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App Monetization In The Digital Age

Marissa Delisle
Marketing Specialist at Digital Turbine
Feb 15, 2017

Discover the many ways you can monetize with the mobile boom!

With total global app revenues projected to reach over $76 billion by the end of 2017, it is important to ask ourselves one essential question:

Why did we build our apps?

While it is undoubtedly true that all app developers want to increase consumer loyalty, develop product awareness, and provide users with a tangible benefit — if we respond with any of these answers, we are not being completely honest. If we were to answer the question 100% truthfully, with the response that is necessary to survive and thrive in today’s mobile boom, we would use one word:

Monetization…

Let’s admit it, we all have dreams of becoming the next Vine, Instagram, or Whatsapp. Yes, we want to stimulate user loyalty and provide our consumers with utility, but in the end, we wouldn’t mind too much if we discovered the next billion dollar app either. One of the hardest truths of the digital age is the fact that only 2% of app developers share over 50% of all app revenue. Competition is fierce, and while the chance of monetizing the next “big thing” is statistically slim, it can be significantly improved by proper planning and monetization model selection.

To help with this selection process, we have outlined some of methods we believe to be viable options for navigating the 2017 mobile boom. As you read and review each one of the models, it is important that you continuously remind yourself of the following monetization building blocks:

  • Value Proposition: What problems do your users have and how are you solving them? A strong value proposition is a key component to any monetization model.
  • Features: Does your app provide unique features and benefits that would incentivize your users to pay for access?
  • Competitors: What models are your competitors using? How do they present their value proposition? What unique features do their apps provide?
  • User Acquisition: Generating revenue and user acquisition go hand-in-hand. Without a sound acquisition strategy, it will be difficult to optimize your model selection.

Without further adieu, let’s take a look at a few of the many ways you can monetize your app!

Model #1 – Paid Apps/Subscriptions

Perhaps the most widely recognized app monetization model, charging consumers for an app download is as basic as monetization gets. It involves charging users an initial download fee, and placing a cost barrier in the way of downloading the app. Said another way, you are purposefully implementing a barrier to initial user acquisition. It is for this reason that, if you decide to go with the paid app route, you must be able to clearly demonstrate your app’s unique value proposition to your target market (i.e. why they should elect to pay for your app rather than download a similar free version).

While paid apps are the traditional face of the Google Play and iOS App Store, this technique is generally not the best route to select as a monetization rookie. Why? Well, with only 20% of paid apps ever attaining over 100 downloads (as opposed to over 20% of free apps reaching 10,000 downloads), it takes an amazing value proposition to convince potential users to “pay-to-play.”

That isn’t to say that no one will download your app, but a successful paid app typically requires the following three elements:

  • There can be no “free but equal” competitors on the market.
  • Your product must be validated through app reviews or word-of-mouth marketing.
  • You must aim to minimize app maintenance and upkeep costs (as compared to the number of downloads).

These three goals are hard to accomplish, and it may be an explanation as to why up to 90% of iOS App Store apps and almost 70% of Google Play apps are free. It could also explain why, in 2017, the marketing gurus at Emarketer predicted that only around 33% of mobile users will actually pay for an app.

Yet do not fear, for if your goal is to attain a consistent revenue stream, there are other similar options available. One such similar option is to implement an app subscription service (as opposed to a one time fee). This means that you charge users a monthly expense to access your value. If you are looking to provide a streaming service (i.e. Netflix), or a language education app (i.e. Memrise), this model makes sense, especially when integrated with a free trial offer or free version. Similar to paid apps, you are still placing your content behind a paywall. While subscriptions present a lower turnover rate and more consistent revenue streams, they are not appropriate for all product/service/content offerings.

Model #2 – “Freemium” Apps (In-App Purchasing)

Another model of app monetization is a hybrid category that lands somewhere between being a free download and a premium purchase…

The “Freemium” App.

How exactly does one monetize a “freemium” app?

