Many wannabe entrepreneurs are looking at mobile apps as a potential business platform. But, the main question is – how to make money off the mobile app? What are the best app monetization strategies for 2020? Let’s see.
Billions of smartphone users use mobile apps every day, and the trend is only growing. It was a landmark year for mobile apps in 2019, which saw a 20% growth in consumer spending in the first three quarters of the year. In the third quarter of 2019, the mobile apps spending reached a record $23 billion from the iOS App Store and Google Play combined, according to App Annie.
The stats show that the mobile apps market is going to grow even bigger. So, it’s no surprise that many business owners, investors, and early-stage entrepreneurs are planning on creating a mobile application.
But, the bigger question is how to monetize an app? How to bring in profit after the development of a mobile app?
The solutions need to be customized to suit your app idea. But you can relax; we’ve got you covered, as we discuss the top trending app monetization strategies.
Let’s dive in!
Mobile App Monetization: The Basics
Matt Galligan, former CEO & Co-founder of Circa, says: “In my opinion, the future of mobile is the future of everything.”
Mobile apps are trending, and it is great to get to basics and understand what’s and why’s. It’s an excellent starting point for brainstorming and build the foundation for your app monetization strategies.
Understanding App Monetization
Picture this—you have a mobile app. You don’t want to charge users for app usage at the point of install, and you still want to make money for the mobile app. That’s where app monetization comes in. It is a way of helping you make money from your mobile app without charging for it.
The app monetization process involves myriad strategies. As you understand your market and target users better, you can crystalize on the app monetization models.
It is critical to adopt app monetization, as it facilitates you in developing the app business model that suits your business needs. Users typically will download mobile apps that are free. Your business model comes to play once the app is downloaded on users’ devices. You can tweak it around to generate cash after download.
The strategy you adopt does not affect the user experience or turn off users, and the mobile app generates growing revenue.
It is decisive that the strategy maximizes revenue while keeping the app experience intact.
Monetization Revenue and User Experience
Picture this—user engagement is high with your mobile app, post-installation. You are ready to set-in the app monetization strategy that will help with growing revenues.
At this point, you would still want your users to stay happy without affecting the app user experience. If the user experience is affected, it may cause users to be turned off.
It is crucial to remember that monetization revenue is typically based on the number of active users. The user experience can directly affect the figure, so it’s vital to keep this in mind when finalizing the app monetization model.
It is evident by now that you need an app monetization strategy in place.
Top App Monetization Strategies for 2020
Let’s take a look at the best app monetization strategies and models to see how we can make our apps to earn money.
1. In-app Advertising Model
In-app advertising is one of the most effective monetization strategies. In this model, app developers get paid to serve advertisements within their mobile apps.
It’s an incredibly fast-growing advertising outlet—the app-install ad revenue in the US is predicted to hit more than $7 billion by the end of 2020. Why is it popular? In-app ads perform 11x better than standard banner ads, with 152% higher click-through rates (CTRs).
Anne Frisbie, Senior Vice President of Global Brand & Programmatic at InMobi, says: “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…and, while in-app advertising is already powerful, it will become even more of a necessity in the months and years to come.”
Pros
- The ad formats in in-app advertising can accommodate the user experience without being pushy or intrusive.
- The strategy also offers advanced targeting options to advertisers, which implies that they are willing to pay to reach the most suitable audiences.
- The wide variety of ads ensures that apps can remain free, making it easier to scale an audience when there’s no cost to download.
Cons
- Your user base may not be fans of ads of any kind, and it can negatively impact an app’s usability if implemented poorly.
- Not all brands are yet totally convinced of the merits due to issues related to tracking, data usage and data sharing, and brand safety.
Example: Instagram
Instagram has been happily engaging users with the ads on the platform with highly specific audience targeting. Initially, when the photo-sharing network introduced ads in 2013, many Instagrammers were worried about intrusive ads affecting the user experience.
However, today, Instagram ads convert at 1.08% compared to a 0.07% average for display ads. Over two million companies use Instagram ads to promote stories and reach a larger audience base. Instagram is estimated to bring in $12.32 billion in global mobile ad revenue in 2020.
