3T App Monetization Guide 2021: Techniques, Types & Tips
The measurement of the app’s success is not just how much the users fall in love with it. Making money with an app is yet another key point to measure if you want to know if an app is successful or not. To make it simple, monetization is a way how the developers and the team can earn money from an app on a user basis. There are a lot of strategies to achieve it, including well-known ones like paid apps, in-app purchases, advertising, and so on.
The guide is exactly what you need regardless of the goals you have — it will be helpful for the ones who want to monetize the product for the first time and for the ones who want to improve and optimize the monetization strategy. This guide was created to help to figure out which monetization strategy or, perhaps, their combination, would be the best option for your app.
What You’ll Learn About In-App Monetization
- Paid Apps, or so-called pay-to-download apps.
- In-App Advertising Revenue Model and its benefits
The way In-App Advertising Works
Ad Formats for Mobile Apps
- In-App Purchases and the strategies worth having a look at
- A Subscription-Based Revenue Modeland when to use it
#1. Paid Apps
This approach is the oldest and the most straightforward one. Everything is pretty simple — pay a sum of money to download an app. That’s it. So the owner can just set a price and collect the money. Of course only after the app store takes its cut.
In the very beginning, when the iOS App Store was young, apps like that were in majority. The reason is simple — back then there was no way to properly monetize apps with ads or in-app purchases. As time went by, the users’ expectations changed, and nowadays paid apps are something very rare. Funny thing, but most likely your target audience has never seen or used such an app. The reason is that we all got used to free apps, implementing another monetization strategy. Under these circumstances, such a strategy when the price is charged just once can be a barrier to growth.
The only exception is the case when the app is a thing of value for the customers. Otherwise, the product will have issues with achieving growth.
One of the best examples is Super Mario Run. Nintendo released the game for just $9.99 on mobile devices and was stunned because the game had hit $60 million in revenues. At the same time, the company stated once that they could have gained more profit with another kind of monetization strategy. According to Shigeru Miyamoto, Nintendo president, he could not say that the chosen strategy with the fixed price had become a real success. Still, it will be pushed in the future until it becomes entrenched. It will be done to ensure that the game will be developed in a comfortable environment. The company plans to focus on bringing games to the widest range of people possible, so the business will boost as well.
However, users feel uncomfortable when it comes to paying for an app upfront. Does it mean that this strategy does not work? Of course, not. It can still bring profit, and the key here is to set a reasonable price, adjusting accordingly. And, of course, provide value to the customers.
To make the paid app strategy successful the first thing to be done is a proper competitor analysis to determine the reasonable starting price for the app in the category you work in. keep in mind that the prices are not static, they change according to the situation in the market. The deeper you dig into app download analytics, the easier it will be to optimize the starting price, setting the price people would be willing to pay and at the same time, the cost would correspond to your revenue goals.
#2. In-App Advertising
Nowadays if you ask which strategy is the most popular, the answer will be in-app advertising. There are a couple of the reasons and we will have a closer look at the most important ones.
- It’s easy to pick the right format. In other words, in-app advertising is versatile. The format can be adjusted to the users’ experience to get the best profit.
- People agree to see ads in the apps because it means that the apps will remain free and everyone understands them. The audience can be scaled as well because there’s no need to pay to use an app and start enjoying it.
- The apps can be targeted to specific layers of customers. It means that the stakeholders will be willing to pay for the ads, targeted precisely to the potential customers.
- As an app publisher, you still have control over monetization. It’s possible to blacklist this or that type of ad, to set a floor price, and so on.
These reasons are the key factor of in-app ads’ success. To make it simple and more obvious, just imagine that today there’s more money poured into in-app ads than on TV ads. According to the analytics, by 2022 in-app ads will dominate the market completely, literally crashing TV, print, desktop, and radio combined. The 2019 figures show that mobile ad spending was $225 billion. And the figures continue growing, which opens unreal possibilities for in-app ads.
How In-App Advertising Works
The purchase process in most cases is 100% automated and in-app advertising is transacted programmatically.
Demand-side platforms, or DSP for short, bid on the available spots within the app. They work on behalf of the brands they have contracts with.
In most cases in-app advertising is transacted programmatically, meaning that the technology fully automates the purchase process. These actions do not involve human factors and occur instantly. The top bidder wins the ad spot in the app. There is a possibility to make direct deals of open deals seem to be not the best option for you. Publisher and advertiser or a couple of pre-selected advertisers can work on a one-to-one basis as well. Let’s have a closer look at the way open deals work under the hood.
Ad Formats
As we have mentioned before, the biggest benefit in-app provides is a huge variety of available formats. They can be mixed or chosen separately. It all depends on the goals you set. But keep in mind that there always should be a balance between the user experience and revenue.
