What Is the Right Monetization Strategy for Your Mobile App? Let’s Find Out!
In 2021, approximately 230 billion mobile applications were downloaded globally, generating over $400 billion in revenue. Recent data projections indicate that the industry will likely surpass $600 billion in global annual revenue by 2025. As consumer demand further rises and competition strengthens, businesses must evaluate and implement a structured mobile app monetization strategy that yields market success today and well into the future. However, it can be challenging to know what is right for your business. In this article, we’ll help you:
- Develop a foundational understanding of mobile app monetization
- Learn the importance of implementing a strategic monetization model
- Discover the five most popular mobile app monetization strategies in the market today
What Is Mobile App Monetization?
Mobile app monetization is the means by which businesses generate sustainable revenue from application users. Consider popular mobile apps such as Instagram, Spotify, Netflix, and Minecraft. Although each application uses a different monetization strategy, they have all adopted one that is profitable and sustainable for their business. The key to choosing the right monetization strategy comes from clearly understanding your target market. We recommend referring back to a few of our previous articles:
- What Is Market Validation & Why Is It Important?
- An Entrepreneur’s Guide To: Building a Value Proposition Canvas
These articles will guide you in your pursuit to better understand your target market’s needs, wants, and fears, allowing you to select the best monetization strategy for your mobile application.
Why Do I Need a Mobile App Monetization Strategy?
Unless your business plans to use its application as a free value add for its customers, you’ll need to establish a stable form of revenue to offset your expenses. However, it isn’t as simple as having the lowest price or matching the strategy of your competitors. As you will see in this article, not all monetization strategies are the same and must be tailored to align with the goals and objectives of your organization. As such, it is important that businesses thoroughly evaluate the benefits, drawbacks, and consequences of each app monetization strategy before selecting one. This more structured approach will help your business deliver an application that resonates with your target audience and serves their needs better than your competition.
What Monetization Strategies Are Available for Mobile Apps?
Let’s take a look at the five most popular mobile app monetization strategies in the market today.
Freemium is a tiered acquisition model that offers users the opportunity to explore a product for free while limiting access to paid premium features. This strategy helps businesses decrease customer acquisition costs (CAC) in the form of traditional marketing by allowing the free version to sell users on converting to the paid alternative. As users begin to reach the limits of their free account, they are incentivized to convert to the premium version that grants users full access to the application’s set of features.
Businesses have three main options for implementing the freemium acquisition model.
Limit Application Features – Think about the music streaming app Spotify as an example. Spotify Free gives users access to millions of songs through its easy-to-use platform for no charge. However, they limit Spotify Premium features such as ad-free listening, unlimited skips, and offline music.
Usage Quotas – Consider the dating app Tinder. Tinder allows users to match, chat, and meet singles in their area for free. However, they limit the number of swipes, “super likes”, and rewinds free users can make in a day, week, and month.
Limit Customer Support and Support Resources – The mobile app Evernote, which is designed for note taking and task management, only offers free users support through online forums. Paying customers, on the other hand, can receive support by phone, email, and online chat.
- Increased brand awareness
- Lower marketing costs
- Large amounts of user feedback
- Low conversion rate
- Increased operational costs
- High churn rate
In-app advertising is a highly used monetization model that sells in-app promotional space to third-party businesses seeking to promote their product offering to a desirable target audience.
There are four primary strategies that app hosts can use to integrate ads into their applications.
Rewarding Ads – Rewarding ads incentivize users to watch video advertisements by granting perks such as free coins or one hour of ad-free app functionality after completion.
Banner Ads – Banner ads display images, text, and pop-ups to capture user attention as they navigate through the native content and features of the application.
Native Ads – Native ads are the least disruptive option for users as they adopt the look and feel of other content in the app.
Interstitial Ads – Interstitial Ads commonly take up the full mobile screen and necessitate action to close or exit the ad.
- Tailored to user interests
- Highest paying strategy for host
- App remains free to install & use
- Annoying & distracting
- May impede app functionality
- Low click-through rate (CTR)
Similar to the freemium model, subscriptions limit users’ access to application functionality by implementing a payment mandate. Unlike freemium, however, subscriptions mainly restrict content access rather than features and functionality. That being said, in most cases the application host or business will offer a trial period that allows users to experience and explore. This particular model is highly used in the media industry by notable companies like The New York Times, The Athletic, and The Globe and Mail. Alternatively, rather than requesting a subscription from the start, some businesses will limit the number of content users can interact with on a daily, weekly, or monthly schedule. Forbes and Harvard Business Review are prime examples of this, as they allow users access to 3-4 free articles per month.
- Steady source of reliable revenue
- Higher user engagement
- Longer retention periods
- Subscription fatigue
- Initial sign-up avoidance
- The constant need to offer new value
With free mobile applications exceeding 90% of available apps in stores, it may come as no surprise that the in-app purchasing model has become increasingly popular in recent years. This model allows users to download the application for free, but encourages them to purchase additional items within the app. Generally, in-app purchases are grouped into the following two categories:
Consumable – Consumable in-app purchases are the most commonly out of the two and have been very successful in mobile gaming. This type of in-app purchase can be best described as “if you use it, you lose it.” Consumable purchases generally refer to buying in-game currency, lives, bonus health, or one-time power-ups that disappear after the user has used them.
Non-Consumable – Unlike consumable, non-consumable in-app purchases give users permanent access to the goods they buy. These purchases often involve the unlocking of rare accessories, hidden game levels, and bonus characters to further enhance the in-game experience.
- Higher frequency of downloads
- Increases user loyalty
- Ability to offer price discounts
- Requires additional user support
- Accidental purchases by children
- May annoy & repel users
The final and arguably the most well-known strategy is the one-time purchase or paid app model. This monetization strategy is the most basic of all five models, whereby a business charges users through the app store to download its application. Unlike the other models, paid mobile apps give users full access to features and functionality without additional payment necessary. Though the model is hard to scale and grow, some businesses have found tremendous success in applying the one-time purchasing model.
- Greater consumer loyalty
- Less app store competition
- Higher average revenue per download
- Lower frequency of downloads
- Harder for startups to scale
- App store commission charges
Choosing the right monetization strategy for your mobile app takes time. Through this process, you may find that more than one strategy aligns with the goals and objectives of your application. Alternatively, there may be one that jumps out at you from the start. Regardless of where you find yourself, always ensure you involve your customers in this important decision. Despite your best intentions and strong dedication to selecting the best one, it’s your target audience that has the final say. The earlier you can receive their feedback, the easier it will be to scale in this highly competitive market. Remember, launching a successful app is hard. Take your time, evaluate each decision, and use every mistake as the foundation for your next iteration.
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Written By Tyler Mikitka, communications officer on the bridge at Vertical Motion.