3 Reasons Why Relying on In-App Revenue is Not Enough

App developers need to look beyond advertising and in-app purchases to create sustainable revenue streams.

Although mobile applications have the potential to quickly gain traction among users, developers face the challenging problem of generating sustainable revenue through their apps. Experts have estimated that the majority of app developers are only seeing returns of around $500 per app per month through traditional monetization models, such as in-app purchases and advertising, and are barely able to cover the cost of development. If you are trying to generate sustainable revenue from your app, here are three reasons why relying on in-app revenue is not enough.

Competition has driven app prices down

Without any effective barriers to entry in the app market, competition has forced a race to the bottom. Last year, the average price for both iOS and Android apps was under a dollar. While it may be tempting to think that the sheer volume of users would make up for the low price of your app, your app may not reach the expected volume due to the amount of competition in the market.

With over 4 million iOS and Android apps currently available, users can easily find substitute apps that serve the same purpose if they are unwilling to pay for your app. There is also nothing to stop other developers from creating apps that are similar to yours and offering it at a lower price — or even for free. The availability of substitutes has led to promiscuous consumer behaviour where users hop from app to app, looking for ones which provide the best in simplicity, service and value. Attracting and retaining such users is a costly exercise that very few app developers have the resources to pursue.

Revenue models are not aligned with user psychology

A major problem with existing revenue models is that they fail to account for user psychology as a factor that affects revenue growth. This disconnect is apparent in free, freemium and paid apps. While free apps do not cost anything to download and may gain traction quickly, it does not allow for immediate revenue generation. Offering freemium apps with in-app advertising or purchases may be an alternative. However, this often manifests in the form of disruptive pop-ups that create major deterrents for regular usage. Paid apps allow developers to see immediate revenue, but the initial up-front cost will drive away users who are unwilling to pay. As a result, apps that employ traditional revenue models experience slow growth rates.

Despite evidence that apps with in-app advertising lose up to 80 percent of users, in-app advertising remains the most popular form of revenue generation among app developers. Without alternative revenue streams available to them, app developers have no choice but to fall back on traditional ways of monetizing their apps however unsustainable they may be.

It’s all or nothing

If your app is not among the top 1 percent of apps in the market, you could be making next to nothing in revenue. According to a survey from Vision Mobile, an analyst firm based in London, the revenue distribution is so heavily skewed towards the top that among 2.9 million app developers in the world, 1.6 percent of developers make multiples of the other 98.4 percent combined. Only 6 percent of Android developers and 11 percent of iOS developers make more than $25,000 per app per month from app revenue, while the rest make less than $500.

While hobbyists may be satisfied with seeing any money at all, professional developers who want to create a sustainable business around their apps have the odds stacked against them. With existing app monetization models being unable to deliver on stable and sustainable revenue, app developers will have to explore new revenue models in order to survive.

Conclusion

Existing revenue models are unsustainable and are unable to support the cost of app development and user acquisition. In order to generate sustainable revenue, app developers must explore new and innovative ways to monetize their apps instead of relying on traditional revenue models that underperform.

Learn more on how companies can use data to start creating sustainable revenue streams here

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