How to Monetize Your App (Part 1)

The process of developing an app isn’t always an easy one. It all begins with a great app idea, and a specific market that can be catered to by this app. However, an idea may only take you so far. At some point you will ask yourself: “How will I make money from this app?”. Coming up with an idea is one thing, but generating revenue from an app without a strategy is becoming more difficult — if not impossible. There are a few schools of thought to consider when deciding upon a monetization strategy. Today we will be covering some of the most popular choices from a broad perspective. Keep your eyes peeled for continuing parts of the “How to Monetize Your App” series, where we will take a deeper look into the facets and strategies involved in app monetization.

To begin, here are the current most popular methods of monetizing an app:

Premium Pricing

The premium pricing model is the most straight forward type of monetization. You set a price that the consumer pays to download your app. The premium pricing model is simple and easy to use, but tends to only perform well in specific market segments. With over 90% of the app market using freemium, or free-to-play models, there is limited success for premium pricing apps. There is still success to be had with premium pricing, but the market and situation has to be right for it to work. Some of these situations are:

The app is using a license of an already popular brand:

  • People are already familiar with the brand and its products, so releasing an app with such a license comes with a built in fan base. Game apps from Marvel or DC comic brands come to mind. Kim Kardashian: Hollywood, is another example of using an already established brand in the development and promotion of an app.

The app is in high demand with low supply:

  • The app provides a niche service or a unique experience. Before being popularized, sleep apps that awaked the user during periods outside REM sleep, like Sleep Cycle Alarm Clock, capitalized on being one of the only options on the market. Sleep Cycle Alarm Clock gained a large amount of downloads before competitors like SleepBot released similar, free apps.

Pay-Wall

The pay-wall, which could also be coined as the “trail account’ monetization strategy, involves giving access to a specific portion of the app to the user before having them pay for anything. The term comes from apps that stop a user from continuing to use an app once a certain condition is met; prompting them to pay for the app or exit it.

DropBox is one of the more elegant examples of a pay-wall. With DropBox, the user is allowed to use all necessary features with 2GB of space. The user must then pay DropBox for more space when (or if) they hit their cap, but they are not prevented from continuing to use the app even if they reach the storage limit.

Freemium

The most common type of monetization, freemium apps dominate the app marketplace on the most popular stores. Freemium (a.k.a. free-to-play), involves giving the user the entire working app for free. The user has full functionality of the app and is unrestricted in their use of it. To offset the costs of giving away the app for free, freemium apps adopt one, or multiple strategies to monetize their users, including:

In-App Purchases (IAPs)

The title says it all. This strategy incorporates the sale of virtual or real goods through an app. It can be a successful strategy if it is built into the core functionality of the app, and should be built around actions that the user will perform regularly. As a result, adding In-App Purchases near the end of development is not the path to success here. They should also provide value. For example, IAPs should:

  • Increase the user’s time and ability to use the app.
  • Provide the user with a permanent modification.
  • Enhance the functionality of the app.

In-app advertising

This strategy incorporates the use of banner, interstitial, and video ads to monetize the users time within the app. Proper implementation of in-app advertising is crucial in order to not drive users away. When a user feels that an app is too ad-heavy, they may uninstall it and look for alternative solutions. Above all else, ads should not impede a user’s ability to use the app.

For example, don’t have an interstitial ad appearing while a user is trying to use a function from the main screen. The proper way of incorporating an ad — like an interstitial or video ad — would be to have the ad appear during transitions between screens. This prevents the ad from interrupting a user’s actions, and can also serve as a quasi-loading screen between activities.

Banner ads are a different story, and their implementation requires testing from app to app. The goal is a proper fit that will not disrupt users use of an app.

Incentivized video ads

Similar to in-app advertising. The difference is the user has control over when, and if they watch an ad. The player is often incentivized to watch ads with some form of in-game currency, or rewards that can be used outside the app such as coupons, discounts, or other prizes. This means of advertising has become popular in the past year, as users are willing to embrace ads because they get a reward out of it. Video ads offer the highest eCPM amongst all forms of advertising giving you, the developer, the chance to earn higher revenue.

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This brings us to the end of Part 1 of How to Monetize Your App. The next parts will delve deeper into both the freemium and premium models, and which types of apps can best incorporate the different practices and tactics.

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