Whenever businesses invest in something, they need to make a return: be it a new location, product or, as we will discuss here, an app.
Nobody could have predicted the success of mobile apps over the last ten years. We went from a world in which the only software you got was the handset manufacturer’s firmware to a thriving ecosystem. Today, users can download millions of apps across a variety of platforms and stores.
The value of the mobile app market is expected to grow to an eye-watering $189 billion in 2020, up from just $88 billion in 2016. Even though only around 10 per cent of users are willing to part with cash for mobile apps, the market is still enormous. Currently, it is growing at double-digit rates.
Businesses and entrepreneurs, therefore, want to cash in on this revenue, but how? How can your enterprise make money from this burgeoning industry? What can you do to monetise your apps?
In this complete guide to monetisation, you’ll learn the basics for building a robust revenue model for your software. You’ll discover the multitude of ways you can generate income from apps while providing your audience with an experience they will love.
The Importance Of App Monetisation
Companies need apps for all sorts of things. For retailers, for instance, apps allow firms to tailor the mobile experience, without any browser overhead. The likes of ASOS and Next already have apps, with many other brands now following suit. Finance companies also need apps. Banks, for instance, want to make it easy for customers to access their cash balances on their phones and send payments to other people.
All of this development, however, doesn’t come cheap. The average cost is somewhere between 200,000 AUD and 1,000,000 AUD (converted from US prices).
Entrepreneurs, therefore, need to make sure that they make a return on their apps, particularly if they are a significant constituent of the business.
But if only 10 per cent of people are actually willing to part with money to buy apps, how are you supposed to generate revenue?
Below we discuss several options. The critical point, though, is this: unless you can generate a revenue stream for your app, it will flounder. Apps need to make money to justify continued development to improve the user experience. If they can’t become self-sustaining, they inevitably die.
The market for apps is growing all the time, primarily because of the boom in global smartphone users. Your job, therefore, is to develop an app revenue-generating model that makes sense for your business and objectives.
Here are some of your options:
Lots of apps facilitate transactions between users. Investor apps, for instance, are free to download but charge a fee if a user wants to buy securities. Likewise, banking apps usually cost nothing upfront but will take a cut every time a user makes a payment or transfers money.
Transaction fees aren’t suitable for every app, but they’re ideal for any entrepreneur in the business or finance sector. This charging strategy is a win-win for all parties concerned. Customers only have to pay you money when they use your services. And businesses get paid whenever users use their resources.
What’s more, transaction fees are highly scalable. Whether you have one user or a million, you can grow your revenue seamlessly.
In-app purchases are another influential strategy entrepreneurs and businesses are employing to drum up revenues for their apps.
Here again, you’re not charging customers for access to the app upfront. Instead, you’re letting them download it for free and then hoping that they will buy valuable services once they install it safely on their devices.
The beauty of in-app purchases is that it is mostly risk-free for both parties. The customer can test out the app to see whether it offers them value. And the developer can push it out to practically everyone who could benefit from it, with very little friction or barriers.
In-app purchases can take all sorts of forms. Here are some ideas you might want to try:
- Options to buy in-game currency or items to progress faster
- The ability to buy extra storage, data or bandwidth
- Pay to unlock extra levels or expansions
- Options for upgrading from essential services, such as getting over-the-phone support
- Options to add multiple additional accounts
- The ability to buy physical products through the app (similar to ASOS)
You get the picture. Intelligent apps dangle deals in front of customers they can’t resist. They provide them with enough value to entice them to use the app. But they also make it eminently clear how much they would benefit, were they to make additional purchases and upgrades.
Data is digital gold. And it is fast becoming the lifeblood of the 21st-century economy. Companies are desperate for any information they get about their customers.
There are many purposes for these data. Some firms collect it to enhance the user experience, tracking bottlenecks and sticking points in their user interfaces. Others collect information about specific users to characterise their spending habits and sell it on to advertisers.
Collecting user data can quickly turn into a PR minefield, so it is vital to put abatement strategies in place before publishing.
If you plan on directly selling identifiable user information to third parties, you must make this clear in your terms and conditions, as well as the app itself.
If you want to sell consumer behaviour data to big data companies, then you’ll want to randomize it so that they can’t then track down individual customers and create tailored ads for them.
Just remember, data collection can adversely affect brand reputation. If people find out you’re selling on their information without them knowing, they’ll abandon your platform and go to a competitor. And you don’t want that.