2. Paid Apps Model (or Pay-to-Download Apps)
Pay-to-download apps are one of the oldest app monetization strategies. It is quite simple: you set a price and collect the money upfront after the app store of your choice takes its cut. The model was prevalent in 2008, but with growing users of free apps, charging an upfront price may pose to be a barrier to growth.
You would prefer to perform a competitor analysis to see what the standard prices are for your app category. You can gain insights from app download analytics, which will help optimize the price to find the right balance between what customers are willing to pay and your revenue goals.
Paid apps may face hurdles in achieving growth, but they can still be successful when they demonstrate value to customers.
Pros
- Paid apps typically see higher user engagement and loyalty.
- Users are more likely to use something they’ve paid for.
Cons
- Around 20% of paid apps are downloaded more than 100 times, and only 0.2% are downloaded more than 10,000 times.
Example: Nintendo
When Nintendo released the game Super Mario Run for $9.99 on mobile devices, there were concerns about the high price. Despite some complaints, the mobile game generated $60 million in revenues.
It is possible to achieve success with this approach if you work on the value of your app, and users experience this right away. So, five-star ratings with a compelling description, rich UI, and comprehensive feature set can help the model.
3. Freemium Model (Free + Premium)
Another way of monetization of mobile apps is through the freemium model.
The model is a combination of free and premium. It involves two versions of the same mobile app — one version supports basic functionality and is offered for free, while the premium version includes additional features.
The premise behind the model simple. Users download the app and find it immensely valuable as they use it to the point where they are willing to pay for the upgrade to enjoy the additional features.
Pros
- The free version typically creates a loyal user base, as users try before they buy.
- It’s highly flexible and suitable for any type of industry.
Cons
- You need to work on the app free features, so that app churn isn’t too high.
- The time and options are critical for the model. You have to provide your users with sufficient time and options to decide if they should opt for the premium version.
Example: Runkeeper and Runkeeper Go
A GPS-enabled application Runkeeper offers two versions. The free version has features that can help to track walking, jogging, or cycling activities. You can also create a profile, track your runs, set goals, and use a set of basic training plans.
With the premium version, Runkeeper Go, you can get the customized training plans that are tailor-made for you. You can receive the analytics of your fitness progress and also enjoy other features that are not available for users of the free version.
4. In-app Purchases Model
You may decide to keep your application free for download, and still look for strategies of earning money with it—try the in-app purchases model for such an approach.
This app monetization model is particularly useful for games (power-ups, extra lives, or in-game currency), but can also be seen in dating apps (more visible profiles, enhanced options) and other categories.
The model has become increasingly popular. Users initially prefer to spend time playing a free game and spend more, later, as they are hooked on the gaming experience. The numbers show that in-app purchases have been on the rise, and the projected revenue for in-app purchases is expected to hit $71 billion in 2020.
Pros
- The model helps to earn profits without much risk.
- The best monetization model for the eCommerce vertical.
Cons
- You have to pay a commission to the App Store of your choice for selling virtual products.
- Apps need to be highly transparent with in-app purchase policies.
Example: VSCO
The photo editing app VSCO is available as a free download and has been able to successfully monetize its 30 million monthly active users by offering in-app purchases of photo presets.
Preset packs cost between $0.99 and a few dollars, with each set having their aesthetic for creating specific types of images.
5. Subscriptions Model
The Subscription business model is comparatively new to the mobile world. It is quite close to the freemium model and lets users test the app first. You will find the model generating exceptionally with profits for apps with high user engagement.
Example: The apps include music and video streaming apps like Netflix, Spotify, and Apple music; you will also find productivity apps and online periodicals in this category with options like Evernote and Todoist.
The model has two options: non-renewing subscriptions and automatically renewing subscriptions.
Non-renewing subscriptions: In this option, users pay for the subscription-only once and use it for the subscription period (typically subscriptions lasts for one, three, or six months). After the expiration, the user has the choice to buy another subscription.