But still, what strategy is the best? Technically, there’s no “best” strategy. The success of the chosen strategy depends on various factors, mostly on the app itself and the revenue goals having been determined. For example, native ads are effective and have immense potential for revenue-generating, but are absolutely useless for certain app categories. Video format, being called the most promising, works only when the users are highly engaged in the app, for example, in the case of gaming apps. The same format’s efficiency will be close to zero if implemented into a music app, for example, or any other app, not involving constant active interaction.
One of the most versatile options is banner ads. But it is not just the most versatile option, it is the most popular one. Whatever app you open, there’s always a banner ad or two. The key to success is simple — they are simple, reliable, and work fine across all the categories. Size, color, and place can be chosen and adjusted to fit the app in the best possible way. But what is the downside, one may ask. And here it is — the eCPMs are as a rule lower in comparison to the rest of the formats.
What is eCPM?
The effective cost per mille (eCPM) is the amount earned per 1,000 ad requests. This measurement can be used to show how valuable certain ad formats, audiences, and other key performance indicators are.
Let’s say, video ads generate higher eCPMs and are very flexible. Year after year more and more money is funneled into this format. The thing is, according to the statistics people are becoming more and more engaged in video watching. US video ad spending reached almost $32 billion alone in 2019 — growing 35% from the year before. An important point here is that most of the time was spent on mobile devices. The downside is that in spite of the fact that video ads generate huge revenue, they can’t be implemented in any app category and for some, they are simply unreasonable.
Rewarded video wins out
A survey of app publishers around the world asked what their most successful monetization method was.
The clear winner was rewarded video with 75% of the results. This ad format makes a lot of sense for monetizing games. Players are gifted an extra life, bonus item, or hint for watching a rewarded video ad. Everyone wins with this format. The players are happy for the reward, the advertisers are satisfied to reach an engaged viewer, and the app publishers are thrilled with the high earning potential.
There’s one thing that is critical if you want to score your monetization goals regardless of the ad format to be chosen — continued analysis and optimization. Yes, it’s a time and money-consuming activity — to test new ads and placements, but in the long run, it helps to increase revenues. However, if you conduct testing on a general basis, sooner or later you receive detailed statistics on how different formats impact the revenue.
#3. In-App Purchases
As we have mentioned, charging an upfront price is just one way to monetize an app, however, it is one of the least effective ones. Still, there’s a way to charge users in the future. It can be done with in-app purchases. This strategy turned out to be very effective for mobile games. And, surprisingly, for dating apps. If this strategy is implemented in a proper way, both sides win. The users get additional bonuses and their experience improves, while the owners get regular income.
The apps, using this strategy, are called “freemium” and it is a new standard in app stores. Users are involved in the game, download the app for free, and still can play normally without donating and purchases but in case they feel hooked on the gameplay and want more progress- here it is, in-app purchases of all kinds. This kind of monetization strategy turns out to be effective and the figures show that in-app purchases ha hit $71 billion in 2020 and in 2021 this amount is expected to double.
Types of In-App Purchases
The downside is that you can’t charge everyone. Most people will be happy to play without any additional benefits and purchases. If the app’s base is large enough, it’s not an issue. But it is still a risk, and app publishers should be aware of it.
Another risk that is not that obvious but has to be mentioned here is that so-called “loot boxes, a popular way of generating revenue, can be considered as a kind of gambling by the legislators. For example, Belgium and the Netherlands have already cracked down on loot boxes. And it is just a matter of time when the rest of the European countries follow the example.
Despite the risks, for some app categories monetization strategy including in-app purchases can make sense. The thing to be considered and the key point here is a balance between positive user experience and the amount people will be willing to pour into the app.
#4. Subscriptions
Subscription is close to in-app purchases and is sometimes called the subset of it. In most cases, in-app purchases are consumable like extra lives, items, and so on, subscription brings a steady revenue. The publisher picks the strategy (monthly or yearly) and the money flows to the pocket once customers are acquired.
But how to acquire these customers, loyal enough to play month after month for an opportunity to play? The answer is simple — to offer customers some value. If done right, providing some additional features and bonus content behind the subscription generates constant and stable revenue. Let’s take Spotify. Being a freemium app at the very beginning, the company managed to become valued million dollars. Spotify is a rare unicorn, one might say, when it comes to such success. However, the app can use this strategy and see where it comes regardless of the size and even the category. Just an example: loyal users can be willing to pay just to remove in-app ads from the screen. Less loyal ones, perhaps, won’t pay just for removing the ads and will be monetized in this way further.
To understand if this strategy works for your app and if it can help to achieve your monetization goals, it’s very important to know your target audience to be able to provide people with the value they will appreciate. So If you want to make your strategy successful, just find the balance between the thing of significant value and the price.
Choosing the Right App Monetization Model
But still, how to determine which monetization strategy will work best for your app? The truth is, it depends. Most often it is the best solution to combine the strategies mentioned above. For a game app, for example, combining in-app advertising and in-app purchases work best. For apps in the lifestyle category premium subscription with additional features to be unlocked on its own or a possibility to get an add-free version after subscription can also work.
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