programmers, smaller developers can opt to ask for donations. If people really like your content or product, they will want to support you as a developer.

This monetization method won’t work unless you are a single developer — it would not be appropriate for a corporation to request donations from its customers.

3. Data monetization

If your application is used by a lot of people, you can generate information about their behavior and sell it as anonymous data. With modern development tools, collecting information about user behavior is easier than ever before.

At the same time, there are a lot of companies looking for statistics that can help them with the development of their own products. This field is called Big Data and it’s a huge market on its own.

To tap into this market, your app needs to have a large user base and ideally collect information about user behavior in a popular field like e-commerce.

How to choose the best monetization strategy for your app

There are several tricks that you can use to reduce the risk of choosing a monetization strategy which does not suit your app type. Let’s explore how to narrow down the way of monetizing your app.

  • Don’t neglect what your competitors are doing: your app is not the only one in its category. A good way to see which monetization ways will work best for you is to look at what monetization methods your direct competitors adopt. If the majority of them are using the same monetization strategy, chances are you don’t have to reinvent the wheel. For example, find out how much your competitors charge for their subscriptions when choosing the proper price.
Image courtesy of AppFollow.io
  • Consider your target audience: the narrower your target audience is and the higher their pain level is, the more sense it makes to charge an up-front payment for your app. On the other hand, if your target audience is very wide, you should consider less intrusive ways of monetization that won’t scare your customers away.
  • Consider your unit-economy: try to calculate which way of monetizing can be the most profitable for your particular application. For example, if you expect a lower number of downloads, but your audience is likely to use your app a lot, a subscription-based business model can make a lot of sense.
  • Research your local market: when coming up with pricing conduct a comprehensive research of any local market where you plan on launching your app. Take note of general income levels as well as the pricing of your competition working in the same market. This way you won’t have trouble because you priced your app so high people simply can’t afford it or so low that you are missing out on a big chunk of potential revenue.

Differences in the monetization strategies in App Store and Google Play

Interestingly, people don’t spend money the same in both stores. Data shows that iOS users have a higher tendency to spend money on mobile apps than Android users.

This is a result of several factors including lower tolerance to ads among iOS users and more paid content in App Store as compared to Google Play. Don’t forget that Apple products are considered to be premium.

As a result, 46% of iOS users said that they would consider making a purchase to have an ad-free experience compared to only 38% on Android.

The difference is much more significant when it comes to premium app ownership. 45% of Apple users have at least 5 apps that they purchased as compared to only 19% of Android users.

This data clearly indicates that monetization strategy that does not obscure most of the content behind a paywall and allows customers to get access to the app functionality for free might be more successful in Google Play Store. At the same time, App Store users are more likely to make an up-front purchase or pay for a subscription.

How to Increase The Number of Your Paying Customers

So, you have narrowed down the best monetization method for your app and started working on generating revenue. Now you need to optimize your monetization methods and tailor the user experience to effectively make money.

Thankfully, there are tools that can help you analyze the behavior of your users so that you can make changes to your app and streamline your monetization strategies.

Improve Conversion with Google Analytics

You can use Google Analytics for Firebase to collect in-depth information about how users behave in your app and learn about their engagement. This will help you understand at what point you are starting to lose customers and what changes you need to make to improve the conversion.

Whatever your monetization method is, you will always deal with conversion trying to make users interact with a call to action or staying engaged with your content for as long as possible.

If there is something that stops the users from spending time in your app, you want to know about it and fix it.

You can use Firebase to track the behavior of your customers. Follow this guide to set up your account and you will start gaining useful data within hours after setup.

Grow Game Revenue with Player Analytics

If your app is a video game, you can receive custom-tailored statistics through Player Analytics. This is a service developed by Google that provides a special report about the in-game behavior of your customers.

The service is easy to set up and gives you an insight into how gamers are actually interacting with your app, how far they make it in the game and why they stop playing. Such information is extremely valuable when making informed decisions about changing any aspects of your app.

Summary

App monetization is a huge market that provides enormous potential for developers. With over 195 billion app downloads and $101 billion dollars spent in app stores in 2018, according to the report by App Annie, the mobile market is going to continue being one of the major revenue sources for companies or all types and scales.

Furthermore, mobile engagement rates are growing every year. The Z-generation is spending 30% more time even in non-gaming apps compared to the older demographic, which means that mobile devices are becoming more important parts of our lives.

Today developers have access to a variety of monetization methods that can work for every type of app, most of which are extremely easy to set up with even the most basic mobile development knowledge.

Use this article as a starting point of your journey as a successful mobile app developer.

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