Automatically renewing subscriptions: In this case, users need to pay for the subscription and then renew it at the end of the chosen period. The typical period for subscription renewal varies from one week or a month, six months, or a year.
6. White-Labeling Model
A “white label product” involves product development by one company and selling of the product under the brand of another company. In simple words, the end-user will consider that the product is made by the company bearing the brand.
The monetization strategy can bring in profits—consider you have written high-end code, you can try reselling it to other brands. Building top-notch apps are time-consuming and expensive, so many businesses have started white-labeling their apps to sell to other companies.
If you have worked hard building the app, then you may as well try and reap the rewards.
Pros
- The model is a powerful strategy to increase your distribution.
- You can maximize your profits.
- The model reduces the commercial risk, allowing to test the market with a viable solution.
Cons
- It can involve over-the-budget pricing and deadline prolongation.
- Your vision and functionality of the product you want may get distorted.
Example: Gamezboost producing game software for other brands.
7. App Data Monetization Model
One of the most effective methods of app monetization is—Data Monetization Model. Many industries have already attempted to generate revenue from customer data. Data monetization is one of the popular revenue models these days.
You can choose to see your data directly and also create hyper-targeted marketing campaigns for existing users. The CPMs are much higher than advertising models, and developers can attempt to generate revenue from user data.
The data collection process has to be secure, transparent with an opt-in option, and a clear opt-out process. You can use this data to boost ad prices and create more relevant adverts.
Example: Foursquare
“Big data is really powerful for the future of business decisions—decisions that have been made in the past on hunches or stale sources of data,” says Foursquare’s former CEO Jeff Glueck when asked to explain the data-based business model.
8. Facilitation Model
The Facilitation model emulates from “facilitation”, which brings in apps that facilitate a purchase or another transaction under this category. The apps that users choose to purchase could be typically free to download, but may not feature ads or in-app purchases.
Example: Lyft
Typically ridesharing apps such as Lyft or even banking apps come under this category.
This model still has a long journey in terms of generating sufficient revenue, but you can consider it as a potential monetization strategy for your app.
9. Combination Model
The combination model is a powerful app monetization strategy, where many apps employ a combination of models. It would be easy to use freemium plus In-app advertising or pay-to-download with subscription features.
A combination can facilitate in generating additional revenue. The key to the success of the business model would be to identify the combination that works best for your app.
10. Licensing Model
The licensing model is a powerful monetization strategy for apps that involve the collection of user-generated data.
If the app has technical means for the collection of data, including geo-locations, you may consider licensing the data to other businesses. You will be able to provide an app for free to your target users and also monetize via its data licensing.
Examples: Waze
App Monetization Strategies—Final Thoughts: You need a mobile app that offers high value to users and is backed by a solid marketing plan.
The deal maker is to understand the analytics in the context of your target users and choose the app monetization strategy that will serve your users best, generating revenues. The real challenge is to find the right balance that will maximize revenue while striking the best experience for users.
Choosing A Right Mobile App Monetization Strategy
These are a few facets that will help you to choose a suitable monetization strategy.
1. Know Your Target Users
The first step is to understand your users before you move to choose a monetization strategy.
You can study the user demographics and app usage patterns to understand what would work best. Do your target users prefer content streaming through videos? Such inputs can help you develop your strategy.
2. Resolve Pain-Points and Offer Value
It always helps if you can get to the root of pain-points that your app users are facing and bring out viable solutions. When you offer value, it creates an experience for the specific user group that spells profitability and user retention.
3. Build a valuable product
The equation with a useful product is always simple—the more value your app is providing, the more the users will want to stay and pay.
The heart of your mobile app is quite apparent then—the value that it offers to app users. The strategies will work only if your app is good enough.
The app trending insights can help developers mull over and continuously bring in more value to mobile apps.
Turn Your Ideas into A Digital Reality with Imaginovation
Your mobile app needs to be backed with the most successful business models. We at Imaginovation have helped many startups and enterprise businesses to build mobile apps with trending monetization strategies.
We have designed a Discovery process, which is our unique approach to perform in-depth research on your app idea and help you turn your ideas into a digital reality. Let’s talk.
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