Your best bet here is probably to keep all identifiable data to yourself to improve the user experience. You can then sell non-identifiable information to advertisers who can benefit from more general insights.
Amazon has a subscription model. YouTube has one too. Even Apple recently moved over to charging customers a monthly fee.
Why are companies doing this? Is it just because of the popularity of Netflix? Or is there a deeper reason?
Subscription models have become immensely popular over recent years for their ability to generate vast sums of money over the long-term.
Selling an app for $5.99 per month sounds like a bargain to the average customers. But if a user continues payments for two years, it generates more than $146.76, which is probably way more than they would be willing to part with upfront. Much more.
Businesses that benefit from this the most are those able to provide on-going services. Netflix, for instance, can monetise its app because it knows that people want access to its content over the long-term, and it keeps making more of it. Amazon too knows that monetizing its app is a good business model. People would rather pay a monthly fee for all their Prime goodies than have to continually pay for shipping.
The primary benefit of this form of monetisation, therefore, is that you can generate a massive, steady and reliable revenue stream. Customers hand over cash month after month.
The cost, though, is that you have to continue to invest in your service and provide new value. You can’t expect people to continue paying monthly fees if you don’t add content, new levels, information, insights or features. You have to keep the engine of development running indefinitely to pull off this payment model.
You could adopt a kind of rental model without making additions, but remember, this isn’t the same as a real subscription. Rental models assume that users pay to use the app for a limited time until they don’t need it any more. Subscriptions, by contrast, understand that there’s a reason why users will hand over money indefinitely.
The so-called “freemium” monetisation model is a portmanteau of “free” and “premium”. It refers to the idea that the app is free to use upfront, but users must pay for additional features.
If this sounds similar to the in-app purchase monetisation model we discussed above, that’s because it is. But, remember, premium purchases don’t necessarily have to be one-time. Companies also offer subscription-based payments through a subscription model. For instance, basic app services could be free, with users paying tiered subscriptions if they want to add more features.
Personal training management app Trainerize, for instance, allows trainers to connect with up to two clients for no payment whatsoever. If, however, they want to manage more clients through the app, they need to pay more, with fees increasing with the number of client accounts.
If you’ve spent any time using apps at all, you’ll know all about in-app advertising. Most people do not like this form of advertising, especially when it is invasive. Despite that, it is an excellent way to generate revenue quickly, without creating any complicated payment systems.
When you create an app with advertising, you become a part of an advertising network. Companies pay to display their ads in your app, and you receive a fee in return for giving up precious screen real estate. The more people who use your apps, the more you get paid.
The trick here is to somehow deliver app content to users in a way that doesn’t adversely affect their experience.
Pulling that off, though, is easier said than done. You have to dedicate at least some space to advertising, which means that you’ll inevitably clutter the UI.
Let’s take a look at some of the different ad types you might choose:
Have you ever gone to a website, only to find a full-page ad that asks you for your email address in return for a goody of some sort? If you have, then you’ve experienced an interstitial ad. It’s a complicated-sounding word, but it just means an ad that separates the experience of the advertisement from the app itself. With these ads, the user has to either enter their details or click to close the box before they can access the content they want.
These ads might sound annoying – and they are. But they also have a significant benefit – they separate flow. Once the user processes the ad, they are then free to use the app unencumbered by any further intrusions.
Native ads don’t stand out. Instead, they slip into the flow of the app, appearing in-line with everything else. Social media companies do this when they insert advertisements into people’s feeds as they scroll through their activity update. Shopping apps also do this by putting sponsored links in product search feeds.
Native ads, therefore, have the benefit that they don’t disrupt the user experience of the app. There are no annoying pop-ups to dismiss or boxes to close. But the downside is that they don’t immediately strike you as obvious, and so they may be missed. Plus, they’re pretty tricky to pull off and require more effort.
Banners are the most popular form of digital advertising, found all over the net. Yes, they make the UI look clunky, but they’re also highly conspicuous. Users know that if they click one, it will forward them to a website where they can buy the advertised product. In that sense, they’re honest.
Finally, some app developers include reward ads. Here you come to some sort of agreement with the user that they will watch the ad in return for a perk – like an extra life in a game. Users like this sort of thing because they feel like they’re getting something out of it. It feels transactional.
When choosing a monetisation strategy, avoid picking the first one that enters your head. Think carefully about which particular model suits the content of your app and the nature of your brand. The more you can tailor it to your current business needs, the better your position will be.