Recent estimations project that global gross app revenue will double to reach $102 billion by 2020.
As the mobile app ecosystem undergoes rapid expansion, app publishers will find it more and more challenging to stand out in a crowded marketplace.
To capture a slice of the market, you’ll need to implement monetisation tactics that evolve as quickly as the ever-changing preferences and demands of your users.
In this article, I’ll explain six widely used and emerging monetisation strategies for driving in-app revenue.
I’ll also share 3 key trends that app developers need to know in order to monetise their apps successfully in a dynamic mobile landscape.
6 Ways Free Apps Make Money
1. In-app purchase
In-app purchases are typically used with the freemium model.
While the app is available for free downloads, users are given the option of purchasing virtual or physical products, or paying to unlock additional features or new content on the app.
This method is commonly implemented in most gaming apps. An example would be Pokémon GO, where users visit the Touch Shop to purchase PokéCoins, which they can then use to obtain a variety of premium items to enhance their gaming experience.
With gaming apps, a key consideration is presenting the right offers to the right players at the right time. Rather than display numerous options at every stage of the game, you’ll need to assess the purchases that different types of players are likely to make, and display these accordingly.
In-app purchases are also implemented by shopping and e-commerce apps. Etsy is a great example – the app’s simple onboarding process and personalised product suggestions provides users with a seamless and unique purchase experience, and enables businesses to achieve a shorter sales cycle.
With subscription-based apps, users get limited access to try out the app, but are required to subscribe to gain access to exclusive content or unlimited usage.
Content-based apps are the first type of apps that come to mind when we think about subscription models. Marvel Unlimited, for example offers a selection of comics that are available for free, but most of its content is accessible for subscribed users.
Music streaming apps like Spotify also implement this model, providing subscribers with exclusive content, additional features like sharing playlists with other users and ad-free music.
The second category are service-based apps. A wide-ranging array of apps fall under this category – from learning resources (Ekhart Yoga) to scheduling apps (Appointy) and dating apps (Tinder).
The latter has reportedly generated a whopping $285.3 million in revenue in 2016, with over 1 million users paying for additional features like unlimited swipes, Super Like or Tinder Boost, where individuals get to jump the queue to appear at the front of the feeds of other users.
Ads are one of the most common strategies used for app monetisation, and is typically implemented by free and freemium apps.
Here’s an overview of different types of mobile ads:
- Banner ads: As the oldest form of mobile ads, banner ads have garnered a bad name for being intrusive, poorly designed and unengaging. However, it can be effective for apps that are gaining traction: Flappy Bird racked up an average of $50,000 a day from in-app ads at the height of its popularity. Banner ads remain widely implemented as it is a low-cost ad format, compatible across mobile and mobile-web apps and easy to implement.
- Interstitial ads: These are interactive ads displayed across the entire screen, often during key moments during navigation, such as launching the app, or in between games. User action is required, either to close the ad or tapping on a call-to-action to view the desired content.
- Video ads: Video ads are implemented in natural pauses during app navigation, and typically last between 15 to 30 seconds. With rewarded videos, users receive in-app rewards in exchange for watching a video in full. When it comes to video ads, it helps to abide by a few rules: keep it short and sweet (a study by ad-tech startup Visible Measures showed that 19.4 percent of viewers click out of a video within the first 10 seconds), use an eye-catching screen grab and autoplay videos should be muted.
- Native ads: Native ads are content that integrate seamlessly with an app. With its non-disruptive approach, native advertising provide positive user experiences, and typically garners better results compared to traditional formats.
As its name suggests, the freemium model offers both free and premium access: users gain access to a select few features, while exclusive content or additional features are available with a one-off or subscription fee.
An example of an app that has perfected the freemium model is Clash of Clans. While users may advance through the game without spending, the app taps on the impatience of gamers by offering small purchases that enable players to progress through the game at a faster pace.
These small purchases can add up rapidly – the app reportedly generated a revenue amounting to US$ 1.5 million per day at the peak of its popularity.
Sponsorships offer a more target, integrated presence compared to in-app ads. As sponsorships are often negotiated with a single company, the ads are likely to be more relevant to the needs of your users.
When Gayot, an app that offers restaurant reviews written by professionals launched its mobile application, it nailed an exclusive sponsorship deal with The Marriott Rewards Chase card.
The sponsorship was a good fit as Gayot appeals to business travellers who valued fine culinary and travel experiences – a key target audience that Marriott sought to reach out to.
