How to Choose the Best Mobile App Monetization Strategy

Posted on October 16, 2018
By Matt Kaplan, Content StrategistContent Strategist

Before getting any app off the ground, it helps to have the ideal mobile app monetization strategy selected right from the get-go. That way, app revenue is well ingrained in the user experience.

But, how do you determine how to monetize your app? Each app monetization model has its own pros and cons. What works for one app could be totally wrong and misguided for another one.

So, among the various app monetization strategies out there, how do mobile app developers and app publishers decide what will be best for the app and their target audience? After all, you’d likely rather focus on mobile app development, not app revenue.

To help, we’ve compiled this handy guide to walk you through the pluses and minuses of the most common options out there.

Option 1: The In-App Advertising Model

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This is one of the most common - and most lucrative - mobile app monetization options available to mobile app developers and app publishers. Yes, we may be a little biased here, but the data backs us up. Non-gaming apps earn 76 percent of their revenue from native ads, banner ads and video, while gaming apps get 53 percent of their revenue from advertising.

In comparison to other options, in-app advertising offers a few key advantages:

  • Ad-supported apps are, more often than not, totally free to download. This helps to ensure more people likely download and begin using your app, to ensure greater scale right out of the gate.
  • It’s fairly easy to set up. By implementing one or a few ad network and/or ad exchange SDKs, you gain access to ads from the world’s top brands. This makes it much easier to generate revenue early on.
  • It’s profitable. There’s a reason so many of the world’s top apps monetize via advertising.
  • It’s flexible. There are many different flavors of in-app advertising, enabling you to determine how ads appear, what they look like and when they show up. For example, while a gaming app may like having rewarded video ads appear after key levels, native advertisements or interstitial ads are often well suited for news apps. "Fullscreen creatives, interactive end cards, 360-degree ads and others are all possible in-app," says Kayla Wilson, Head of Client Success, Programmatic, for InMobi.
  • It’s universal. Just about any type of app can be monetized through advertising.
  • It’s recurring. So long as an app has users and supports ad formats with decent click-through rates, it can continue to generate ad revenue.

"All players in the mobile advertising ecosystem benefit from in-app advertising. Advertisers reach their target audience effectively and at scale, app developers get a steady stream of income and end users get their favorite apps for free with minimal intrusion," Anne Frisbie, Senior Vice President of Global Brand & Programmatic at InMobi, wrote in AdvertisingWeek 360. "And, while in-app advertising is already powerful, it will become even more of a necessity in the months and years to come."

But, it’s not without its drawbacks. Most people (i.e. your user base) are not fans of ads of any kind, and it can negatively impact an app’s usability if implemented poorly. Plus, between issues related to tracking, data usage/sharing and brand safety, not all brands are yet totally convinced of its merit.

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Option 2: The Freemium Model

With a freemium app, most of the app’s functionality is totally free to use, and likely the app itself is free to download as well. But, in order to unlock additional elements or features, in-app purchases are required from the target audience.

This monetization model can be lucrative for many apps, with freemium games in particular making over $24 a month per user on average. This helps to make freemium model quite popular in games. Over 43 percent of all gaming apps earn revenue through mobile commerce and in-app purchases.

In this kind of environment, it’s easy to see why someone may want to pay extra for a special weapon, a unique costume or another similar in-app purchase. Apps that don’t lend themselves well to in-app advertising, like apps that target children or apps where ads would negatively affect the user experience, can benefit from the freemium model.

The downside to the freemium model is that the app needs to have enough in the free version to entice end users to grab it from the app stores, but also be able to offer more so that someone is willing to pay. Utility apps, like a weather app, are often not good candidates for the freemium model for this reason. And, in order to make significant revenue as a freemium app, the app needs to have sufficient reach plus sticky users to entice enough people towards the premium version (or added features).

Option 3: The Paid Download Model

This monetization model is fairly straightforward: someone pays to download the app. The benefit here is that you earn money upfront for user access to the app, meaning lifetime value and user retention have less of an impact on the bottom line. Games, especially those from big-name publishers, will utilize the paid apps model, as will premium utility apps like high-end fitness trackers and business-centric apps.

Of course, paid apps need to provide significant value to someone to compel them to spend money on it. A dollar isn’t much, but with so many free apps out there, it can be hard to get someone to fork over their money within the app stores. And, app revenues can only scale in direct linear correlation to new app downloads. These reasons tend to make paid downloads a less popular option, which is why most of the world’s top apps are free to download.

Option 4: The Subscription Model

Under this monetization model, users are asked to pay a recurring fee either for use of the app in its entirety or for particular features. Magazines and news publications have long operated under a similar model, which is why it’s popular with the likes of The New York Times and The Wall Street Journal. Apps that work well with the freemium model and the paid download model can make subscriptions work too, as a similar pay-to-play functionality is being offered.

The subscription model is beneficial since, unlike with one-time app or feature purchases, it allows publishers to generate recurring revenue. But, because it’s more expensive, people may be even less likely to fork over their money than they would be with a standard freemium app or a paid app.

Option 5: The Facilitation Model

This isn’t an official name, but it’s one way to describe apps that facilitate a purchase or another transaction even though they’re typically free to download, don’t feature ads or have in-app purchases. Ridesharing apps like Lyft are a good example, as are banking apps. Just about all of the apps behind the growing gig economy fall under this umbrella.

This can be a tempting model to follow. After all, it combines the low barrier of entry of ad-supported apps with the user experience of a paid app. What’s not to love?

But - and there’s always a but - it still must provide enough value to a user to keep them around and paying. Apps like Uber and Bird need a lot of upfront funding to get off the ground, while apps like Wingz never quite cracked through to profitability. It can be a long journey to generate sufficient revenue for many of these apps, and they often require either a successful business or another source of outside funding to get off the ground and keep functioning.

Option 6: The Combination Model

We’ve presented each of these monetization models as an either/or proposition, but that’s not necessarily the case in real life. Many apps will utilize a combination of options. After all, a pay-to-download app could still have a subscription feature, while another app could feature both ads and in-app purchases. A combination can help an app generate additional revenue, but having too many ways to make money in one app can be off-putting to users.

Of course, these are not the only monetization models out there. Some apps, like Angry Birds, make money through merchandising, while others are made and distributed without any regard for app revenue.

What model do you use with your app? Let us in the comments, or on Twitter and LinkedIn!

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