Boom and Bust - A Data-Driven Lesson on App Store Monetization
Getting app monetization right is not easy. It involves strategies ranging from advertising and subscriptions, to Kanye West’s worst nightmare, in-app purchases, and various types of promotions and special offers. Any such decision can be a turning point for a publisher’s business, especially when they are not sitting on piles of venture capital cash.
Such is the case of Pixite, an app-developing team of six that was able to ride on the coattails of the emerging App Store economy of the late ’00s until last year. The company’s inability to understand the ever changing dynamics of the App Store, especially in regards to how to sustainably make money (a question that maybe, maaaybe some might deem important), was the subject of Casey Newton’s feature on The Verge, Life And Death in The App Store. The article’s timing was perfect (for me, at least), as it came out right around the same time that I was taking a look at how Leap Day affected 5 apps in the App Store.
To celebrate this Leap Year, the Apple App Store offered 5 apps and games — that normally go for a total of $15 — for free. It was a great experiment, because what followed was nothing short of explosive: Bridge Constructor shot from place #488 to #2; Super Sharp, never ranked in the Top Charts before, shot to place #3, Video editor Spark Camera jumped from place #1053 to place #4, Windy, also previously unranked, shot to #6, Tayasui Sketches+ went from #1336 to #8 (all in the US-Overall Charts).
The Leap Day ‘experiment’ shows the impact that a price tag removal has on consumer demand — even if short-lived. These five apps normally yield between $100 and $1000 per day in install revenues that come from 100 to 200 daily downloads. These numbers are not bad at all. However, as we see in the table above, the one-day offer gave these publishers a glimpse of the true opportunity that lies beyond paid downloads.
And yet, all five publishers reversed their pricing back to paid-installs, and after doing so, three out of five (except for Super Sharp and Bridge Constructor, which were the strongest performers out of the five) saw their download rates plummet back to their previous levels.
The Case for IAPs and Video Ads
It would be interesting to see if the Leap Day experiment would prompt any of these apps to remove their price tags altogether. Tayasui Sketches+ was the only one to cut its price, from $4.99 to $3.99. Let’s consider the potential daily revenues under three possible scenarios for this app:
Case 1 — Paid downloads (the app’s current model). We took the app’s average daily downloads and multiplied them by $3, the asking price for the app.
Case 2 — In-app purchases. We took our estimates for category level iOS US ARPU (Average Revenue per User) for January, 2016.
Case 3 — In-app purchases + advertising revenues. We took the estimates presented above and added our own conservative estimate for video ad eCPMs in the US.
Case 3 is the clear winner, yielding up to 5 times higher daily revenues and 45 times more downloads than under the app’s current monetization strategy. Of course, many factors must have come into play in Tayasui.com’s decision on how to monetize their app, which are not part of this analysis.
Offering paid apps as free downloads for a limited time has become quite common in the past few years, in a way a departure from the first popular model of selling apps for 99 cents. Five years ago, paid apps made up for two thirds of the App Store’s inventory, and went for an average of $3.60 per download. Fast forward to 2016, and only 24% of all apps in the store are paid apps, and the average paid app sells for $1.13. As we pointed out time and again, smartphone users in mature markets have their app needs covered, meaning that crazy app download surges are reserved mostly for Supercell games and the like. For publishers putting their apps up for purchase, this could mean an increasingly shrinking opportunity to generate revenue.
There Are Many Ways of Staying Competitive
We estimate that free downloads accounted for 97% of all downloads in the US App Store in 2015; Install revenue made up only 14% of all US App Store revenues. These figures speak volumes about where the App Store trend is going. We’re not trying to say that paid installs are an app’s death sentence, but a data-based picture of the market is very necessary when choosing the right approach to monetization. If we want to see more indie apps flourish, we have to work towards providing the App Store ‘middle class’ the information it needs to stay competitive. If you haven’t heard of our free app store data for app publishers, well, here you go.
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