Crowdfunding is a fairly new monetisation model.
Developers present their idea on platforms such as Kickstarter, Indiegogo, CrowdFunder or AppsFunder, seeking donations to fund the development and promotion of their app.
Mobile Growth Stack reports that non-gaming apps seem to be more successful in being crowdfunded: as of May 2017 on Kickstarter, there have been 138 non-gaming apps that raised funding between $10,000 – $100,000, compared to 29 mobile games that achieved a similar funding goal.
But there are exceptions to the norm, like HELLO EARTH. Based on the widely popular celebrity cat, Lil BUB, the game garnered a funding of $148,003 – well past its goal of $100,000.
Three Key trends for app publishers:
1. Subscription-based apps look set to be on the rise
While the freemium model currently dominates over other monetisation strategies, a shift in the ecosystem looks set to take place. As of June 2016, Apple and Google implemented changes which signal that subscription growth will continue to be on the rise.
Phil Schiller, Senior Vice President of Worldwide Marketing at Apple announced a new revenue sharing system for subscription-based apps – while Apple used to collect 30 percent of the monthly subscription, it now decreased its rate to 15 percent after the first year.
Apple also opened up the subscription model to all categories on the App Store; previously, it was limited to a few select categories like media, entertainment or cloud services apps.
Google introduced changes such as an account hold feature, which allows for a service or content access to be blocked for a user if payment isn’t made, as well as a new subscription dashboard that displays subscription data like the total number of subscribers, cancellations and best-selling products.
Following these changes, publishers may increasingly offer apps based on paid subscription or recurring micro-payments.
Already, both app stores have experienced growth: Apple’s 2016 app subscription billings were up 74% year over year to $2.7 billion, while Google indicated that it had seen a tenfold increase in consumer spending on subscription apps over the past three years, while subscribers doubled in the past year.
2. Programmatic and native advertising are rising trends
When it comes to mobile ads, native and programmatic advertising are key trends to keep an eye on.
Andrew Gerhart, COO at AerServ shares:
“No question that programmatic ad spend is growing, and will continue to do so. A recent eMarketer report showed that programmatic was responsible for two thirds of all ad spend, and programmatic mobile video would eclipse desktop in 2017.
If mobile publishers aren’t paying attention to programmatic and figuring out their strategy now, they are falling behind. Native advertising is increasing as well, and we see a lot of customers that want to integrate the ad units due to their non-intrusive nature and seamless aesthetics.”
Similarly, Becky Campbell states in a Think with Google article that while brands have done well in adapting content experiences for mobile devices, the same can’t be said for advertising.
She suggests that “programmatic native could be the answer”, as programmatic buying enables advertisers to make native ads more relevant through tapping on machine learning and contextual signals.
3. Innovative business models and ideas are key for monetising in emerging markets
Over the next six years, over one million new mobile broadband subscribers will be added each day, bringing the total subscribers to over four billion over the next five years.
The majority of these users are likely to be feature phone owners getting their first smartphone, and having access to mobile internet for the first time.
While this presents exciting opportunities for app developers, it comes with its own set of challenges.
The IDC-App Annie Monetisation Report highlights a critical point: while current monetisation models are effective for the current smartphone user base due to their purchasing power, these strategies are unlikely to work for the emerging base of users, most of whom will have lower disposable income, limited access to credit and insufficient purchasing power for subscription or freemium models.
Increasingly, app publishers will have to look towards developing innovative business models and ideas that leverage on a large volume of subscribers.
App Annie suggests implementing a “crowdsourced by-products” model, where businesses start with creating a free app that addresses the needs of its users.
The app then serves as a crowdsourced labour pool that generates a by-product in exchange for the free usage of the app. The by-product can then be monetised by the company.
Duolingo’s initial business model is a good example of this. Back in 2014, the app generated revenue through selling translations to companies like CNN and Buzzfeed.
These businesses sent their news articles to Duolingo, which then used these content as translation exercises for its students. Duolingo then sold the translated content back to the news sites, effectively generating revenue from the “by-product” created by its user base.
If you’re in the midst of figuring out your monetisation strategy, consider implementing a mix of these models, and ensure that your strategies are aligned with key emerging trends.
I’ll round up the article with a final tip: it’s never too early to think about monetisation.
It starts from the concept stage; the type of app that’s developed, the potential target market and its features and aesthetics can impact the final monetisation strategy, so you need to think about how to monetise your app in a way that doesn’t affect your users’ experience right when you’re deciding on these factors.