How to Monetize your App without disrupting Customer Experience
Ever wonder why most of the apps on app stores (Google Play or Apple App store) are free? Do these companies or apps make money and if yes then how? Welcome to the realm of app monetization.
What is App Monetization? — App Monetization simply refers to the act of generating cash streams from your app. Or put even more plainly making money from your app.
There are several different ways to achieve this outcome. Based on your app’s functionality and your target audience, different methods may be suitable for monetization. Let’s examine these different models that you can use to monetize your app along with relevant examples.
Monetization Models
1. In-App Purchases — This monetization model involves purchasing goods or services inside the mobile app and is most suited for ecommerce platforms. This model is not limited to shopping sites like Flipkart, Amazon, but other apps like hotel/flight booking apps (MakeMyTrip, Trivago), recharge/utility bill payment apps (Paytm, Freecharge), movie ticketing apps (BookMyShow, PVR), taxi aggregator apps (Uber, Ola, Mobike), etc. also utilize this monetization model.
2. In-App Advertising — This is the most widely used monetization model. There are a variety of ads you can choose from — Interstitial ads, Banner ads, Video ads, Native ads, Text ads. Having a loyal user base and a robust strategy to help them engage with ads can be highly successful. Rewarding users for watching full ads with extra lives, coins, new characters, costumes, races, and other in-game features is a win-win situation for everyone. By 2020, in-app ads will net more than $50 billion of revenue a year. The 3 types of cost model for ads are CPM (Cost per Thousand Impressions), CPC (Cost per Click) and CPA (Cost per Acquisition/Action). This model can be highly effective if you collect customer data as then you can target your ads as per the clients’ desired audience. While implementing this model you should make sure that customer experience is not disrupted. Some examples are uTorrent, CPU-Z, Speedtest, etc.
3. App Install fees — This might not be a good model for many app developers but for app developers in niche markets such as health & wellness, fitness and productivity (managing tasks, personal finances, maintaining a fitness schedule) it might be a viable option depending on the app’s selling proposition. The problem is an app store won’t market your app in a way for customers to pay for it upfront. You will have to be very aggressive when it comes to marketing paid apps. You should use your website and all other points of contact with the users for your marketing activities. This monetization model is successful for a very limited number of apps and so unless you are very sure about this model, don’t go for it. Some examples are Pocket Casts, Tasker, Poweramp, etc.
4. Freemium model — In the freemium model basic features of the app are provided for free, but a premium will be charged for additional advanced features. For example, Evernote comes in 3 variants — a basic version that is free, and a Plus and a Premium version both of which are paid and has advanced features such as “search for text in docs”, “scanning and digitizing business cards”, “customer support via live chat”, etc. Similarly, LinkedIn also offers basic service for free to normal users but also has specialized paid services for sales people and recruiters.
5. Subscription model — In this model you can charge the customers a weekly/monthly/yearly fee depending on the offerings and the type of app. One of the most famous example of subscription model-based app is Netflix. Netflix offers users 3 streaming plans — Basic plan which lets users watch Netflix’s content in Standard Definition format, a Standard plan which lets users stream Netflix on 2 devices at the same time in High definition and a Premium plan which lets users stream Netflix simultaneously on 4 devices in high definition and ultra-high definition when available. It is a good idea to give a free trial period to customers for subscription model-based apps. Netflix also offers the first month of its services free of cost to all users. This way customers can try out Netflix and see for themselves if the service (content) being offered is worth the cost. The challenging part for this model is that you have to keep adding new content to your app else customer engagement will drop down. Similarly, news apps such as New York Times offers a limited number of articles free per month post which you have to subscribe for full access.
6. Ads/No Ads model (Sub-category of Freemium model) — You can give the users the option to get rid of all the ads on the app and experience a seamless ad-free experience but for a small price, by having a separate ad free version of the app. One version of the app will generate revenue from the advertisements while the ad free version will generate revenue from direct downloads.
7. Licensing App code — Whenever app developers develop their code from the ground up for a novel app and the app becomes successful, the code can be licensed to other app developers for a suitable price or profit percentage, for example Temple Run and Subway Surfers are experts in the running games’ app category. Other gaming apps in similar segment can utilize these companies’ code in exchange for a royalty or profit margin, thus benefitting both the apps.
8. In App Currency — An intuitive way to monetize your app is to offer in app currency such as coins for real money. This monetization model works surprisingly well for gaming and casino apps. To unlock new stages, levels, themes, cars or characters, users require coins or in-app currency. App stores usually take a cut of the revenue for virtual goods purchased inside an app. You can offer the in-app currency not just for purchase but also as a reward for watching complete video ads. Apps that employ this model are Clash of Clans, Subway Surfers, etc.
9. Sponsorship (Incentivized Advertising) — In this model you can form a partnership with an advertiser who rewards the app’s users for completing certain in-app tasks. You can take a share of the revenue from redeemed awards. RunKeeper was one of the first apps to adopt this model. They used to give users sponsored rewards for reaching certain app milestones like running 10 kilometers in a fixed time.
10. Launch Sponsor — Sponsoring the launch of an app can give the sponsors exclusive access to app’s user base for an initial short duration. As a launch sponsor, one can also benefit from the extensive marketing activities carried out to promote app downloads. All marketing activities should have sponsors logo or other branding materials. This is a relatively new app monetization method.
At the end of the day every mobile app is unique, caters to a different audience and has a different evolution path and thus determining the optimum mix of monetization models for your app is entirely upon you. One thing to be always kept in mind while figuring out your app’s monetization model is to never disrupt or compromise on customers’ experience otherwise the whole purpose of building an app gets defeated, forget about monetizing it! Always stay focused on customer experience and engagement, the only proven way to retain your app’s customers.
