Choosing The Right Mobile App Monetization Strategy
In a perfect world, you could build an app, launch that app, and the money will follow.
It’s a wonderful sentiment, but the process is more complicated than that. There is a massive selection of users, with more than 2 million apps in Apple’s App Store and more than 3.5 million apps available through Google Play. If you already have a product on the market or have been considering mobile app development, driving revenue has probably been top-of-mind. Building a sustainable stream of income involves defining a mobile app monetization path – just as any other business does.
App Monetization Strategies
Here are several monetization strategies worth exploring. This article will help you determine which model best suits your app.
In this model, users can access app content for free, and revenue is earned by displaying ads within the app. Sometimes revenue is generated entirely from advertisements, but in many cases, this model operates in a mixed monetization model that also offers freemium service (more on this below).
This monetization model eliminates the price point barrier for first downloads and allows users to familiarize themselves with all the ways a product demonstrates value. It’s important to note that this particular model requires a large active user base to generate substantial revenue.
Works best when
- You don’t plan to monetize directly from users
- In-app purchases interrupt the user experience or don’t fit organically within the app
- The nature of your app will result in frequent visits, many users, and long sessions
- You collect demographic or behavioral data
In-App Advertisement Formats
When using an advertising-based monetization model, it’s imperative to ensure the advertisements are relevant and targeted to your user base. Poor quality, intrusive or irrelevant ads can be harmful to engagement and retention initiatives.
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 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 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.
Sometimes referred to as multimedia banners, rich media advertisements incorporate a dynamic element of interactivity. Rich media banners include creative aspects like 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 pretty straightforward. Users pay a one-time fee for downloading the app and access to its full functionality. While this model allows ties revenue directly to the number of downloads, it’s not necessarily the most lucrative model. 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.
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.
Works best when
- You have a strong marketing/PR presence
- The app is better than similar free alternatives (better UX, additional features, heightened functionality, etc.)
- The value is commensurate with the price, and users are willing to pay for it
- You want to tie revenue directly to downloads
The majority of apps on the market offer free downloads, with the ability to make in-app purchases. Users can purchase items within the app, whether physical or virtual in nature (for example, extra lives in a game or items from a retail app).
Works best when
- You have a retail/shopping, services, or gaming app
- You can still profit despite the percentage of purchase taken from Apple or Google
- The in-app purchases deliver real value to the users
- The user experience is engaging enough to encourage repeat use without purchases
The freemium model offers a free download but includes additional premium features that users have to pay to access. This model works on the ability to attract free users, and entice them enough that they are willing to 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.
Works best when
- You want mixed revenue from ads and users
- Premium features add undeniable value
- The free version is tempting enough to attract users and persuasive enough to prompt purchases
- You have a large, active user base
- The nature of your app encourages long sessions
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.
Works best when
- Your app is content driven (news, music, video, etc.)
- The nature of your app encourages frequent, repeat use
Choosing the Right Monetization Model for Your App
Selecting the model that is right for your app will depend on a variety of factors, but your monetization 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 when planning your mobile app monetization strategy.
Start with the App
At the basest level, you need to consider what your app does. What problem does it solve? How does it solve this problem? What is the service/purpose?
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 you are defining your product, competitor research should be a priority. Researching apps that are similar to yours 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 for you? Can you do things differently to accelerate revenue generation?
Look at Your Target Users
Another aspect of product definition that is helpful for choosing 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.
Is your project ready for development? Understanding what mobile app monetization model is the best fit for your product, and how to drive revenue to sustain long-term growth is only one part of the process. Download our mobile app development checklist to find out if you’ve covered all the bases. The list is the most comprehensive downloadable resource to evaluate development preparedness.