Glad you asked! Here we will present you with two potential solutions for freemium app monetization. To start, let’s turn to what is called “in-app purchasing.” As the digital age’s current king of revenue, in-app purchases in 2017 are expected make up 42.6% of all app revenue in 2017. The basic idea behind in-app purchases is that you allow your target users to download your app for free, and then improve their app experience in exchange for money in the form of micro-transactions and digital content purchases. While most of your go-to app content should be available from the start (otherwise who would download?!), most in-app purchases are driven by the consumer desire for added value.

This technique is commonly used by app “gamers” to facilitate micro transactions within games to allow users to access a checkpoint or ability that they could have waited for. This one-two punch of exclusivity and instant gratification has played a huge role in the success of mobile gaming. An important upside factor to note, and one of the reasons why in-app purchasing is so popular, is that even though you are likely to have more free users than paid users, the non-paying users become great word-of-mouth promoters. They attract other users who are willing to pay, and can go a long way in contributing to your iOS App Store and Google Play ranking.

A second “freemium” in-app purchasing strategy is to begin by allowing users only a limited degree of app functionality upon download, and then present users the possibility of a functionality upgrade. Likely coming in the form of either a single or a series of one-time purchases, this technique is categorized as a “freemium” technique because apps that apply this strategy will still have some degree of functionality when they are originally downloaded. Potential functionality upgrades could include more login time, memory space, ad removal (similar to subscriptions), and enhanced customer/tech support.

Model #3 – Free Apps (In-App Advertising)

Another highly effective monetization technique is to integrate free and “freemium” apps together via in-app advertising. Specifically, we are referring to displaying promotions on your app in the form of native ads or banner ads.

If you offer a product that compels users to spend a lot of time engaged and using their phones (i.e. watching, playing, or interacting), you should consider this as an essential element of your monetization strategy. The reason in-app advertising is often associated with free apps is because free apps stand the best chance of rapidly widening their user base. This means developers can acquire user data and sell ad space on their apps. While in-app advertisements can include everything from video to interstitial ads, the two types of ads that are most often used in mobile app advertising are banner ads and native ads, both of which we have previously covered in detail. Whether using banner or native, it is imperative that your in-app advertisements integrate as a seamless part of the user experience. Nothing motivates an app deletion faster than an intrusive interruption of the user experience.

Another important focus point when it comes to in-app ad campaigns is the type of advertising payment model. The acronyms used to describe advertising payment models may be confusing, but they can all be broken down and simplified by remembering how the methods pay out:

  • CPM: Also know as cost-per-mille (i.e. thousand impressions), this is a campaign type where the end goal for the campaign is for the ad to be seen by the user on the mobile platform. “Impression” refers to when an ad is retrieved and placed within a user’s app for the user to see. This type of campaign goes great with rich media.
  • CPC: Also known as cost-per-click, this refers to when advertisers pay a fee for each and every time an ad is clicked on. CPC campaigns have the potential to provide intimate consumer insight, and can be very cost effective IF you can maximize conversions.
  • CPA: Also known as cost-per-acquisition, this refers to the measure of the costs of acquiring a new customer. CPA, unlike other campaign payment models, is a financial metric used to measure the revenue impact of your ad campaign. The lower your CPA, the more cost-efficient your campaign is functioning.
  • CPI: Also known as cost-per-install, this refers to a campaign where the goal is user acquisition. When CPI redirect links are implemented, advertisers pay per the number of people who use the link to install the app. It is low cost, low risk, and you don’t spend money on users that don’t convert to installs.

Of all the ad campaign payment models available, CPI is perhaps the most effective measure when it comes to app monetization. Why? Well, as a performance-based pricing metric, CPI campaigns are suited to developers, advertisers, and marketers that want guaranteed installs. With every install that your app achieves, it gets ranked higher and higher on the iOS App Store and the Google Play charts, thereby promoting visibility, improving organic growth, and increasing the likelihood of more downloads.

Remember, premium advertisers are looking for premium return-on-investment. This means that to get quality offers on your in-app advertisements, you have to play where the big boys play, and that is with CPI.

In Conclusion…

While the above list of potential app monetization models is by no means exhaustive (i.e. mCommerce, sponsorship, and app marketplaces), you should now feel comfortable with the basics of app monetization in the digital age. Remember to always keep in mind your app’s specific monetization building blocks, especially when it comes to your target market and your app’s unique value proposition.